Full Price offer but cover closing costs vs. reduced offer- Difference?

[athena53]

Yesterday my home went under contract. Very pleased with the offer- listed for $400K, offer was asking price but they wanted me to cover $10K in closing costs. I haven't sold a house since 2015 and this seems relatively new. I can think of only two reasons it gets structured that way instead of a $390,000 offer. First, I'm still paying commission on that $10,000 since the offer was full-price. Second, it artificially inflates market values in the area because it looks no different from a full-price sale in the public records when it's sold. I guess that also makes the selling realtor's track record look good.

Down the road, it's going to hit the new owners when the county sets the assessed value at the current sale price.

Any other thoughts?

 

[Kings over Queens]

They may not have add the cash to cover all of their closing costs and it worked better to roll those into the purchase price and mortgage (assuming they are financing). Just thinking out loud.

 

[RetiredHappy]

Are they getting a bump in their mortgage because on paper they are buying at $400K?

Yes, it will add to their property tax, but that is their problem. $10K is not enough to affect comps.

 

[MichaelB]

They may not have add the cash to cover all of their closing costs and it worked better to roll those into the purchase price and mortgage (assuming they are financing). Just thinking out loud.

That was my thought as well.

 

[sakowitzm]

Maybe just psychological. If they offered $390K, you'd likely have a negative reaction. So $400K FULL PRICE OFFER less $10K looks better. In the same was that $99 for something looks a lot cheaper than $100.

 

[athena53]

They may not have add the cash to cover all of their closing costs and it worked better to roll those into the purchase price and mortgage (assuming they are financing). Just thinking out loud.

Ah, I hadn't thought of that. They're not putting a lot down- it's an FHA loan for which they've been pre-approved- so that may be the reason. Still not happy about paying the commission on the $10,000 but I'm hoping it goes through without any bumps in the road.

 

[Mark1]

Unlikely, but their employer may be paying something. I once got a HCOL subsidy from Megacorp on our house purchase and a higher purchase price would increase the subsidy. Actually, when we sold that house we countered with a lower price then the buyer offered. Why? Because we had a slight loss anyway and Megacorp was covering 90% of the loss. Of course, our lower counter ($500 less, so cost us $50) excluded two inspections (general and roof) and replacing a double pane window that was frosted from losing its seal.

 

[RetiredHappy]

Ah, I hadn't thought of that. They're not putting a lot down- it's an FHA loan for which they've been pre-approved- so that may be the reason. Still not happy about paying the commission on the $10,000 but I'm hoping it goes through without any bumps in the road.

You could tell the realtor that to accept the offer, let's split it down the middle, with the realtor putting in a $5K credit and you will cover the other half.

We did that when our offer came in $10k below asking and the realtor gladly agreed to close the deal.

 

[Kings over Queens]

Ah, I hadn't thought of that. They're not putting a lot down- it's an FHA loan for which they've been pre-approved- so that may be the reason. Still not happy about paying the commission on the $10,000 but I'm hoping it goes through without any bumps in the road.

Why can't you work the deal so the closing costs are paid seperately?

A friend recently bought a property and structured the offer where he reduced his offer by the commission, and paid the seller commission directly instead of the seller out of closing costs, and this kept the price under a certain local threshold that would have otherwise triggered a special tax. It made his offer more appealing to the buyer. 7

 

[RetireBy90]

I have bought homes where I asked seller to cover some of closing costs. For us, it was a matter of out of pocket costs. As a buyer I wasn’t really interested in the commission impact. I’ll add that we used VA loan with no money down, so out of pocket costs were limited to prepays.

 

[PaunchyPirate]

If they need help gathering the closing costs and you don't really want to reduce your price that much to help them, then you could say how about a price of $410,000 and you will pay $10,000 of the closing costs? Or something similar.

I wanted to sell a second home I owned to my niece at a discount. I paid $85,000 for it and it was worth probably $100,000 on the market. I offered it to them at $90,000. Their FHA loan officer suggested I up the price to $94,500 and then agree to pay $5000 in closing costs so they didn't have to come up with as much up-front cash to close the deal. I was fine with this and it helped them a lot -- First time homeowners.

 

[pb4uski]

Ah, I hadn't thought of that. They're not putting a lot down- it's an FHA loan for which they've been pre-approved- so that may be the reason. Still not happy about paying the commission on the $10,000 but I'm hoping it goes through without any bumps in the road.

Have you asked either of the realtors to adjust their commission on the net price? Or to reduce their commission rate by 0.025%?

 

[Teacher Terry]

I have owned 10 properties and sold nine and the few times I was asked to do something similar was because the buyers didn’t have the cash for the closing costs. That way they were actually rolling them into the loan.

 

[engineernerd]

This is quite common in my experience, especially with first-time buyers struggling to come up with enough cash to cover the down payment, the buyer's closing costs, and the cash reserves most mortgage lenders require buyers to have on hand so they won't default right away if they have an unexpected expense.

The extra commission on $10k isn't a lot of money in the grand scheme of things ($600?). If the buyer tries to get concessions based on the inspection contingency, that might be a good time to see if the agents are willing to knock a bit off their commissions to get the deal done.

BTW, the actual price I paid for the homes I've bought has NEVER seemed to affect their assessed value. How they do those calculations is a mystery to me.

 

[gauss]

Warning - Slightly off-topic rant follows:
I would never sell a house again without an attorney lined up to represent me. I have had too many buyer games being played.

The last one I had a large earnest deposit and the buyer was an M.D. and professor at the medical school. I thought he would be good to close on the agreed terms. Nope. About a day or two after the inspection contingency had expired, they wanted things fixed or added (ie radon remediation system). Would have been fine if the request came in on time instead of a few day late, or if the city required this but none of this applied. These requests came in after the first round of requested repairs were completed during the inspection contingency period.

