Can you Negotiate Closing Costs?
UNDERSTANDING CLOSING COSTS
Closing costs for a home buyer average anywhere between 2-4 percent of the purchase price. It’s very important for a home buyer to understand what closing costs are and who traditionally pays them on a contract.
Working with an experienced Real Estate Agent and loan officer is the first step in understanding your closing costs before writing an offer.
Once you have a grasp of all the potential closing costs, it’s time to reach out to your title company. Many good title agents will provide you with materials that will explain what the buyer and seller traditionally pay and why.
After you complete a loan application with your loan officer, the mortgage company is required to share an estimate of closing costs with you within 3 days. Many times the lender will do a pretty good job itemizing their costs, but will need to guess when it comes to escrow and title fees, HOA fees and service fees by outside vendors such as insurance companies, appraisers, inspectors and others.
NEGOTIATING YOUR CLOSING COSTS WITH THE SELLER
Now that you know where to find information on all the fees associated with your home purchase, it’s time to determine who will pay them. In a buyers market, it’s common to see home buyers ask for the seller to pay their closing costs. Before you start asking for closing costs on the offer, you should know that many sellers will consider a bottom-line number.
For example, if your offer on a home listed for $200,000 is $190,000 and you’re asking for 3% closing cost from the seller. Seller will see this as a $184,300 offer. When competing with other buyers who don’t require closing cost assistance from the seller, you have a high chance of getting a rejected offer.
Some sellers will ask you to offer ABOVE full price in order to offset their bottom-line number. From their perspective, paying for your closing cost is a wash. This can become problematic if the home is listed over market value. There could be a good chance an appraiser will value the home below the offer price, causing the deal to be placed in jeopardy.
WHEN TO PAY YOUR OWN CLOSING COSTS
Experienced Realtors can negotiate a buyers closing costs in conjunction with the offer price to satisfy all parties. NOTE: Sometimes it isn’t necessary for a buyer to receive the full amount of his or her closing costs from the seller. These buyers may have money saved up beyond the down payment to spend on their loan costs.
There are many loan programs available to home buyers that offer down payment assistance. Over recent years, these same programs additionally offer an option to assist with closing costs as well. Talk to an experienced lender who knows many of these types of programs and can determine your eligibility.
Sellers have their own set of fees such as title insurance, real estate brokerage fees, escrow fees, HOA transfer fees and more. Before negotiating your closing costs with the seller, we recommend finding creative ways to cover your costs.
TAKE STEPS TO REDUCE YOUR CLOSING COSTS
After your offer has been accepted and it’s determined who pay who’s closing costs, work further in getting those costs reduced. Approaching your title agent could save you a few hundred off of the escrow fee or lender’s title insurance policy. You can even shop around for low-cost homeowner’s coverage or save money searching for inspectors and other vendors who will work with you at a lower price.
PREDICTABLE BUYING EXPERIENCE
The costs to buy a home does not need to be a big mystery. After putting down 5%, closing costs can be a real burden because lenders will not finance them into the loan. However, knowing about these costs will make the buying experience more predictable.
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About the Author: The above article, Can you Negotiate Closing Costs? was written by Troy J. Elston, a licensed Realtor at West USA Realty, the premiere real estate brokerage based in Peoria Arizona. With over 16 years of experience in the real estate industry, Troy produces stunning results for home buyers and sellers. If you're thinking of BUYING or SELLING a home in the Phoenix Area, Troy would love to share his knowledge and expertise with you.
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