covering buyer's closing costs
April 23, 2015 7:02 AM Subscribe
I am finally selling this long-suffering house, to a buyer with a VA loan. How mandatory is it that I cover her closing costs? She is moving from a state with way, way higher housing costs than this location; she loooves the house, and upped the asking price by $6K to beat out another offer within 5 days of listing. My agent was adamant that I agree to cover her closing costs, somewhat over $5K, because it's routine.
But now, the VA inspector has handed in a 2-page list of repairs, and my agent has not answered whether these are demands or, as titled, "requests." Only 2 of them are marked "safety issue." The others are interesting (e.g. unstick windows so that they open easily), and I understand (now) that the VA has higher standards than a conventional lender. Still waiting for an estimate on the whole list, but am confident that it will be several thousand dollars. My suggestion is that I cover the safety items, and that the balance of repair costs be deducted from my payment covering buyer's closing costs. (Apparently it is not legal for me to just write her a check (for say, $250) to cover whatever from the non-safety items.)
My understanding of the custom in question here is that it is meant to help out low-income or first-time buyers, who may have trouble coming up with cash. This buyer does not fit either category. When I bought the house I now live in, my buying agent had not even heard of this custom, and I had to convince her to ask for even half coverage. The inspector back then pointed out items that I should keep an eye on, but these were not made mandatory for the seller. My agent says "no problem, we'll just take it out of proceeds," but that is of course out of my pocket. I understand that buying agents are sensitive about greedy sellers, but is my suggestion unreasonable? I do not have much if any disposable income, and am using proceeds to pay off loans.
But now, the VA inspector has handed in a 2-page list of repairs, and my agent has not answered whether these are demands or, as titled, "requests." Only 2 of them are marked "safety issue." The others are interesting (e.g. unstick windows so that they open easily), and I understand (now) that the VA has higher standards than a conventional lender. Still waiting for an estimate on the whole list, but am confident that it will be several thousand dollars. My suggestion is that I cover the safety items, and that the balance of repair costs be deducted from my payment covering buyer's closing costs. (Apparently it is not legal for me to just write her a check (for say, $250) to cover whatever from the non-safety items.)
My understanding of the custom in question here is that it is meant to help out low-income or first-time buyers, who may have trouble coming up with cash. This buyer does not fit either category. When I bought the house I now live in, my buying agent had not even heard of this custom, and I had to convince her to ask for even half coverage. The inspector back then pointed out items that I should keep an eye on, but these were not made mandatory for the seller. My agent says "no problem, we'll just take it out of proceeds," but that is of course out of my pocket. I understand that buying agents are sensitive about greedy sellers, but is my suggestion unreasonable? I do not have much if any disposable income, and am using proceeds to pay off loans.
When I purchased my house (first time homebuyer), the offer was accepted for $X + $Y closing costs assistance, i.e. the loan was written for X+Y with Y of that being contributed by the seller directly to closing costs. As long as X+Y is less than the house is appraised for, for a non-VA loan at least that was no problem. Thus the understanding was from the offer that the I was paying $X for the house itself.
If I had come back with repair demands, then the seller would have remediated them from their own money before the sale was final. My house was sold as-is so I didn't do that.
It's a negotiation - the inspection offers another chance (in some jurisdictions) to reopen negotiation on key points like safety concerns. If you refuse and the offer was contingent on inspection (which they usually are per my realtor, although in NC there's a window where I could cancel it for any reason and just be out my earnest money), then they could walk away or continue negotiating.
posted by bookdragoness at 7:18 AM on April 23, 2015
If I had come back with repair demands, then the seller would have remediated them from their own money before the sale was final. My house was sold as-is so I didn't do that.
It's a negotiation - the inspection offers another chance (in some jurisdictions) to reopen negotiation on key points like safety concerns. If you refuse and the offer was contingent on inspection (which they usually are per my realtor, although in NC there's a window where I could cancel it for any reason and just be out my earnest money), then they could walk away or continue negotiating.
posted by bookdragoness at 7:18 AM on April 23, 2015
Did she ask you to cover her closing costs? If not, then certainly don't offer it.
