Buyer or Seller Paying Closing Costs: Pros and Cons

By: ROS Team

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When you’re buying a house, there are a lot of costs to consider. One of the most important is closing costs. This includes things like the down payment, appraisal fee, and title insurance. Most people think that they have to pay closing costs in order to buy a home, but this isn’t always true.

In some cases, the seller may be willing to pay for them. In this blog post, we will discuss the pros and cons of paying closing costs so that you can make an informed decision about what’s best for you!

What are Closing Costs?

Closing costs are the expenses incurred by both the buyer and seller in transferring ownership of a property. They include everything from the cost of obtaining a loan to hiring a real estate agent.

Closing costs can vary significantly depending on the state, county, and municipality in which the property is located. However, they typically range from 2% to 5% of the purchase price.

Some of the Most Common Closing Costs Include:

  • Loan Origination Fees
  • Appraisal Fees
  • Title Search Fees
  • Attorney Fees
  • Recording Fees
  • Transfer Taxes

 

What are the Advantages of Seller Paying Closing Costs?

Advantages of Seller Paying Closing Costs
Photo Credit: Canva

 

It Shows That The Seller Is Motivated To Sell

When a seller pays closing costs, it’s a sign that they’re motivated to sell. After all, paying closing costs is not a requirement, and it can add up to a significant amount of money.

By voluntarily paying these costs, the seller is indicating that they’re willing to do whatever it takes to get the deal done. This can be especially beneficial for buyers who are looking for a bargain. If the seller is motivated to sell, then they may be more open to negotiating on price.

It Can Help The Seller Attract More Buyers

One advantage of a seller paying closing costs is that it can help to attract more buyers. For buyers who are on the fence about purchasing a particular property. The lack of having to come up with the money for closing costs can be the deciding factor.

Furthermore, paying closing costs can also help to make a property more affordable for lower-income buyers who might otherwise be priced out of the market.

As a result, sellers who are willing to pay closing costs may find themselves with more interested buyers and a higher chance of making a sale.

It Can Speed Up The Sale Process

When a seller pays closing costs, it can speed up the sale of the home. This is because the buyer does not have to come up with as much money out of pocket.

In addition, it can make the home more affordable for the buyer. The reason for this is that the seller is essentially giving the buyer a discount on the purchase price of the home.

As a result, the home is more likely to sell quickly and at a higher price. This can be a great advantage for sellers who are looking to sell their homes quickly.

It’s A Win-Win For Everyone Involved

When a seller pays the buyer’s closing costs, it’s a win-win for everyone involved. The buyer saves money on the purchase, and the seller gets the home sold more quickly. There are a few things to keep in mind, however.

First, the seller’s agent may charge a higher commission to cover the costs of paying the buyer’s closing costs. Second, the buyer may be less likely to negotiate on price if they know that the seller is paying their closing costs.

Nonetheless, paying the buyer’s closing costs is generally a good way to sweeten the deal and get the home sold more quickly.

What are the Disadvantages of Seller Paying Closing Costs?

Disadvantages of Seller Paying Closing Costs
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It Is Seen As A Sign Of Desperation

When a seller agrees to pay the buyer’s closing costs, it is often seen as a sign of desperation. After all, the seller is essentially giving away money that could be used to lower the price of the home or to make needed repairs. And in many cases, the seller is simply trying to unload the property as quickly as possible.

It Can Take Longer To Close On A House

Most home sellers are aware that they will need to pay certain fees at the closing of the sale, such as real estate commissions, title insurance, and transfer taxes.

However, many don’t realize that these fees can have a significant impact on how long it takes to sell their home. Buyers typically expect sellers to pay all of the closing costs, and they may be unwilling to purchase a home if they feel like they’re being asked to pay too much.

As a result, sellers who are paying closing costs may find themselves having to negotiate with buyers or even accept a lower offer in order to secure a sale.

In some cases, it may even be necessary to offer additional incentives. Such as a higher sales price or a credit towards closing costs, in order to attract buyers.

Risk Of Buyer Backing Out Of The Deal

One of the potential disadvantages of the seller paying closing costs is that there is a higher chance of the deal falling through if the buyer changes their mind. The reason for this is that the buyer has less skin in the game. They have less invested in the deal, and as a result, they may be more likely to back out if something changes.

The Seller May Not Get Their Asking Price

When a seller agrees to pay the buyer’s closing costs, it is often in exchange for a higher sales price. While this may seem like a good deal for the buyer, there are potential drawbacks. One such drawback is that the seller may not be able to get their asking price.

This is because the buyer’s agent will typically negotiate for a lower sales price in order to offset the costs that the seller has agreed to pay. As a result, the seller may end up paying more in closing costs than they would have if they had simply lowered their asking price.

More Difficult Negotiation

Many home buyers are happy to hear that the seller is willing to pay closing costs. However, this can sometimes be a disadvantage. If the seller is paying closing costs, it’s more difficult to negotiate with them on other aspects of the sale, such as the price of the home.

The reason for this is that sellers often view closing costs as a way to increase their asking price. Therefore, if you’re hoping to get a good deal on your new home. You may want to think twice about accepting seller-paid closing costs.

What are the Advantages of Buyer Paying Closing Costs?

Advantages of Buyer Paying Closing Costs
Photo Credit: Canva

 

Reduces Purchase Price

When a buyer pays closing costs, it reduces the amount of money they need to purchase a home. This can be advantageous for a number of reasons.

First, it can help buyers who are tight on cash to still be able to purchase a home. Plus, it can also help to reduce the monthly mortgage payment by decreasing the loan amount.

