Tips for negotiating closing costs
Tips for negotiating closing costs
Written by Carolyn Nelson Friday, 03 October 2008
The seller’s main — and most costly — closing costs are the real estate commission and owner’s title policy. The buyer’s main — and most costly expenses — are costs associated with obtaining the loan to purchase the home, the appraisal and the survey.
Seller’s costs
When a seller lists a property with a Realtor, there is a listing real estate commission. There is no set percentage or dollar amount on the real estate commission, which is negotiable between the seller/owner and listing agent.
The payment of the owner’s title policy is also negotiable. Most sellers will pay the title policy if they are selling their home for the price they had anticipated and will be satisfied with the net proceeds (the amount of cash the seller walks away with after closing on the sale of the property). However, if the buyer is purchasing the property at a really good price, the seller can reasonably ask the buyer to pay for the owner’s title policy.
The owner’s title policy is less than 1 percent of the sales price. The State Board of Insurance sets this amount, so the amount cannot be negotiated but who pays for it can.
Buyer’s costs
Because of the subprime lending issue the mortgage industry has been facing lately, it is harder to get a home loan than ever before. Most lenders are requiring a down payment depending on the borrower’s credit, salary, debts, et cetera. Therefore, the average buyer probably needs to come to the table with a down payment and closing costs.
If a buyer has a stable, well-paying job, good credit score and qualifies to make the mortgage payment but does not have enough cash to cover closing costs, there are some ways to overcome this obstacle. When the buyer makes an offer on the house, he can include in the offer that the seller pays a certain percentage of the buyer’s closing costs. The Realtor and loan officer will advise on how much the buyer can ask the seller to contribute, which varies depending on the type of loan.
However, if the offer price is not more than what the current owner still owes on the loan, it may not be reasonable to ask for the seller to cover any of the closing costs. The price of the house can be increased to cover the buyer’s costs. This means that the buyer finances his closing costs in his mortgage, and the monthly mortgage payment increases slightly. For example, with interest calculated at today’s rate of 5.625 percent, a buyer’s monthly mortgage payment would increase $5.75 per month if $1,000 is added to the buyer’s loan.
In this scenario, the house must appraise for the new selling price with the closing costs included. The appraisal is not ordered or performed until there is an executed contract, so if the seller and the buyer increase the price for the closing costs, they risk the appraisal value not meeting or exceeding the selling price listed in the contract. If this happens, the seller and buyer must renegotiate the selling price. The Realtors and loan officer involved can assist in this process by providing guidance and expert advice to the seller and the buyer.
Article provided by Realtor Carolyn Nelson of Synterra Property Group. Call 258-4111 or e-mail carolyn@synterragroup.com. Visit www.synterragroup.com.
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