Either way, the 5 days and 6 grand thing makes it sound like you have a lot of leverage here. Don't feel like you have to give in on anything.
posted by Slinga at 7:25 AM on April 23, 2015 [5 favorites]
Either way, the 5 days and 6 grand thing makes it sound like you have a lot of leverage here. Don't feel like you have to give in on anything.
posted by Slinga at 7:25 AM on April 23, 2015 [5 favorites]
I've bought two houses now and in both cases we made requests for concessions after the inspection. In both cases we asked for a specific amount of money "back," which in the end covered some or all of our closing costs and came out of the seller's proceeds from the sale.
craven_morhead is exactly right: this is a negotiation. If you want, you could refuse to do anything, which might cause the lender to bail and then you'd be out a buyer. But it might just mean the buyer will have to pony up for those repairs. I have a friend who used a VA loan to buy his house and they had to spend some of their own money to address safety issues identified by the lender that the seller refused to fix.
Go ahead and propose your approach and see what happens. Unless one of the brokers involved is a total hardass, it won't blow up the deal to make an offer like the one you describe.
posted by that's candlepin at 7:28 AM on April 23, 2015
craven_morhead is exactly right: this is a negotiation. If you want, you could refuse to do anything, which might cause the lender to bail and then you'd be out a buyer. But it might just mean the buyer will have to pony up for those repairs. I have a friend who used a VA loan to buy his house and they had to spend some of their own money to address safety issues identified by the lender that the seller refused to fix.
Go ahead and propose your approach and see what happens. Unless one of the brokers involved is a total hardass, it won't blow up the deal to make an offer like the one you describe.
posted by that's candlepin at 7:28 AM on April 23, 2015
I made a high offer on my house with the $5k closing costs to be paid by the owner in order to conserve my cash at hand for the down payment. My Realtor advised that $5k was pretty standard in those cases. But that was part of the offer contact.
posted by Candleman at 7:37 AM on April 23, 2015
posted by Candleman at 7:37 AM on April 23, 2015
Many people like to finance the closing costs so they will have more cash for redecorating/moving/new furniture etc. So, bump the asking price 2grand or whatever to cover that cost, and you come out the same and they get a slightly bigger mortgage.
When I sold my last house, the buyer wanted me to cover closing costs and some repairs. I counter-offered with a higher price to offset those costs to me. In the end, I got 85% of it. I probably could have held out for the rest, but a few hundred bucks on a deal worth 1/4 million... Besides, we would have done the repairs anyway, even if the deal fell through because it would make the next deal easier so, getting the money from them to cover it was a nice bonus.
Point is, it's a negotiation. Just business, don't sweat it.
posted by Pogo_Fuzzybutt at 7:37 AM on April 23, 2015 [2 favorites]
When I sold my last house, the buyer wanted me to cover closing costs and some repairs. I counter-offered with a higher price to offset those costs to me. In the end, I got 85% of it. I probably could have held out for the rest, but a few hundred bucks on a deal worth 1/4 million... Besides, we would have done the repairs anyway, even if the deal fell through because it would make the next deal easier so, getting the money from them to cover it was a nice bonus.
Point is, it's a negotiation. Just business, don't sweat it.
posted by Pogo_Fuzzybutt at 7:37 AM on April 23, 2015 [2 favorites]
What does the P&S say? Unless it is part of the original purchase agreement to participate in closing costs, then you don't have to do squat. If the buyer backs out she will be liable for damages. Same goes for inspection. Unless it specifies in the offer letter or the P&S that things are contingent on a good inspection and certain mitigations, then again, you don't have to do squat.
posted by Gungho at 7:50 AM on April 23, 2015
posted by Gungho at 7:50 AM on April 23, 2015
Response by poster: Thanks, all! I did agree in the contract to cover closing costs, but on the assumption (not in contract)(since I've spent a fine fortune on this place fixing anything called to my attention over the years) that any costs *requested* on inspection would be minimal or discretionary.
posted by mmiddle at 8:08 AM on April 23, 2015
posted by mmiddle at 8:08 AM on April 23, 2015
We did another short round of back-and-forth with the sellers of our house after inspection; sounds like you need to take care of the repairs for the purposes of the loan, but you can definitely ask the buyer for that money, taken out of, or added to, whatever pot you prefer.
