Selling a house - Buyer offers to raise price if I pay closing costs. Anything I should be concerned about?
September 23, 2010 11:06 AM   Subscribe

Selling a house - Buyer offers to raise price if I pay closing costs. Anything I should be concerned about?

You're not my lawyer (he's out of town), tax specialist, or Realtor.

Buyer was originally going to pay closing costs. Now they want to raise the purchase price by the amount of closing costs and have me pay closing costs.

I've had the house 5 years and am selling it for less than I bought it for.

Anything I should be thinking about?
posted by sisquoc15 to Home & Garden (17 answers total)
 
Well, the realtor's commissions are based on the selling price. Have you run the numbers? Are you sure the house has appraised for the higher potential selling price?
posted by leahwrenn at 11:12 AM on September 23, 2010


In New York, anyway, I believe this is called "seller's concession." It allows the buyer to roll the closing costs into the mortgage, so he or she has less cash to come up with at the closing. I believe this is pretty common.
posted by Buffaload at 11:19 AM on September 23, 2010 [6 favorites]


Assuming the loan value will sustain it, the buyer is getting a higher loan and a higher basis against a future capital gains tax. The key here (as well as the commission issue) is to be sure you have a handle on all of the closing costs before you agree to a final price so you don't get any surprises.
posted by Old Geezer at 11:20 AM on September 23, 2010


They are short $$$ for the price you are asking and can't make closing costs; so they are getting the mortgage to cover these instead, maybe on the advice of the realtor. Do you want to reveal how much the closing costs involved are? They may impact the appraisal price but I am assuming not.
posted by carter at 11:22 AM on September 23, 2010


I'm not sure about the raising the price after the fact to compensate for closing costs, but it is typical for the seller to cover a portion of the closing costs, so I suspect that houses are often priced on the market expecting this possibility. We bought a place recently, and we asked for $6000 towards closing costs, which we received.
posted by SpacemanStix at 11:24 AM on September 23, 2010


Most likely, they just want to be able to roll closing costs into their financing, rather than having to bring cash to the table on the day of closing. As leahwren said, one way this might impact you is that you will have to bring, say, $3000 for closing costs but the realtors' 6 or 7% will be deducted from the extra $3000 they finance instead, so there's a modest potential cost there for you. Otherwise I can't think of any dire consequences for you in this scenario. I'm no expect, but in my life I've bought 4 houses and sold 3, and this kind of thing has been pretty common.
posted by not that girl at 11:24 AM on September 23, 2010 [3 favorites]


To expand on my answer above, make sure to clearly define what is, and is not, a "closing cost." If the lender requires a prepaid mortgage insurance premium is this a "closing cost." Are tax prorations that might accrue to you a "closing cost?" Don't agree to a loosely descriptive term instead of a specific list of the costs you are agreeing to in exchange for a one-time increase in the price.
posted by Old Geezer at 11:25 AM on September 23, 2010


Others can point to specific worries. But this is often done because it folds the closing costs into the mortgage total. The buyer pays more in the long run, but softens the bleeding of cash that comes with purchasing a new home.
posted by barnone at 11:26 AM on September 23, 2010


Yeah, they're cash-pooor and don't have the liquid dollars. As not_that_girl says, they need to finance this.

Remember those 80/20 deals where people bought more house than they could afford by getting two loans? Yeah, those. *shrug* As long as the bank goes along with it, they are the ones left holding the bag.

Your commission shouldn't be changed much by this, and I can't think how it would impact you otherwise. (Changed sales tax? Maybe a few bucks here and there.)
posted by wenestvedt at 11:27 AM on September 23, 2010


Not a big deal. I don't think it necessarily means they're cash-poor (and really, who cares if they are if the house sells), but in this economy it's smarter to try and keep as much cash in your pocket as possible by rolling in some one-time charges into the mortgage.
posted by rhizome at 11:46 AM on September 23, 2010


Response by poster: Thanks all. I'll be requesting a specific list of estimated closing costs and a provision that the buyer pays costs beyond that estimate. Hadn't thought of the commission issue either.
posted by sisquoc15 at 11:48 AM on September 23, 2010


Definitely define and cap the amount of "closing costs" you'd be covering. I have a friend selling a house and while she has a cap, the buyer wants to use part of those funds to pay off the mortgage on their current (under water) house. Definitely not what you would imagine a "closing cost" to be.
posted by Sukey Says at 11:49 AM on September 23, 2010


Also keep in mind that the increased cost will raise not only the broker's fee, but your taxes, so whatever increase you suggest should wrap the tax and fee differential into it.

This very thing happened to me a few years ago with an offer that included a good chunk of money for the buyers to do some expansions to the house. We had to renegotiate the increased price so that it would account for the tax and broker's fee increases I'd be paying.
posted by yellowcandy at 12:06 PM on September 23, 2010 [1 favorite]


You could also try to negotiate to raise the price by a little more than the full amount of the closing costs, on top of the commission (and taxes, if any, but you're probably not paying taxes on the sale of your home).

Covering closing costs is pretty cost-neutral for you, other than the commission, because you'll be immediately getting that money back in cash. However, they want you to front extra cash basically as a favor to them, so they have to pay less up front. You're not in a great bargaining position, but they are asking you to do something that only benefits them, so you do have a little leverage. Personally, I would offer to pay closing costs in exchange for raising the price by (amount of closing costs + $500 or so). If they don't go for it, no sweat, but it might be worth a try.
posted by chickenmagazine at 12:44 PM on September 23, 2010 [1 favorite]


Has an appraisal been completed? Is the appraised value greater than the new higher sales price? Given the market conditions, appraisals have been an issue lately because appraisals are based on comparable house sales prices in the last few months in your neighborhood. Also, our mortgage broker told us that they are no longer allowed to pick appraisers like they were used to and "adjust" the price (--> practices like those led to the huge real estate bubble couple of years back). We had to pass on a house because the appraised value was lower than the agreed sales price (which means we would've had to bring our down payment PLUS the difference between appraised price and sales price to closing).

If you are confident that the appraisal would not be an issue, this sort of thing is not a big deal otherwise. Of course, like everyone else said above, do the math on commission and tax before agreeing to anything.
posted by thewildgreen at 2:50 PM on September 23, 2010


This is totally normal in my experience. Just make sure you don't agree to some nebulous, open ended "closing costs" without either defining what exactly "closing costs" are or limiting it to a specific dollar amount. If you are asking for $250,000 and they are offering $260,000 and you pay "up to $10,000" in closing costs, you'll be just fine. You get (approximately) the same money either way.
posted by wierdo at 3:21 PM on September 23, 2010


Please ask your lawyer whether this is kosher. The effect of this transaction is to shift 80% of the closing costs onto the mortgage lender with a 0% increase in the value of the mortgage lenders' collateral. Quite possibly wrong for the borrower/buyer, and maybe even wrong for you to be a part of as well.
posted by MattD at 9:32 PM on September 23, 2010


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