Selling- Seller Concessions

In each real estate transaction, there are buyer's closing costs, as well as seller's closing costs. Buyers sometimes are asking the sellers to cover their closing costs, called seller concessions. Why should sellers pay for buyer's closing costs?

The main reason sellers would pay for buyer's closing costs is that this is purely an accounting move. With the way we structure purchase agreements, it is more-or-less irrelevant if the seller pays the buyer's closing costs. We'll give an example below:

Let's say you have a home on the market for $400,000. You receive an offer for $380,000 and negotiate it to an acceptable offer of $388,000.

Now, let's say a second offer comes in and it's $400,000 with the seller paying 3% concessions. That's $12,000 towards the buyer's closing costs. You would net $388,000. If this is an acceptable number to you, which it was in the above example, you'll still accept this offer. You'll net the same as the first example. The bottom line is that whether you pay for buyer's closing costs (example #2) or you don't pay for buyer's closing costs (example #1), you'll end up with the same amount.

Why do buyers ask for closing cost assistance then? The main reason is to obtain cash in hand.

In the above example, if the buyer is utilizing an FHA loan, they are required to come up with a 3.5% down payment. That's approximately $14,000 in the above examples. They are also then having to come up with $12,000 for their closing costs. That brings their total expenses to about $26,000 to purchase your home.

If they ask for closing cost assistance, they are effectively financing their $12,000 of closing costs into their mortgage. Their mortgage would be $12,000 higher ($386,000 vs $374,500) increasing their monthly payment minimally in turn allowing more cash-in-hand.

What this means is that the buyer can purchase a home sooner than later. With a slightly higher monthly payment, they no longer have to save up the extra $12,000 to purchase a home.

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7700 France Ave S #230
Edina, MN 55435
(952) 915-2252 (direct office)
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Steven Hong, REALTOR
Team lead
Old Home Certified
(612) 990-9009

Each office independently owned and operated.  All information is deemed reliable but not guaranteed, and should be independently reviewed and verified. Equal opportunity housing. 

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