As the buyers, we definitely paid some part of the closing costs.
posted by tchemgrrl at 8:17 AM on April 23, 2015
As the buyers, we definitely paid some part of the closing costs.
posted by tchemgrrl at 8:17 AM on April 23, 2015
Best answer: VA loans have very different rules than the rest of the lending world. Advice from a conventional loan standpoint is useless here. Contact me if you want more info.
posted by littlewater at 8:57 AM on April 23, 2015
posted by littlewater at 8:57 AM on April 23, 2015
There are things that will have to be fixed before closing due to it being a VA loan. However, your starting negotiation position could be that the closing cost you were planning to pay be decremented by the cost of the fixes. That seems totally reasonable.
Keep in mind there is incentive for your agent to get you to accept a higher sale price in exchange for you paying the buyer's closing cost. The agent's commission is typically calculated on the sale price regardless of how much (if any) of the buyer's closing costs (or repair costs) you pay.
posted by jshort at 9:11 AM on April 23, 2015
Keep in mind there is incentive for your agent to get you to accept a higher sale price in exchange for you paying the buyer's closing cost. The agent's commission is typically calculated on the sale price regardless of how much (if any) of the buyer's closing costs (or repair costs) you pay.
posted by jshort at 9:11 AM on April 23, 2015
Best answer: If the house was only on the market for 5 days, and it went for $6K over asking - then what are you worried about?
Tell them you are not paying to fix anything, and if they don't like it, you re-list it.
Your broker might not like this, because it is extra work for them - but then, they can reduce their commission to cover repairs, if they want.
Otherwise get a different broker.
I am a real estate investor, and I buy and sell houses a lot (though I rarely use realtors) - and honestly, I do not understand your question. You are saying: my house was so hot, it went for over the asking price in less than a week, but now in post-contract negotiations, they are beating me down to a price below asking? What!? Why on Earth would you agree to take less money? Why do you care that she loves the house? If she loves it so much: pay for it, or someone else will.
Your broker wants to close the deal to get his commission. Are you sure he is really working his hardest to get you top dollar?
posted by Flood at 9:20 AM on April 23, 2015 [11 favorites]
Tell them you are not paying to fix anything, and if they don't like it, you re-list it.
Your broker might not like this, because it is extra work for them - but then, they can reduce their commission to cover repairs, if they want.
Otherwise get a different broker.
I am a real estate investor, and I buy and sell houses a lot (though I rarely use realtors) - and honestly, I do not understand your question. You are saying: my house was so hot, it went for over the asking price in less than a week, but now in post-contract negotiations, they are beating me down to a price below asking? What!? Why on Earth would you agree to take less money? Why do you care that she loves the house? If she loves it so much: pay for it, or someone else will.
Your broker wants to close the deal to get his commission. Are you sure he is really working his hardest to get you top dollar?
posted by Flood at 9:20 AM on April 23, 2015 [11 favorites]
Best answer: We sold a house in 1976. A month or so after we has a contract at an agreed price, the broker called saying the buyer had a VA mortgage, and the VA would not allow them to pay closing costs, so the price was bumped up enough to compensate.
