Sellers are moderately likely to pay for a buyer's closing costs, known as concessions, depending heavily on market conditions and negotiations, with such requests being more common in buyer's markets or for homes sitting on the market. While sellers almost always pay their own costs (e.g., commissions, taxes), they may contribute 2%–6% of the purchase price towards buyer costs to close a deal.
The disadvantages of sellers paying closing costs include cutting into your final profit, weakening your negotiating position, and potentially making your property seem less competitive if buyers expect similar concessions elsewhere.
Common closing costs for sellers
Here are six negotiating strategies to help reduce your closing costs, whether you're buying a home or refinancing your current one.
Opt for a Discount Broker or a Flat Fee Realtor
This will further reduce the closing costs. Additionally, some agents also offer markdowns if sellers refer them to their buyer for their next real estate sale. Sellers can also get rid of percentage charges entirely by choosing flat-fee realtors.
The success of your negotiation for seller concessions relies on the current real estate market. If you're in a seller's market, for example, then it may be more challenging to negotiate since the market is in their favor. A buyer's market, on the other hand, is more favorable because sellers are more likely to agree.
You can negotiate with the seller to have them cover part (or all) of your closing costs as part of the purchase agreement. This is especially common when there are fewer buyers in the market, and the seller may be more motivated to offer financial incentives to close the deal. Lender credits.
Seller Concession Examples
Closing Costs: In this scenario, the seller agrees to cover the buyer's closing costs, including expenses like appraisal fees, title insurance, and loan origination fees. This concession can make the home purchase more affordable for the buyer and facilitate a smoother transaction.
It's when you sign the final paperwork and receive the keys to your new home! Unlike your earnest money deposit or down payment, which may be paid earlier in the process, closing costs must be paid in full at the time of closing.
Can you deduct closings costs on a home from your federal taxes? In most cases, the answer is no. The only mortgage closing costs you can claim on your tax return for the tax year when you buy a home are any points you pay to reduce your interest rate and any property taxes you paid up front.
There are times when buyers are in the best position to negotiate closing costs with lenders and sellers. Lenders might be more willing to negotiate closing costs if you have a high credit score. It helps, too, if you are taking out a larger mortgage.
Sellers typically pay more in total closing costs, often 6% to 10% of the sale price, largely due to real estate agent commissions, while buyers usually pay 2% to 5% for lender fees, title insurance, and other costs, but these amounts are negotiable and vary by location and market. The seller covers the large commission for both agents, while the buyer pays for their mortgage-related expenses, but buyers can ask sellers for "concessions" to help cover their costs.
Closing costs on a $500,000 house generally range from $10,000 to $25,000, based on the typical 2% to 5% of the purchase price. The exact amount can vary depending on the specific services required, the location of the property, and any negotiated concessions between the buyer and seller.
A seller's maximum contribution to a buyer's closing costs depends heavily on the loan type and buyer's down payment, typically ranging from 3% to 9% for conventional loans, 6% for FHA/USDA loans, and around 4% for VA loans, with limits adjusted for investment properties or lower down payments to prevent appraisal issues.
The 3-7-3 Rule in mortgages isn't a loan type but a federal timeline from the TILA-RESPA Integrated Disclosure (TRID) rule, ensuring borrower protection by mandating disclosures within 3 business days of application, a 7-business-day wait between the initial Loan Estimate and closing, and another 3-day wait if significant changes (like APR) occur, giving borrowers time to review costs before committing to a loan.
While closing costs usually can't be completely eliminated, there are legitimate ways to reduce them, shift who pays them, or effectively “waive” them through credits and assistance programs. In most cases, “waived” means the costs are covered or offset, not erased entirely.
Buyers usually cover most closing costs, including loan origination fees, appraisal fees, and title insurance, while sellers often handle expenses like REALTOR commissions and transfer taxes.