Sellers paying closing costs is a good negotiation tactic. The home sale can be faster and you can even get a better offer. But there are a few disadvantages of seller paying closing costs.
There is a greater chance though, that the purchase might fall through. As the buyer has invested less stake in the transaction.
Most sellers wish to cover the closing costs for buyers to attract more offers. However, with a flat fee MLS listing service like Houzeo, you can save on more than just the closing costs.
🔑 Key Points
- Buyer Becomes an Added Expense: Sellers has to pay 6% to 10% of purchase price in closing costs! It includes agent commission, transfer tax and more. When you add buyer closing costs to that it just becomes a burden.
- Breakdown of Closing Costs: If you agree to cover both closing costs, you pay a total of 15% of the home sale price. That can be further divided as 10% seller closing costs and 5% buyer closing costs.
- Drawbacks for Buyers: Buyers paying closing costs end up with a large down payment and higher purchasing price. Closing costs cannot be included in the mortgage loans and buyers end up paying out of their own pockets.
- How Houzeo Helps? Sellers who list on the MLS with a flat fee company like Houzeo are saving on more than just closing costs.
3 Disadvantages of Sellers Who Pay Closing Costs
If you are a seller thinking of covering buyer’s closing costs, here are 3 disadvantages you should be aware of:
1. Your Profit Could be Less
If you cover closing costs, you will have to deduct some expenses from the final amount you receive after you sell your home.
Let’s say your home sells for $432,000. When you agree to pay 15% of both buyer and seller closing costs. Ultimately you will pay a hefty sum of $64,800.
As a seller, you should avoid these extra expenses.
2. You May Have to Pay Higher Closing Costs
The higher the home sale price, the higher will be the closing costs. That could be disadvantageous for the sellers who are covering buyers’ closing costs.
If your listing is worth $400,000, you may have to pay $60,000 in closing costs. Out of which you pay $40,000 as seller closing costs, and an additional $20,000 as buyer closing costs. This is a heavy sum to pay as an extra charge.
3. It Creates Appraisal Challenges for Buyers
If the listing price is increased to include the closing costs, the buyer may face appraisal issues. If the home appraiser assigns a lower value for the property, there may be difficulty in gathering additional funds.
As a result, the selling process may take longer time than expected.
What Happens if the Buyer Pays Closing Costs?
Closing costs are an additional financial liability for the buyer. Here are some disadvantages of buyer paying closing costs:
- The Buyer Faces Financial Burden: Buyer closing costs typically range from 2% to 5% of the final purchase price. This amounts to thousands of dollars that the buyer has to make arrangements for quickly.
- The Down Payment is Impacted: The closing costs will reduce a significant amount from the down payment. Additionally, with lower down payments the monthly mortgage payments increase. Higher mortgage payments can be financially stressful for the buyer in the long run.
- The Buyer’s Cash Reserves Get Reduced: The down payment and closing costs together may leave the buyer with insufficient cash reserves. This may make it difficult to make any necessary repairs to the property. The buyer could also be left high and dry in case of sudden emergencies.
» Can Closing Costs Be Included In a Loan? Tips to roll closing costs in a loan!
Reasons Why Sellers Pay the Closing Costs of the Buyer
There are several reasons why seller concessions are provided, here are some:
- You Attract More Buyers: A seller that covers closing costs stands out in the buyer’s market and attracts more offers. It reduces the buyer’s financial stress and could improve the appeal of your listing.
- You Get to Sell Fast: When the burden of closing costs are excluded the sale will be quicker. The buyer can speed up the other processes with less worry.
- You Lessen the Buyer’s Financial Burden: A buyer may feel overburdened with down payments, and other expenses. You can help them to pay the closing costs. This reduces the chance of the buyer falling under financial stress.
- You Boost Your Negotiation Power: If you cover buyer closing costs, you can stay firm on a higher listing price. In this way, you can boost your negotiation power.
How Can Sellers Handle Closing Costs Efficiently?
You can skip paying the closing costs altogether by selling to cash home buyers. However, if you prefer the traditional sale process you can always price the home higher.
You can effectively roll the closing costs into the mortgage loan. This can help avoid paying out of both your pockets.
For example, if you want to list your house for $270,000. You can agree to cover the closing costs of the buyer and list it at $280,000. This way you raise the price of the house to cover the closing cost.
Most buyers would rather pay a higher mortgage and deal with additional costs. A few extra thousand dollars make no difference to them.
Closing costs are the last hassle in a sale. Both buyer and seller have to pay them, sometimes the seller covers it entirely.
It is easier to incorporate the costs into the mortgage. In light of this, the seller ought to be amenable to paying the expenses.
However, you can completely avoid the charges with flat-rate MLS listing services like Houzeo. You can save thousands of dollars just by avoiding the agent’s commission.
Eager to Know More About Houzeo?
Wanna save on paying closing costs from your home sale? We’ve got you covered. See how Houzeo, one of the best For Sale By Owner websites, can help you from paying closing costs!
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Frequently Asked Questions
1. What if the seller won't pay closing costs?
If the seller won't pay closing costs, then the buyer has to pay them. In such a situation, the buyer may negotiate the a lower purchase price for the property.
2. Who pays closing costs?
The seller and buyer has to pay their own closing costs. However, for buyers' closing costs, the seller may agree to cover the cost as per their convenience.
3. How much should you expect to pay as closing costs?
The final closing cost amount depends on how the negotiation goes between buyers and the sellers. You can get an estimate of how much you need to pay with a closing cost calculator.
4. Do buyers pay closing costs?
Both sellers and buyers pay closing costs. However, in some instances, buyers can offer to cover the closing costs as a tactic to settle for a lower home purchase price.
5. How to get seller to pay closing costs?
When you want the seller to pay closing costs avoid making any other demands like that might make the deal fall through.
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