Uncategorized November 2, 2023

Negotiating Seller Credits at Closing: A Guide For Buyers

Requesting seller credits to be applied towards closing costs… This is something I have used a number of times when working through the negotiation process of the home purchase. A lot of people aren’t aware of the different negotiations that go on after the initial agreement on purchase price. However, often times, that can only be the beginning of the fun.

Requesting a seller credit at closing is a negotiation tactic used by realtors to ask the seller to contribute a certain amount of money towards the buyer’s closing costs or other expenses related to the purchase of the property. Here’s how it works:

Let’s say, hypothetically, you as a buyer have agreed with the seller’s side on purchasing their property for $550,000. After going back and forth, you are thrilled to be landing on this number and both sides seem to be happy. You also request an inspection to be done to make sure there are no big ticket items that need to be addressed. Upon completion of the inspection, you find out that the roof is on it’s last leg. You have a few options. You could request the purchase price be lowered to reflect the quote you were given to repair the roof (let’s say $10,000). Or you could ask for the seller to give you a $10,000 credit towards closing costs. Now, there is a limit to the amount of money you can receive in credits towards closing costs and repairs – your lender can walk through those specifics with you.

In either situation, if the seller agrees, they will still be receiving $540,000 with the $10,000 deduction whether they reduce the purchase price or provide you with the money for closing costs. As a buyer, it is very important to consider which option they go with. Lowering the purchase price by $10,000, although it’s great, actually would save you less money than if you received a $10,000 credit towards closing costs. This is money that reduces the amount of money you have to come up with at closing to pay for lender fees, homeowners insurance, property transfer tax, etc. Reducing the purchase price by $10,000 would lower your mortgage payment slightly, but then you still need to come up with the additional $10,000 cash to pay for the roof repair/replacement. In this case, it could be more advantageous as a buyer to request the seller pay you the $10,000 credit towards closing costs.

You can also ask for a seller credit to be paid at closing with your initial offer. Using the same example as above, let’s say you offer $560,000 instead of $550,000, but you request a $10,000 credit to be paid at closing. A portion of that money can actually be used to buy down mortgage points so that your monthly payment can be lowered. This is really valuable in an environment like today where mortgage rates are high. The seller is still going to net the same amount of money from the deal, but you are potentially going to lower your monthly mortgage payment by using $10,000 towards loan costs and buy down points.

Below is a great example that I pulled from https://neohomeloans.com/06/09/2022/the-seller-paid-rate-buydown/

It does a great job of detailing the difference between a price reduction and seller paid rate buydown and how that affects both the buyer and the seller when it comes to breaking down closing costs for the buyer and net proceeds for the seller.

There’s a lot of options you have as a buyer. Even if it’s a sellers market, you still have opportunity to get creative to attempt and lower your out of pocket expense in what is the biggest transaction of your life. Consult with me about other tactics you can use to open up as many doors as possible for you and your family.