So, if the rules are still the same, you have to pay the closing costs, but the price is back in negotiation. I would tell the broker, I need to net $X, arrange it however you must.
posted by SemiSalt at 1:14 PM on April 23, 2015
So, if the rules are still the same, you have to pay the closing costs, but the price is back in negotiation. I would tell the broker, I need to net $X, arrange it however you must.
posted by SemiSalt at 1:14 PM on April 23, 2015
I bought a house in my twenties when I had zero savings. I told my real estate agent to ask them to cover closing costs because I had no money at all to do so. We did not need a down payment because my husband was in the military. My real estate agent also suggested we ask the buyer to pay for paint for the exterior because it desperately needed repainting -- but they just needed to cover the actual paint and then my husband and I would provide the labor, so it was maybe $200 or so in supplies, not a big hit, but it was a lot of money to us at the time.
The seller came back with a "Yes, sure, we will do both of those, no problem." But tacked the cost onto the price of the house. So he bumped it up by $1000 (it was a small, cheap house). I was totally fine with that. For me, this was a cash flow issue and another $1000 added to the loan would not add much to my mortgage payment, but coming up with closing costs would have been a big problem for me.
So I think if they want you to cover closing costs for cash flow reasons, it is totally reasonable to add that amount onto the price of the house. And since you got an offer so fast, yeah, if you are feeling screwed here, then negotiate something you like better and accept the possibility they will walk away. I don't see any reason why you should feel desperate for a buyer at this point and feel the need to make painful concessions.
Also, pick up a copy of "Getting to Yes." Negotiations can and should be win/win. I made an offer on a house that had been on the market a while. So the seller was a motivated seller and they were older and more established than me and my husband. They did not have the cash flow issues we had. They were thrilled to cover our closing costs and finally get this albatross off their neck. I was thrilled to move in and paint it the first week and start fixing it up. I loved that house -- but it did need some work and it was not some hot property.
The value in negotiation is in finding your differences in a positive way. This is always where the value lies in negotiation: finding a way to trade something of relatively small value to one party for something of relatively large value to them in a way that makes both parties feel "I WON!" A good deal is one in which both people walk away feeling like they got over and the other party must be some kind of fool, not one in which you feel screwed or bitter or put upon for having done the deal.
posted by Michele in California at 1:22 PM on April 23, 2015 [1 favorite]
The seller came back with a "Yes, sure, we will do both of those, no problem." But tacked the cost onto the price of the house. So he bumped it up by $1000 (it was a small, cheap house). I was totally fine with that. For me, this was a cash flow issue and another $1000 added to the loan would not add much to my mortgage payment, but coming up with closing costs would have been a big problem for me.
So I think if they want you to cover closing costs for cash flow reasons, it is totally reasonable to add that amount onto the price of the house. And since you got an offer so fast, yeah, if you are feeling screwed here, then negotiate something you like better and accept the possibility they will walk away. I don't see any reason why you should feel desperate for a buyer at this point and feel the need to make painful concessions.
Also, pick up a copy of "Getting to Yes." Negotiations can and should be win/win. I made an offer on a house that had been on the market a while. So the seller was a motivated seller and they were older and more established than me and my husband. They did not have the cash flow issues we had. They were thrilled to cover our closing costs and finally get this albatross off their neck. I was thrilled to move in and paint it the first week and start fixing it up. I loved that house -- but it did need some work and it was not some hot property.
The value in negotiation is in finding your differences in a positive way. This is always where the value lies in negotiation: finding a way to trade something of relatively small value to one party for something of relatively large value to them in a way that makes both parties feel "I WON!" A good deal is one in which both people walk away feeling like they got over and the other party must be some kind of fool, not one in which you feel screwed or bitter or put upon for having done the deal.
posted by Michele in California at 1:22 PM on April 23, 2015 [1 favorite]
I see VA loans are different, but I'll echo the experience of 'Michele in California'. I had a bid accepted at X thousand dollars, but we asked to bump up the purchase price by $5k & take a $5k credit against closing costs. The sellers agreed since they would get the same amount - the only difference being that my mortgage would be higher.
posted by jenmakes at 2:06 PM on April 23, 2015
posted by jenmakes at 2:06 PM on April 23, 2015
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posted by craven_morhead at 7:14 AM on April 23, 2015