Advice needed re: closing costs "kickback"
Hi all, long time lurker, first time poster.
I've just had my first offer on my house. as I've never sold a house before and I bought it back in the pre-Bubble year of 2003, I have two questions.
What are typical closing costs these days for a non-short sale, non REO/foreclosure SFH? I'm guessing $3000 to $5000, because that's sorta what I remember, but I don't have my paperwork handy to see what I paid back in the day.
now for the advice needed: The offer that was made on my house is for my asking price, which is below $300K (it's a starter house). We did lower the price slightly over the course of the listing, so I feel like the house is priced fairly/ accurately now.
The buyer wants $10K from me in closing costs, which I'm sure is more than they will actually cost. My agent (who is reviewing this with her higher ups) thinks that the buyer wants to use the left over cash to pay down a point on the mortgage by having a larger down payment. I asked why the buyer didn't just make an offer for $10K below asking price. Agent said it was probably a combination of "people like to get their asking price" (so it makes me "feel better" that the offer is for the whole amount even if other costs make the actual price lower) and the buyer wanting some liquid cash for financing reasons.
has anyone else done this, either as a buyer or a seller? I could counter offer by accepting a slightly lower price plus agreeing to pay only the actual closing costs that would net me the same amount, but if the buyer has a good reason to do this and it would screw up the deal if we don't do it this way....well, in this market, I'm inclined to be flexible to make the sale happen, as I'm sure the buyer is aware. I'm guessing that after ACTUAL closing costs are paid, this is probably a negligible amount.
The only down sides I can see to doing it this way is 1) when I pay the realtor's commission at the higher price, it'd be about $300 more than if I took $5K off the asking price and paid closing out of that 2) selling it for asking price and taking closing costs and 'buyer kickback" out of the overhead maybe makes the house look more "valuable" for property tax/sales stats than if I took a lower price. But again, I'm sure the buyer has a good reason for doing it this way.
I should also add that while the buyer will do an inspection and possibly ask for concessions there, the buyer has NOT asked for any "form 17" repairs on the stuff I've already declared to be not perfect. For example, there's nothing in the offer that says "seller will fix the wooden gate that needs repair", so I'm assuming that it's unlikely the buyer will ask for these things post inspection since they were declared up front. I'm assuming one can put an inspection contingency in the offer that says "seller won't fix anything already declared on form 17 if you don't ask now, unless inspection shows it to be a hazard"?
I meet with my agent sunday early evening to do the counteroffer, so any advice is appreciated. wish me luck in coming to a mutually agreeable deal with this buyer !
I've just had my first offer on my house. as I've never sold a house before and I bought it back in the pre-Bubble year of 2003, I have two questions.
What are typical closing costs these days for a non-short sale, non REO/foreclosure SFH? I'm guessing $3000 to $5000, because that's sorta what I remember, but I don't have my paperwork handy to see what I paid back in the day.
now for the advice needed: The offer that was made on my house is for my asking price, which is below $300K (it's a starter house). We did lower the price slightly over the course of the listing, so I feel like the house is priced fairly/ accurately now.
The buyer wants $10K from me in closing costs, which I'm sure is more than they will actually cost. My agent (who is reviewing this with her higher ups) thinks that the buyer wants to use the left over cash to pay down a point on the mortgage by having a larger down payment. I asked why the buyer didn't just make an offer for $10K below asking price. Agent said it was probably a combination of "people like to get their asking price" (so it makes me "feel better" that the offer is for the whole amount even if other costs make the actual price lower) and the buyer wanting some liquid cash for financing reasons.
has anyone else done this, either as a buyer or a seller? I could counter offer by accepting a slightly lower price plus agreeing to pay only the actual closing costs that would net me the same amount, but if the buyer has a good reason to do this and it would screw up the deal if we don't do it this way....well, in this market, I'm inclined to be flexible to make the sale happen, as I'm sure the buyer is aware. I'm guessing that after ACTUAL closing costs are paid, this is probably a negligible amount.
The only down sides I can see to doing it this way is 1) when I pay the realtor's commission at the higher price, it'd be about $300 more than if I took $5K off the asking price and paid closing out of that 2) selling it for asking price and taking closing costs and 'buyer kickback" out of the overhead maybe makes the house look more "valuable" for property tax/sales stats than if I took a lower price. But again, I'm sure the buyer has a good reason for doing it this way.
