Iowa City Real Estate Blog

Making an offer: Should you ask for closing costs? What will the Seller think about you asking?

A while ago I wrote a post about the implications to the buyer when Asking the Seller to Pay Closing Costs  and how they are really a way of financing the closing costs into the loan. Now, if you've decided to go this route, then you're probably wondering what the seller thinks of all this and how he's likely to react when you put it in the purchase agreement that you want the closing costs to be included in the price as "seller paid closing costs."

First of all, generally the seller looks at his bottom line. He has an idea how much he is willing to come down on the price and it doesn't really matter too much to him whether it's with a reduced price or closing costs. Most sellers I've worked with are willing to work with buyers and do what it takes to get an accepted offer - as long as it doesn't effect the bottom line. Here in Iowa City where we have relatively low closing costs, it's even possible to mix it up with a price reduction and closing costs - as long as it doesn't effect the seller's bottom line...

That particular scenario is true in many real estate transactions. However, in real estate it's not one size fits all and there will be times where you may need to make a decision to go one way or the other. Also, I'm in the Iowa City area - I know how things work here. There may be nuances in other parts of the country that I'm not familiar with. Anyway, getting back on topic. There are times when the closing cost scenario will work better than a price reduction and other times when it won't work at all.

When a seller is committed to price for instance it's a good time to go with the closing costs option. Now we know that price reduction or closing costs really shouldn't make a difference. Either way the seller will get the same amount on the day of closing. What does make a difference is that the house is perceived to be worth more if you go the closing cost route. In other words, if your offer is for $190,000 with $5000 closing costs, it looks better on paper than a clean offer for $185,000 for the house. (Closing costs in Iowa City are usually much less, I just picked these numbers to make my point as I know they're pretty common for other parts of the country).

Now the trick is to find out how to know when a seller is committed to price. I find the easiest thing to do to get a sense of where the seller's coming from is to talk to the listing agent. (Yes, the direct approach usually works best).

Now on the other hand, if the house is over-priced and you put a low-ball offer on the table then it's unlikely the seller will pay closing costs. It probably won't matter whether your low price is justified or not either. The seller listed the home at that price, because that's what he thinks it's worth. He's likely to feel he's "losing" so much on the sale that he won't be happy about adding closing costs too. If the house is over-priced and you need to low-ball, then you're best going with the straight price reduction. Otherwise I don't recommend low-balling anyway, but that's a subject for a different post...

Both of these scenarios have one thing in common - They take into account the seller's perception of the value of his property. When you're making an offer on a house, it's a good time to remember that the seller might have a different perception of the value than you. That's what the negotiations are there for - To find out where the common ground is and to move from "making an offer" to "accepted offer."