And lastly, paying closing costs upfront can also help to save on interest over the life of the loan. All in all, paying closing costs can provide a number of advantages for buyers and ultimately help them save money in the long run.

It Can Speed Up The Closing Process

One advantage of the buyer paying closing costs is that it can speed up the closing process. By paying all or a portion of the closing costs, the seller is often able to close on the deal more quickly.

This is because the seller does not have to wait for the buyer to come up with the money to cover the costs.

Additionally, this arrangement may also allow the seller to negotiate a lower purchase price since they will not be paying any of the closing costs themselves. As a result, this can be a win-win situation for both parties involved.

Allows Buyers To Focus On Their New Home

One of the biggest advantages of having the buyer pay closing costs is that it allows them to focus on their new home rather than worrying about finances. It can be a very stressful time for buyers, and by removing the financial burden of closing costs, they can relax and enjoy their new purchase.

This can also lead to a smoother transition into homeownership. As buyers are more likely to make informed decisions when they’re not anxious about money.

Furthermore, buyers who pay closing costs may have an easier time negotiating with sellers, as they’ll have more flexibility in their budget.

Builds Goodwill Between The Buyer And Seller

When a home buyer pays the seller’s closing costs, it can be seen as a goodwill gesture. After all, the seller is likely spending a significant amount of money to move to their new home, and any help that the buyer can provide is appreciated.

In addition, paying closing costs shows that the buyer is serious about the purchase and is willing to do what it takes to get the deal done.

Ultimately, paying closing costs can build goodwill between the buyer and seller, making for a smoother transition all around.

What are the Disadvantages of Buyer Paying Closing Costs?

Disadvantages of Buyer Paying Closing Costs
Photo Credit: Canva

 

Less Money Available For A Down Payment

One of the potential disadvantages of having the buyer pay closing costs is that it may reduce the amount of money available for a down payment. This could be an issue if the buyer is already stretched thin financially and is barely able to come up with the minimum required down payment.

In this situation, paying closing costs could put them over the edge and make it difficult to obtain financing for the purchase.

Risk Of Default On Your Mortgage

When buyers pay closing costs, they may be more likely to default on their mortgage. This is because they have less money available for a down payment. Which means they may have difficulty affording their monthly mortgage payments.

Additionally, buyers who pay closing costs may be more likely to walk away from their home if it decreases in value, as they will have less equity in the home.

What Is Seller Credit At Closing?

When you’re buying a house, you may come across the term “seller credit at closing.” But what exactly is seller credit at closing?

In short, it’s when the seller agrees to contribute a certain amount of money toward the buyer’s closing costs.

This can be a great way for buyers to save money on their purchases, as closing costs can add up quickly.

Seller credit at closing is typically negotiable, so it’s important to discuss this with your real estate agent or attorney before making an offer on a home.

Keep in mind that seller credit at closing is not the same as a down payment, and it does not reduce the amount of money you’ll need to bring to the table at closing. It’s simply a way for the seller to help offset some of the buyer’s costs.

So if you’re considering making an offer on a home, be sure to ask about seller credit at closing. It could end up saving you a significant amount of money in the long run.

FAQs

How Can I Avoid Paying Closing Costs?

You may be able to avoid paying closing costs by asking the seller to pay them for you. Many sellers are willing to do this in order to make the sale go more smoothly.

You can also try negotiating with the seller’s agent to have some or all of the closing costs waived. If you are buying a home, you may also be able to get the seller to pay your mortgage points. This can save you quite a bit of money in the long run.

If all else fails, you can try getting a loan that doesn’t require closing costs. However, this may end up costing you more in the long run if your interest rate is higher than it would have been if you had paid closing costs.

What Are Some Common Closing Costs?

The most common closing costs are the earnest money deposit, the loan origination fee, the appraisal fee, the title search and title insurance, and taxes and recording fees. There may also be charges for a credit check or property inspection.

How Much Should I Expect To Pay In Closing Costs?

Closing costs vary depending on the state, county, and city you live in. As a general rule of thumb, you should expect to pay anywhere from 2-5% of the purchase price in closing costs. For a home purchase price of $200,000, this would amount to $4000-10,000.

Is It Worth It To Pay Closing Costs?

It depends on a variety of factors, including how much you’re borrowing, the terms of your mortgage, and the current market conditions. Generally speaking, though, paying closing costs is typically worth it in order to secure a lower interest rate and save money over the life of your mortgage.

For example, if you’re borrowing $200,000 and your mortgage has a term of 30 years, by paying closing costs, you could save nearly $18,000 in interest payments.

So it’s definitely worth crunching the numbers to see if you can afford to pay your closing costs.

Are There Any Tax Benefits To Paying Closing Costs?

Yes. There are tax benefits to paying closing costs. For example, if you are itemizing your deductions on your federal income tax return. You can deduct the number of your closing costs that were paid in connection with acquiring or refinancing a mortgage.

There may also be state and local tax benefits to paying closing costs. For example, in some states, you may be able to claim a property tax deduction for the number of your closing costs. Be sure to check with a qualified tax professional to find out whether you can claim any tax benefits for paying your closing costs.

Final Thoughts

Closing costs are typically paid by the buyer, but in some cases, the seller may pay them. There are pros and cons to either side of the equation. When buyers pay closing costs, they get a lower interest rate on their mortgage. However, if sellers pay closing costs, they may be able to ask for a higher price for their home.

Closing costs can add up to thousands of dollars, so it’s important for both buyers and sellers to weigh the pros and cons before making a decision.