Should You (The Seller) Pay the Buyer’s Closing Costs?

Have you been trying to sell your home and potential buyers want YOU to pay their closing costs? How
dare they ask for that? Why can’t they pay for their own? After all, you probably did when you bought
your home. Here are a couple arguments for and against paying a buyer’s closing costs.

Why should you?

A lot of today’s buyers don’t have both closing costs and down payment. The ‘why’ doesn’t really
matter. Just know that today’s buyers are not as heavy in savings as buyers used to be. Statistically,
most Americans have almost no money in savings. The ones that are buying homes are usually better
off, but they tend to not have large savings accounts.

Minimum down payment is usually 3.5% of the purchase price. This works out to be around $14,000 or
more on the average home. Now we throw in $8,000 in closing costs and prepaids, you find that most
buyers in our area don’t have $22,000 in savings to make it work.

There are three types of buyers in our area.

1. Cash buyer. The dream buyer that is going to stroke a check and not ask for anything.
2. Large down payment. These are typically the ones that are selling a home and can move some
   equity over to the new home. They usually don’t need the help.
3. First time buyers. We have many more of these than you would think. And these are the ones
   that want to buy but are struggling to get started.

Now I know this is a generalization. We are just getting a groundwork of who the buyer is. Think of it
like this: if the sales were split evenly, would you be interested in losing 1/3 of your potential buyers?
Instead of just saying ‘NO’, let’s look at all offers with an open mind. This will net you the best possible
offer.

Pros

1. This will open up your buyer pool (Get more offers). As stated above, you can have the
   opportunity to get more offers.
2.  You can net more for your home. (Rate buydown). Paying for a rate buydown will help the buyer
   qualify for more. We have a blog on this if you want to read more.

Cons

1. You could net less for your home. The downside to the paying closing costs is you could get a
   low appraisal, and the buyer will want to renegotiate the sales price – and keep the closing costs
   credits. Want to learn more about your options if the appraisal comes in low?

I have had clients that refused to pay buyers closing costs, regardless of what they would net at the end.
Rather than just saying no, let me show you how to make it a win-win situation.

Raising the sales price to cover the closing costs. This is an effective way to help with closing costs, but
not give up on the sales price. As long as the buyer can afford the new payment, this is a great option.

There is a downside. You could get appraisal that’s lower than your new ask price. Then what happens
is the buyers want you to lower the price AND pay closing costs. This is the number one risk when you
pay a buyer’s closing costs.

Paying for an interest rate buydown is a great way to contribute a little. And they can qualify for more.
In most instances, you can net more for your sale rather than reduce the price as much.

Here is the important take away. You can negotiate better deals that are outside of the normal
negotiations. With a little creativity, you can turn what looks like a mediocre offer into a great win-win
for the buyer and the seller