I should also add that while the buyer will do an inspection and possibly ask for concessions there, the buyer has NOT asked for any "form 17" repairs on the stuff I've already declared to be not perfect. For example, there's nothing in the offer that says "seller will fix the wooden gate that needs repair", so I'm assuming that it's unlikely the buyer will ask for these things post inspection since they were declared up front. I'm assuming one can put an inspection contingency in the offer that says "seller won't fix anything already declared on form 17 if you don't ask now, unless inspection shows it to be a hazard"?
I meet with my agent sunday early evening to do the counteroffer, so any advice is appreciated. wish me luck in coming to a mutually agreeable deal with this buyer !
Comments
And then there's the fact that in the end, even though the house really sold for $290k in reality, it will be listed as sold for $300k on the MLS.
Regarding the agents "reasoning"...
Do you truly feel like you got your "asking" price?
Why would the buyer presumably want/need your liquid cash for financing reasons?
I've seen cases where a hungry loan originator pumped up the closing costs when they saw a dollar figure in there, when the actual closing costs were much less than the $10,000. Ask the homebuyer's lender to provide a good faith estimate of closing costs ahead of time, and if there is any left over, then you can ask for that to be credited back to you.
Many conforming loans have limits as to how much the seller can contribute to the allowable closing costs. Your Realtor should be able to find out pretty easily what type of loan the buyer is using, and if your Realtor has half a brain, he/she should be able to tell you the maximum allowable for that program type.
I'd try to avoid any scenario where there's several thousand laying around of your equity. When the sales prices is lower, your escrow and title fees will be lower, excise tax, and yes, Realtor commission.
If you're wanting to counter, my suggestion would be to say that you plan on countering, but ask if the closing costs are more important than the sales price in the counter.
Also there is a good chance that 10K is more than a lender will be allowed to have the seller pay in closing costs. It's usually capped at 3% of the purchase price.
Also your agent should recommend having the agent commission set so that commissions are only paid on the sales price not including seller contributions to closing costs. That's what I always do with my clients when a buyer asks for closing costs.
On bigger rental properties prepaids are even pigger, we had a deal with reserves of 2 years had to be escrowed on 24 units.
This system will need to be corrected eventually.
The information should be disclosed in the MLS and on the bank appraisal.
And the IRS!!!
Only in the event that your net gain (for a married couple) is over $500,000 and not rolled over into a new home in the next three years would it be considered taxable. Probably not a huge amount of sales would fall into that category, but certainly some.
IRS has nothing to do with seller concessions either. Obviously RCC has never even seen a HUD.
I didn't mean that they do know, but it sure seems like they should. As jjl pointed out, there are circumstances where the IRS does become involved. It'd be easier for them to track such instances if all sales and concessions were reported.
The only thing that IRS is concerned about is the net to seller. Nothing else, as that is the only thing that effects the tax basis. That is already reported to IRS as it is. Gross sales price creates no consequences for income taxes or capital gains.
We ended up working out a little different counter offer which was accepted by both sides. We sold for the orginal amount that he offered however we gave him money back through the closing escrow. I think that her wanted to use some the money to make some improvements to the house.
Your buyer could be using the money for something else such as helping buy down the loan.
If this is a qualified buyer and you can close the deal soon. How big of difference would the $300 be to you? I am guessing that your mortgage is more then $300. If the buyer walks away how long would it take for you to find another buyer. You could end up paying more mortgages until another buyer comes along.
However I know that it is hard to part with your money. Especially when the buyer is getting so much on his end as far as the closing costs.
I hope that helps.
My point exactly. Gross is reported for NAR stats, but the IRS would get the net, which had better be more accurate than the gross sale price. Besides, the comment was really tongue in cheek.
Money kicked back for a remodel should not be included in the recorded sales price of the house IMO.
Money kicked back to buy down an interest rate etc. etc. should not be included in the price of the house. That's the price of the loan, not the house.
It's a pretty simple concept...really.
The deal fell through, but not over the closing costs issue. Buyer wanted to lease/with option to purchase but also wanted to paint while leasing, and when I countered these terms with market value rent, a damage deposit and no alterations until property was purchased, buyer walked away. can't say I'm too sad, because before buyer walked away, I got another offer with none of this leasing foolishness and a cap of $6K for the closing costs the buyer expects (which, again, is what I guessed they'd be around).
AND while I'm considering that offer, agent got verbal word that another offer is coming tomorrow. So hopefully one of these will work out.
3 offers in one week. Not what I expected after all the layoff news. Is this TARP bailout finally trickling down so that lenders are making (wise) loans now? anyway, I'm just glad to see a bright spot.
I'll let ya'll know what happens and what the actually closing coasts end up being. :-)
Good luck with the upcoming offers.