Should the Seller Pay for Closing Costs? 2021 Update

Closing costs constitute some of the most opaque parts of the home buying process. As you’re looking to sell, you might find yourself wondering exactly what it is that you owe to the buyer. What do closing costs entail, and who pays for them? We’re here to demystify this process.

What Constitutes Closing Costs?

When you’re closing on a home from the buyer’s side, you’re likely looking at some serious up front charges, and not just the down payment. Buyers also pay for the inspection and appraisal, and put down earnest money (typically 1% of the sales price in our area). That’s some serious cash!

On the seller’s side, expect to pay half of the escrow and owner’s title insurance. Nothing to sneer at, certainly, but it’s easy to forget as a seller how much money buyers are fronting out of pocket. Typically, buyers put down a hefty amount when you add up the down payment in addition to these extra costs.

Why Do Buyers Ask For Sellers to Contribute More to Closing Costs?

First of all, let’s level up. Everyone in a real estate transaction wants to pay the least money for the most value possible. The reasons for this are obvious. But when folks get into the details of these transactions, things get a little murkier. Buying a home is a huge investment – and a huge risk. So many buyers use the closing costs as a negotiating tool during the inspection period. If issues arise during that time, the closing costs present an opportunity for buyers to cover their bases.

How Closing Costs Enter Into the Home Sale Negotiation

The focus of this article is to determine if it’s worth it for a seller to pay for closing costs. As a seller, you may find yourself in a position in which prospective buyers ask for benefits in order to get a better deal on their home purchase. They might put in an offer under the listing price. But more likely, in this hot seller’s market, they’ll look for a deal during the inspection period prior to closing.

Just because a prospective buyer requests assistance with the closing costs doesn’t necessarily mean that they are not qualified. Most buyers in this day and age will be pre-qualified through their lender before making any offers. But if a buyer is putting down the bare minimum and asking for assistance with the closing costs on top of that, that could be a bad sign. The transaction will still be likely to close, but there will also be a higher level of risk that it will fail to close at the last minute due to buyer financing falling apart.

You also may have a qualified buyer with none of the aforementioned issues who requests closing cost assistance, due to problems that arise during the inspection period. It’s reasonable to expect some push back from buyers over major issues that need addressing – plumbing or foundation work, for example.

Should You Increase Sale Price Based on Buyer’s Bid?

Oftentimes, sellers will try to make up for buyers’ demands by increasing the sales price. So let’s say the buyer wants $10,000 in credit for closing costs, and the seller ups the home’s sticker price by $10,000. One for one, it seems. But wait! Don’t forget that the seller pays for both buyer’s and seller’s agent fees, which are a percentage of the total sale amount. Add onto that – escrow and title fees also operate on a percentage basis. So you could end up spending even more money by increasing the home price than you would if you left well enough alone.

Should Sellers Pay Buyers’ Closing Costs?

The answer to this question is, as with many real estate market questions, dependent on the property. If serious issues come to light during the inspection period, it makes sense to give the buyer some credit towards the closing costs. Rather than raising the price, putting some up cash (in the form of a closing credit) to cover closing costs will smooth the transaction.

At this particular moment in the Portland real estate market, however, the ball lands solidly in the seller’s court. Extremely high demand means sellers have the upper hand in general. Unless the property has some serious issues arise during the inspection period, this isn’t a good time for sellers to be offering to pay buyers’ closing costs. For sellers, this can be a time to dig your heels in.

Get the Most Out of Your Home Sale

We hope this information illuminates the home closing process, but we also know that this transaction is complicated and at times difficult. That’s why you should always have a trusted Portland real estate agent by your side to help guide you through. And our top 1% seller’s agents are the place to start! Our agents are ready to provide you with the top guidance in the Portland metro area and beyond.

August 16, 2021
AUTHOR

Stephen FitzMaurice

Stephen FitzMaurice, Realtor is a top 5% real estate agent in the U.S. and a top 1% agent in the Portland Metro. Principal Broker in Oregon, Managing Broker in Washington he has been licensed since 2003 for residential real estate sales. Call him direct: 503-714-1111 for Oregon or 360-470-7777 for Washington.

We sell homes for 4.5% max. commission (it is often less, call for details) and pay more to market our clients’ homes so they sell faster and for more. We top it off with cancel anytime contracts for no charge. Our top 1% buyer’s team prioritizes customer service and is full of top-ranked, local industry veterans ready to help you find the home of your dreams.

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