Related Post: The Advantages of Lender Paid Closing Costs

Negotiating for “Seller Paid” Closing Costs!Many prospective buyers have a down payment but are “short” dollars for closing costs which typically are 2 % of the loan amount.

Those costs include: “hard costs” (3rd party fees i.e. as title, escrow appraisal, pro-rations, impounds for taxes/ insurance and 1 months house payment; but there are viable options that can cover these entire costs.

Negotiating with the Seller

Finesse, preparation and timing is the key in extracting concessions from the seller.

Every seller always wants full price, but they also want a “clean closing’, so they can move on easily to the next phase of their life. A “clean closing translates into an “on time-no drama”, type of closing. 

But when a buyer is asking for closing costs, often (in the seller’s mind) may think a buyer’s financial position is weak and may even a lower offer from another buyer (with  a larger down) assuming the 2nd buyer has a better chance of closing on time.

With preparation, the price issue can be overcome by having a buyer’s loan completely “DU”underwritten (not “pre-qualed”) and present the findings of the “DU” (desktop underwriting) along with the offer. Essentially a “DU” loan approval removes all the buyer’s loan contingencies and assures the seller the loan will go smoothly.

Click here for a an example of a DU Loan Approval

A “DU” is a computerized loan approval (Fannie – FHA –VA) which indicates the buyers has completed their entire loan package and (when approved) has been assigned a loan “case number” which virtually guarantees there will be no last-minute lender/ buyer surprises before COE!

Raising the Sales Price to Cover Closing Costs

A buyer needs a motivated seller who wants to sell their home quicklyMotivated sellers are usually sellers whose home has been on the market a long period of time, fell out of escrow, or is vacant.

Raising the “sales price to cover closing costs” is a good idea; but the appraisal MUST be able to cover the higher value of the offer or the transaction is at risk for falling out of escrow!

If that happens, your buyers may begin souring on your services, moving on to another agent, or sitting on the sidelines costing you (and your MLO) a lifetime of referrals and repeat business.

Finesse: We only get one shot at getting the offer right! Once an RPA has been written, accepted and appraisal been completed, there’s no going back and raising the sales price or doing an escrow amendment to include the closing costs; because the underwriter has a clear paper trail of what has transpired in the transaction process.

Related Post: FraudGuard 

Offering the Seller a “Rent Back”

“Timing is everything” so if a buyer is flexible (i.e. currently renting) another option is to include in the sales offer is a “rent back”  to the seller ( for up to 2 months) so the sellers have flexibility to get moved out & find the next home and avoid moving twice.

Typically the rent  is equal to the buyers house payment (P.I.T.I.) and the monies from the rent back can be used to cover the buyer’s closing costs (but cannot be counted as “down payment money”).

Agents Contributions

If a buyer is a family member or a close friend; agents often rebate some or all of  the sales commission for closing costs. 

It’s best (for income tax purposes) for (concession) monies to go directly to the buyer thru the formal escrow process.

Otherwise the agent will get a “1099” for the sales commissions, then have to deduct the “rebate” from their Schedule “C” filing tax filing.

Post Dodd-Frank, agent rebates (to buyers) are considered “inducements”, hence the IRS may disallow the deduction for the rebate, and the agent will get stuck for the tax liability for thousand dollars.

So the offer must be structured properly; the money most come directly from SELLER to the BUYER (not from either agent).

Typically the seller simply reduces the buyers agent’s commission pays a portion of closing costs proportionately in return.

Editor’s Note: Even when agents buy a home for their own use, the agent’s commission must go to closing costs (avoiding any income tax liability) OR the agent can simply have their broker write up the transaction & work out any details later.

Shopping 3rd Party Services

It’s a virtual certainty the listing agent is going to want to control the choice of “title and escrow”; but don’t just give in and let the listing agent’s escrow charge inflated fees!

Just like buyers shop lenders, agents should shop around for their buyers, escrow & title fees BEFORE an offer IS EVEN WRITTEN

For a quick online fee quote for both services click here: EntitledDirect.com

Escrow fees (like lenders) vary widely.  As a buyer’s agent, you simply include the phrase “sellers choice of escrow and title to match any written fee estimate from buyer’s agent” to prevent your buyers from overpaying!

You compare costs when escrow is opened by simply asking for an estimatedHUD 1” listing all title and escrow fees, to verify the fees match & the contract is being met.

The longer you wait the more likely it is your buyer may overpay!

By saving your buyers hundreds of dollars in closing costs you’ll earn their trust and their referrals.

Daniel Dobbs (.org)
Managing Broker
Mutual Home Mortgage
500 S. Kraemer #165
Brea, Ca. 92821
Cell: 949 250-3981

Dandobbs6@gmail.com
DRE # 00986886 …..NMLS# 307631

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