After I first displayed weakness, then about a month later before closing they decided they didn't like the appraised value. They thought they must have paid too much and everyone said I needed to accept the reduction. I said "wait - there is no appraisal contingency in the contract He needs to honor his commitment or forfeit his deposit."

Nope - "My" real estate agent informs me that I would have to take him to court to get the security deposit and the house could not be relisted during the intervening months.

If I had an attorney on-boarded that could have told me we could take them to court, get them to pay all of my out of pocket expenses that they have caused including the legal fees, due to their apparent default, I would have pursued it.

Not having that attorney available I had to either let him out of the deal all together or accept a negotiated reduction, or play court roulette.

In the end I absorbed most of the final $6,000 reduction, the buyer absorbed maybe $1,500 and the real estate agents absorbed $1,000.

So think about this before you get too far into the process and/or weigh your buyers offers. Without an attorney on your side they may not be real offers -- and the game players know that.

-gauss

 

[athena53]

The extra commission on $10k isn't a lot of money in the grand scheme of things ($600?). If the buyer tries to get concessions based on the inspection contingency, that might be a good time to see if the agents are willing to knock a bit off their commissions to get the deal done.

BTW, the actual price I paid for the homes I've bought has NEVER seemed to affect their assessed value. How they do those calculations is a mystery to me.

Thanks-I like this idea! A few years ago our county conducted a botched re-valuation project. Most people saw their valuations double even though they’re done every 2 years so were fairly up-to-date. Mine went down 25%. I have no idea why. I did not ask for a re-assessment. Not only that- in order to placate us they offered to freeze property taxes at the new level if you were over 65. Deal. So, I’m guessing they will end up with a higher re-assessment. The disclosure form asked about any property tax abatements and I noted the over-65 freeze. Zillow and other sites have the assessment history including the drop.

 

[RetiredHappy]

When I sold one of my homes in California, the buyer offered asking price immediately after I listed so that it was taken off the listing. A couple of weeks into it they wanted a new roof because they could not get homeowner insurance on a shake roof even though it was in good shape. Instead of the hassle of listing it again, I gave them a $14K credit to make their issue go away. I had no issue renewing each year with State Farm but they claimed that no one would write a new policy on a shake roof home. Note that this wasn't in a fire zone like Lake Tahoe, but whatever. Got it over and done with.

 

[gauss]

When I sold one of my homes in California, the buyer offered asking price immediately after I listed so that it was taken off the listing. A couple of weeks into it they wanted a new roof because they could not get homeowner insurance on a shake roof even though it was in good shape. Instead of the hassle of listing it again, I gave them a $14K credit to make their issue go away. I had no issue renewing each year with State Farm but they claimed that no one would write a new policy on a shake roof home. Note that this wasn't in a fire zone like Lake Tahoe, but whatever. Got it over and done with.

So did they do this within an inspection contingency, or did they do it "out of contract"?

 

[engineernerd]

gauss, sounds like you had a horrible real estate agent. If your contract was similar to the ones I've seen, that agent lied to you. The agent's office should have had possession of the earnest money so should have paid that to you if the buyer defaulted on the contract, and the buyer should have had to sue YOU to get it back.

 

[RetiredHappy]

So did they do this within an inspection contingency, or did they do it "out of contract"?

They did it within the inspection contingency.

 

[athena53]

I see a lot of horror stories on the Reddit real estate board. I couldn’t post my question there because I didn’t have enough karma! One seller said the buyer just plain didn’t show up at the closing although their lawyer and realtor did. They’d changed their mind.

Lawyers aren’t typically used in my state but I can see where I might need one if there’s a dispute.

 

[gauss]

gauss, sounds like you had a horrible real estate agent. If your contract was similar to the ones I've seen, that agent lied to you. The agent's office should have had possession of the earnest money so should have paid that to you if the buyer defaulted on the contract, and the buyer should have had to sue YOU to get it back.

I think the contracts around here are written such that there has to be a mutually agreeable decision document signed by both parties to release the funds. If not then, a court order. I don't think any title insurance firm would ensure a purchase that has another sale pending that hasn't been cancelled hence the no relisting rule.

I don't think the real estate brokerages who hold the funds want to get dragged into the disputes so the local boards provide model language to help facilitate that.

I read the contracts pretty carefully.

That's my world view - but hey, that doesn't mean that you might be totally correct too!

-gauss

 

[MC Rider]

Attorneys are not usually involved in normal RE sales here.
The closing costs concession is pretty common.

 

[RetireBy90]

I think the contracts around here are written such that there has to be a mutually agreeable decision document signed by both parties to release the funds. If not then, a court order. I don't think any title insurance firm would ensure a purchase that has another sale pending that hasn't been cancelled hence the no relisting rule.

I don't think the real estate brokerages who hold the funds want to get dragged into the disputes so the local boards provide model language to help facilitate that.

I read the contracts pretty carefully.

That's my world view - but hey, that doesn't mean that you might be totally correct too!

-gauss

We made an offer one time, it was accepted but the title was a bit fuzzy. Owners had refinanced and original bank went under and never filed release with county title folks. The title insurance company agreed to write a policy so seller refused to cancel contract and realtor wouldn’t return our earnest money unless he did. We found another better house and so let it go rather than get mortgage tied up in confusion of old contract.
Realtor had no incentive (other than doing the right thing). We used different agent so no commissions to punk agents.

 

[COcheesehead]

Adding an attorney into an already highly regulated transaction just adds unnecessary costs unless there is something really unique about the property or the transaction.
It’s sounds like a cash poor buyer.