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Negotiating for “Seller Paid” Closing Costs!
Home/Negotiating for “Seller Paid” Closing Costs!
Negotiating for “Seller Paid” Closing Costs!Daniel Dobbs2025-03-07T15:04:09-08:00
Many prospective buyers have a down payment but are “short” dollars for closing costs, typically 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 month’s house payment), but there are viable options that can cover these entire costs.
Negotiating with the Seller
Finesse, preparation, and timing are the keys to 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 asks for closing costs, the seller (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-qualified”) and presenting 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.
A “DU” is a computerized loan approval (Fannie – FHA –VA) which indicates the buyers have completed their entire loan package and (when approved) have 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 quickly! Motivated 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 and accepted, and an appraisal has 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.
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 buyer’s 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 through the formal escrow process.
Otherwise, the agent will get a “1099” for the sales commissions and then have to deduct the “rebate” from their Schedule “C” 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 be stuck with a thousand-dollar tax liability.
So, the offer must be appropriately structured. Most money will come directly from the SELLER to the BUYER (not from either agent).
Typically, the seller reduces the buyer’s agent’s commission and pays proportionately a portion of closing costs.
Editor’s Note: Even when agents buy a home for their own use, their commission must go to closing costs (avoiding any income tax liability).
Alternatively, the agent can have their broker write up the transaction and discuss any details later.
Shopping 3rd Party Services
It’s a virtual certainty that the listing agent will 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 include the phrase “seller’s 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 estimated “HUD 1” listing all title and escrow fees to verify that the fees match and that the contract is being met.
The longer you wait, the more likely it is that your buyer may overpay! By saving your buyers hundreds of dollars in closing costs, you’ll earn their trust and their referrals.
Copywrite © August, 2018 Daniel Dobbs
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