My Duplex Buyer Wants Me to Pay What?

said on December 7th, 2015 categorized under: What Does That Mean?

Duplex Closing CostsIt’s been a long time since many Minneapolis duplex owners have thought about selling.

With rising prices, changing life circumstances and age, however, many are starting to. With that, they are discovering much of the language involved has changed since the last time they sold property.

One thing many sellers may not understand is language in a purchase agreement that asks the seller to pay the buyer’s closing costs.

Closing costs are extra fees charged when ownership changes hands. They include things like the origination fee the buyer pays to the lender for the loan, prepaid property taxes and insurance, warranty costs, and various other state and county fees.

When a buyer asks a seller to pay for these costs, on the surface, it appears as if it reduces the net amount the seller takes home from closing. After all, 3 percent in seller paid closing costs on a $100,000 property is $3000. This essentially makes the purchase price to the seller $97,000.

As a result, many sellers tell me the buyer needs to pay those costs themselves.

However, it isn’t quite that simple.

It takes a considerable amount of time to save money for a down payment; especially if this is the buyer’s first home purchase.

And while many buyers have saved far more than the amount they need for the down payment and closing costs, they also want to be sure they have ample reserves in the event something needs to be repaired at the duplex.

This is where seller paid closing costs come in. When a buyer asks a seller to pay their closing costs, in a way, the buyer is simply asking to include their closing costs as part of their loan. By folding it in to the total purchase price of the duplex, and asking the seller to pay these expenses, they have, in effect, financed them.

There is a way to do this that doesn’t effect the sellers net at all. This is done simply by increasing the purchase price by the amount of closing costs the buyer is asking the seller to pay.

For example, rather than including the costs in the list price of $100,000, the purchase price is raised to $103,000. After the buyer’s closing costs are paid, the effective net price to the seller is $100,000, rather than the $97,000 cited above.

This scenario is a win for both the duplex buyer and seller. The buyer gets to preserve her savings, while the seller nets the amount they would have had the buyer paid the costs out of her pocket.