On websites and in conversations with Realtors the idea is often mentioned that the parties can negotiate as to who paid closing costs. But I don’t see what there is to negotiate. If the seller pays this is just equivalent to the buyer paying on a smaller price for the house. Either way you’re just negotiating a price-plus-closing cost. Who pays the closing is a meaningless detail, isn’t it?
not if you have limited down payment funds and you want to wrap the closing costs into your mortgage.
Closing costs can change right up until the day the deal closes – insurance rebates to the seller, loan escrows for the buyer, etc. Chances are they aren’t going to change much from the original estimate, but if you’re absolutely dependent on either paying or receiving $X, it’s good to know whose responsible for the variable.
That makes sense.
But just to be absolutely sure I’m not missing something about this, please verify that this is true:
Assuming closing costs are exactly $5000, and forgetting about practical questions about loans, an offer of $125000 is exactly the same, in terms of who ends up with how much money, as an offer of $130000-and-seller-pays-closing-costs. Right?
One closing cost that is always paid by the seller is the realtor’s commission, which is usually 6% of the sales price. So the seller accepting a higher price and paying costs actually ends up with a bit less - $300 less in your example.
This is basically correct. In the end, as the buyer, you are paying for everything – you are the only person bringing money to the transaction.
It matters because the selling price of the house is publicly available but closing costs aren’t. For instance, if a developer builds a new condo building, they want to see the first few units at a high price so as to convince later buyers of later units that this is a fair price. It’s better for the developer if the condo costs a high amount (but the seller effectively rebates some of that to the buyer by paying the closing costs) than if the condo sold for a lower amount. Other buyers will just see the sell price and not be aware of the closing costs rebate. And its better for you when you sale – “I bought this house last year for X so if you want to buy it from me now, you should pay more than X!” (and don’t tell them that you got a closing cost rebate).
Also, there’s all kinds of other reasons why you might want to shift the costs – for instance, in New York city there’s an additional tax paid on houses over 1 million dollar so you might want to pay more in closing costs in exchange for paying less in the official sale price. Or maybe you can’t qualify for a large mortgage so it’s better to shift some of that money to closing costs, etc.
Finally, as a matter of negotiation, it allows face-saving ways to back down from “I’m not paying a penny more than X!” threats. That way both sides can walk away thinking they got what they negotiated for.
Yes, you’re tecnically paying the exact same price either way; but it does sometimes matter for all kinds of reasons.