Should the Seller pay the Buyer’s Closing Costs?

With over twelve years of Portland real estate agent experience, I have heard this question at least a hundred times. Many sellers are surprised to get an offer from a buyer that explicitly asks the seller to pay their closing costs. A lot of sellers don’t know that it is a possibility, much less a common element of a real estate offer in Portland. It is a trend that continues and grows because the buyer’s closing costs keep increasing. I have seen buyers put in their offers for the seller to pay over $10,000 in buyer’s closing costs. That is an extreme example, but most buyers experience a sticker shock of at least $5,000 in closing costs on top of their own down payment and their out-of-pocket expenses for the home inspection and appraisal. So it is no wonder many buyers turn to the sellers for help.

Here are some common questions.

Don’t the buyer and seller split the closing costs?

The seller and buyer split the escrow fee, but most items are not split 50/50. The seller pays a large portion of the title insurance. In Oregon, this is simply the law – set, regulated, unmovable. The seller will pay this every time. The seller will have a lot of prorated items on their closing statement: their taxes, HOA fees (if any), and mortgage payoff amount. The buyer will have (massive) loan origination costs. In other words, the buyers and sellers closing costs won’t look alike. The seller can generally expect their closing costs to run a little less than 1% of the selling price. The buyer can expect their closing costs to run around 3% of the selling price. So – no – the buyer and seller do not split closing costs.

Will paying the buyer’s closing costs hurt the transaction?

Not usually. When you get an offer where the seller is paying closing costs, you must do simple math. Let’s say you list your Portland home for $295,000. You get an offer for $300,000 and the buyer wants you to pay $5,000 in buyer’s closing costs. In reality, that offer is full price $295,000 for your home. Yet at the same time, the offer is $300,000. Now the offer must appraise at $300,000 and the buyer’s offer is contingent on it appraising “at value”. The value per the bank is $300,000 – not the $295,000 you’re getting. In most cases, the few thousand that the seller would pay in buyer’s closing costs isn’t enough to cause any problems with an appraisal. However, if you or your Portland real estate agent feels like your asking price is high and there might be concern with an appraisal anyway, you may not want to accept the $300,000 offer.

Secondly, if the buyer is asking for seller paid closing costs, it does not mean the buyer isn’t well qualified for the loan. Again, this is most common in the real estate industry. However, a buyer who is putting 20% down and paying all of their own closing costs is more financially sound and less likely to fail to finance their offer. Buyer’s offers are contingent on them obtaining the loan (and their pre-approval letter doesn’t hold a lot of weight) so it does matter, to a degree, whether or not they need the seller to pay buyer’s closing costs. In other words, paying buyer’s closing costs isn’t likely to hurt the transaction, but it does carry a little bit more risk for the seller than an offer where the buyer pays their own closing costs.

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AUTHOR

Stephen FitzMaurice

Stephen FitzMaurice, Realtor is a top 5% real estate agent in the U.S. A Principal Broker in Oregon, Managing Broker in Washington, he has been licensed since 2003 for residential real estate sales. Call his team in Oregon at 503-714-1111 or in Washington at 360-345-3833.

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