What is a Seller Contribution?

It is very common for buyers to ask the seller to pay a portion of their closing costs as part of the transaction. This is request is written into the contract in paragraph 12 of the earnest money contract.

Why is the buyer asking you to pay some of their closing costs? The majority of the time it is because the lender has requested them to do so because the buyer does not have enough cash reserves to pay all of the closing costs associated with the loan requirements, therefore, the buyers asks the seller to make a contribution to help pay these costs. The contributions vary from as little as 1% to as high as 6% of the sales price, but 3% is the most common amount requested. 

Why would I offer to pay this money to the buyer? Isn't that costing me more money? Yes, it is costing you more money, however you need to consider two things. If the buyer is paying a fair price for the home and your home has been on the market for a while with no offers, it may actually be in your best interest to "work with this buyer" and negotiate the sales price with the amount you are willing to contribute. The other option is to raise the price of the home to cover your "losses" on the contribution, however this has become more difficult as lenders and appraisers have become more stringent on appraising homes and loaning money based on the appraisal amount.

The bottom line is that a seller contribution is just another form of "negotiating" the contract between the buyer and the seller. If you can't come to an agreement, there is no deal.

Dave@SanJacRealEstate.com     (713) 894-9436 Phone     (281) 476-6533 Fax

The information contained on this page and website was written and produced by Dave Turnquist and is the sole property of San Jac Real Estate. No unauthorized reproduction or use of this information is permitted without the expressed written consent of Dave Turnquist, Broker/Owner of San Jac Real Estate