Not an elephant!
Your fancy stripes can’t trick us!
Isn’t it funny how someone or something can try to convince us they are someone or something other than what they are? Life is full of traps and confusing spin zones like this… We deal with this sort of thing daily in the wild world of real estate!
Today, we are going to ensure total and absolute clarity for you on the topic of Seller Paid Closing Costs (aka Seller Assist or Seller Concession). It’s not at all what it appears to be. After you read this email, this topic will be black and white in your mind and made perfectly clear. Here we go!
Is anything ever as it seems?
Seller Paid Closing Costs are actually NEVER paid by the Seller. Gasp!! What a shock! Crazy, right? Absolutely, it is crazy. And confusing. And the cause of allot of chaos in the real estate transaction. So let’s get down to the nitty gritty truth about Seller Paid Closing Costs. Let’s make THIS black and white, once and for all.
You can put lipstick on a pig…
But that pudgy, sweet, little mud-lover is still a pig! No need for the creative disguises… Let’s just be real. So let’s talk about this other little piggy… Seller Paid Closing Costs. Many moons ago (decades in fact), the mortgage industry began to offer a Buyer the option to finance their closing costs into their mortgage. In an effort to define a creative way to allow a Buyer to finance their closing costs, the full sale price would be defined as the contract sale price plus the closing costs to be financed. On the settlement statement, the “full sale price” would be listed as being paid by the bank on behalf of the Buyer to the Seller. When reviewing this on the settlement statement, it “reads” that the Buyer paid X amount to the Seller and the Seller credited X amount back to the Buyer for their closing costs. It “looks like” a Seller is paying the closing costs when in fact the Buyer is financing the closing costs into their mortgage and not a single dollar comes out of the Seller’s pocket. Things that make you go… Hmmmmmm!
Why do they paint stripes on an elephant?
It helps make sense of the transfer of monies for the sale from the bank to the Seller and then back to Buyer for their closing costs. It’s a money maneuver! And it’s smart and accurate on paper. It, however, is very confusing to the Seller (and everyone else walking the planet). They need to call a spade a spade… They are Buyer Financed Closing Costs – nothing more, nothing less.
Buyer Financed Closing Costs. This is what “Seller Paid Closing Costs” actually are and this is true 100% of the time. Make no mistake! Don’t be fooled or tripped up over this…whether you are a Buyer or Seller, it is imperative that you understand exactly what is happening and how and when it’s wise to leverage this type of financing they call Seller Paid Closing Costs that you now realize are actually Buyer Financed Closing Costs. Critical points to understand and keep in mind on this topic include:
- The Buyer is paying every penny of their closing costs via their mortgage.
- The Seller is not giving the Buyer any money…not a dime.
- The house must appraise for the sale price plus the amount of the closing costs (which can be called the “full sale price” though we reference it as the gross sale price). Ex: $440,000 net sale price + $10,000 closing costs being financed = $450,000 gross sale price. Referencing the price in this way helps to clarify the offer conversation.
- It’s a great idea to remove the closing costs from the offer discussion and focus only on a net sale price until you come to an agreement. At the finale of the negotiation, the contract will reflect the gross sale price (net sale price + closing costs) as the “full sale price”.
- A Seller has to give approval for this type of financing because their home will need to appraise for the gross sale price in order for the mortgage company to fund the loan in this manner.
- Including Buyer Financed Closing Costs is a riskier approach than a traditional mortgage with respect to confirming the appraisal value, so the Seller has to agree in advance to allowing it.
- Buyer Financed Closing Costs are often an indicator of a weak financial profile for the Buyer as well – not always, but often. People usually choose to finance their closing costs, because they cannot afford to pay them out-of-pocket.
If it’s a pig, it’s a pig. If it’s an elephant, it’s an elephant! No spin. No zebra stripes on our elephants! Let’s make it all a little less wild out there. Let’s keep it black and white!
The best agents. The best agency. The best insight. The best experience for you and your family. Simply the best. It’s really THAT black and white!