As part of obtaining loan preapproval, lenders often suggest to a buyer that they request the seller foot the bill for all of the costs involved in closing their loan. While in a strong Buyer’s market … somewhat similar to current real estate market … it only seems reasonable to expect that a Seller would be all too happy to pitch in with whatever’s necessary in order to sell a home.
Consider the following:
- In the typical purchase and sale agreement, the loan cost provision wherein the Seller is asked to contribute is defined as “Buyer’s loan and settlement costs, including but not limited to prepaids, loan discount, loan fee, interest buy-down, financing, closing, and other costs allowed by lender.
From experience, I know that for many buyers, these loan costs are about 4% to 4½% of the purchase price — especially for first time homebuyers purchasing toward the bottom of the housing market. Of the 4-4½%, about 3% or so are actual loan fees — lender fees, recording fees, appraisal fees, etc, with the remaining 1-1½% or so made up of prepaid costs such as upfront homeowner insurance, property taxes, homeowner association fees, prepaid interest, and so on.
- Property owners of all types have taken a tremendous hit in equity over the past few years. Most owners in the King and Pierce county areas in which I work most frequently have seen a decrease in value of their homes of around 35% since the peak of the market in 2007 (in our area). In order to sell a home without falling into a short sale category — where the home is worth less and being sold for less than the outstanding loan(s) — the seller very well might not have enough equity left in the home in order to pony up the Buyer’s costs in addition to their own 8%-9% of sale costs.
- In either bank-owned or short sale properties, the banks involved are typically refusing to pay any more than 3% in Seller concessions. Included in that 3% is typically any other work that must be done to a property such as replacing a failing roof, adding a range, etc. — typical requirements for most buyer loans.
- We’re actually seeing multiple offers on many many properties at the moment. Buyers I’ve represented that need or insist on requesting more than 3% of the purchase price in Seller paid closing costs? They were not successful bidders on their offers.
Over the last few months, I’ve successfully negotiated seller-paid loan costs for most transactions, but for bank-owned and short sale properties — only up to 3%, with virtually no prepaid expenses included.
We’re in a learning curve again for being a buyer in our area. Expect that 3% is the maximum in closing costs you may receive from a Seller. Be prepared to pay the difference when the sale closes.