Question: Is it realistic to expect a seller to pay all of my closing costs?
Answer: Over the last 18 months, Arlington sellers have paid for a buyer’s full closing costs in less than 4% of transactions. In May, I wrote a column explaining that in a standard transaction with a mortgage, buyers are responsible for paying about 2.5-3% of the purchase price in closing costs (reference the article for a breakdown of what is included).
Closing Cost Assistance vs Repair Credits
Seller contributions towards closing costs are often referred to as Seller Credits or Seller Concessions and serve to reduce the amount of cash a buyer needs to put up at settlement. If a seller offers a credit for a broken washing machine, painting, or something that comes up during the home inspection, that credit falls into the same bucket of money. In other words, regardless of whether the money was negotiated under the pretense of closing cost assistance, repairs, updates or a combination of the three, it is all considered a Seller Credit/Concession and deducted as one lump sum against closing costs at settlement.
In some cases, lenders limit the amount of closing costs a seller can pay for (e.g. investor loans), but most of the time buyers can try to negotiate for the seller to pay up to 100% of those costs and sometimes more than 100%. You should always ask your lender to confirm how much seller credit you can negotiate because if you negotiate for a 4% seller credit, but are capped at 2%, you may end up losing out on the extra 2% you negotiated for.
Let’s take a look at how much Seller Credit Arlington buyers have been able to negotiate over the last 18 months. Note that there is no way of knowing whether the credits were offered up-front by the seller as incentive, negotiated during the initial offer negotiations, and/or as a result of defects found during the home inspection.
On average, buyers negotiate Seller Credits worth .4% of the purchase price or just over $2,000 per transactions
65.5% of transactions did not include any Seller Credits
Buyers negotiated a Seller Credit worth 2.5% or more of the purchase price in just 3.8% of transactions
The higher the purchase price, the less likely buyers are to negotiate a Seller Credit. There is a huge drop-off in average negotiated Seller Credit on homes worth over $500,000
If you have a limited savings and require the seller to pay some or all of your closing costs in order to comfortably purchase the home you want, it’s important to discuss that early on with your real estate agent and build it into your purchase strategy. If you don’t create an appropriate strategy around closing cost assistance, you may find yourself wasting a lot of time during the search process and losing out on multiple offers. If you ever want to discuss a purchase strategy, send me an email at Eli@EliResidential.com to schedule some time to talk.