Why Do Sellers Pay Closing Costs?March 30, 2021
Unless the seller is a family member or close friend, they aren’t going to pay the closing costs out of the goodness of their heart. It can be a rather significant amount of money considering they run anywhere from 3- to 5-percent of the home’s selling price. For a $300,000 home, that’s anywhere between $9,000 and $15,000.
So why are some sellers willing to pay the closing costs?
To Close Quickly
If one of the seller’s primary concerns is to close quickly so that they can move or for any other reason, they may be willing to cover the closing costs in order to do so. There’s an even better chance if they’ll still come out ahead and won’t be losing money out of the deal after determining their potential profits using a seller closing costs calculator.
Pretty much all sellers are looking for a qualified buyer who won’t cause any issues during the escrow period, such as threatening to pull out of the deal if there are problems discovered during the home inspection. If the buyer is willing to accept the home as it is without demanding that major repairs be made, it may be incentive enough for the seller to agree to a concession like this as it could be a small price in return for the assurance that there won’t be anything to hold up closing.
The Buyer is Willing to Pay a Higher Price
Most often, sellers pay closing costs because the buyer has agreed to pay a higher price for the home. For example, if the list price for the home is $400,000 and the buyers have figured 4 percent for closing costs, or $16,000, by offering $416,000 or more contingent on receiving a credit for the amount over $400K, the seller will end up with the same net amount of money. Rather than having to shell out that $16,000 in cash upfront, it would be part of the monthly mortgage payments.
Be aware that this doesn’t always work as the lender would, in this case, have to appraise the home at $416,000 or more. If there isn’t a provision for that in the purchase contract, the seller might end up being stuck paying a credit based on a higher sales price, getting less out of the deal than anticipated.
A Larger Pool of Buyers
If a seller is hoping to have a larger pool of buyers to choose from, in some cases may be because they’ve lived in the home for so long, they’ve become attached and picky about who moves in. Or, perhaps they’re close with the neighbors and are looking for that ideal fit for the community. They may offer to pay the buyer’s closing costs to help someone who is cash-strapped afford it. Buyers typically have to make a significant down payment, and if they’re short on cash, after that, it may be impossible to afford the closing costs at the time of purchase too. Therefore, sellers who are willing to pay those fees make it possible for the buyer who is perfect in every other way to purchase the property. It could also allow the buyer to keep more money in the bank to make improvements if the home doesn’t meet all of their necessary requirements.