Sellers Should Pay Closing Costs Only When Buyer Needs It

J Philip Faranda February 2, 2010

Closing costs on a New York transaction can be quite high. The state has a high transfer tax, municipalities, especially New York City, have their own tax, and title insurance is expensive. Otherwise qualified buyers might need to finance some of these costs, and a the mechanism for doing so is a seller concession. 

There are times when it is appropriate to ask the seller to pay the buyer’s closing costs. In my experience, those times always include necessity. If the contract price will appraise and the cash position of the buyer is such that 3% assistance for example, will enable them to buy, it is perfectly valid to propose a seller concession. This makes the transaction a team effort: the seller concedes equity that they might otherwise pocket, the buyer is able to finance all or part of their closing costs that they don’t currently possess, and everyone wins. 

There are times when it is NOT the right move to propose that a seller pay the buyer’s closing costs. When the buyer has the cash, it is virtually never a good idea to propose a concession. The reasons is simple: a concession enables the buyer who would otherwise not be able. If a buyer does not have this need, then proposing a seller concession is a business equivalent of a submission hold in wrestling. It also puts the buyer in an unflattering light financially. 

We recently had a bid on one of my listings. They were proposing a 20% down payment and we were getting close on price. When my sellers made one last counter offer, the buyer made a fatal tactical error: they proposed meeting us at the price, but then added they wanted the seller to pay their closing costs. The seller elected to go with another offer. Here is what hurt the buyer:

 

  • You can’t propose a 20% down payment, ostensibly the mark of a strong, qualified buyer, then ask for help with closing costs and still expect to be viewed as a strong buyer. That tells them you don’t have the money. 
  • If you do have the money, telling the seller to pay comes across as petty. You might feel that in a buyer’s market you have to get over on the seller, so you propose a concession to make them say “uncle.” That backfires, especially when there is other interest on the house. 
It is human nature to agree to help when the need is there, especially if it empowers a transaction. If the need is not there, it comes across as a “gimme,” which sends the wrong message and often forfeits good will. The object is to have a meeting of the minds, not haggle up a storm. Buyers need to understand that it is only a good deal if the sellers sign on. There is a huge distinction between asking for help and demanding a give back just to feel you were the alpha haggler. 
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