I’m asked by a lot of buyers about closing costs and whether it’s something to ask for in the offer. First, closing costs should not be treated as a magic rebate coupon that gives you an instant discount on the purchase price of the home. If you request closing costs then you’ll pay for them in the purchase price of the home.
Sometimes you have an “expert” friend that reminds you to “make sure you get the closing costs covered.” That friend will also take great joy in telling you, after your binding agreement date, how you missed out on the magic rebate of closing costs. To some extent the closing cost issue becomes a shell game. The sellers are only concerned with the check they receive at closing.
Generally, the sellers aren’t stupid and are going to look at your offer on a net basis (mortgage owed – purchase price – closing costs). If you’re offering $400,000 for the home and want $8,000 in closing costs, then it’s similar to an offer of $392,000.
I’ve had the following scenario happen a few times. Buyer writes an offer for $500,000 no closing costs. Seller counters the offer with $475,000. Then Buyer wants me to counter the seller’s $475,000 counter with a $485,000 offer and $15,000 in closing costs. You would be surprised at the difficulty I have explaining to the buyer that his two offers are exactly the same. This is the shell game aspect.
The real purpose of asking for real estate closing costs is when the buyers are short on cash and are essentially financing the costs by transferring them to the mortgage. If the seller would have agreed to a $500,000 purchase price, then agreeing to a $510,000 purchase price with $10,000 in closing costs leaves neither side better off, but the purchase price has been increased and in-turn the mortgage. That’s how the closing costs are transferred to a tax deductible, low interest mortgage.
The more expensive the home, the less likely they buyer is going to ask for closing costs in the offer. It’s considered a “cleaner” offer to simply negotiate on price and not introduce another unnecessary variable into the negotiations.
The Georgia Association of Realtors standard Purchase and Sale Agreement has an option to ask for a contribution toward closing costs. Some buyers will initially request that I ask for all closing costs to be paid. The standard contract does not allow for “all closing costs”, because it’s simply too open-ended. You’ll need to estimate your closing costs and then determine how much you want the seller to contribute toward that estimation. I developed a simple spreadsheet that will help you estimate your closely costs. If you’re in a situation where having the majority of your closing costs paid is mandatory, then you better speak with a mortgage representative.
I don’t have a problem with closing costs, but view them for what they are, a tool for financing some out-of-pocket costs.
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We declined to complete a refinance with a credit union based on their instruction for us to try with our current mortgage company for government money.
We were several weeks into the process and had a mandatory application fee. The creidt report and appraisal was ordered by the credit union. Both came back with good standing and value.
After their terms changed, the representative offered to end the process so that we could possibly get a better deal with our current mortgage company.
Based on their instruction, we decided to cancel the process. Now the credit union is attempting to get fees for the credit report, appraisal, flood and title search. We only received a copy of the credit score and appraisal.
Their goodfaith estimate clearly states that the fees on it are due at closing. We are not closing with them. Therefore, we didn’t see that we should be responsible for the costs other than their application fee.
The credit union agreed to remove the title and flood search fees. Although, they are expecting us to pay for the appraisal and credit score.
I have been awaiting for an email or telephone response for nearly one week for them to answer my questions. 1) Who owns the appraisal? 2) If it can be transferred to us if we are expected to pay? 3) Is this a valid document for us since we can’t use it outside of the credit union business?
Do you know what the Virgina State laws require for homeowner protection of closing costs with an agency that is not closing on the loan?
I’m sorry, I’m not familiar with VA state law.
Hi,
So if you could please help me to understand. I am planning to purchase a home and the asking price is $115,000. It was previously listed as $135,000 and it is a short sale. I am extremely low on funds and need any and all assistance I can possibly get. My mortgage lender as informed me of a MD loan that will benefit me in my situation, as I have no money down. My question is what would be a good offer? Is it good to say $120,000 and ask for closing help, which would be essentially financing the closing costs? Is that how that works?
Thank you,
Tish
I can’t tell you what offer to make per se, since I don’t know if the $115,000 is a good value or a premium asking price. That being said, you’re on the right track when it comes to closing costs.
As I mentioned in the post, the seller doesn’t really care whether they pay closing costs, all the seller is concerned with is the net amount. So a selling price of $115,000 or $120,000 and $5,000 in closing costs is the same thing to the seller. You need to speak with your mortgage lender and tell her to give you her best estimate of your closing costs. But, it you settle on $120,000, with $5,000 in closing costs, then you would be financing your closing costs.
You need to make sure to tell your agent, when he makes the offer, to relay to the buyer that closing costs are important, and if there is to be any negotiating, it needs to be on the selling price and not the closing costs.