A lot of emphasis is thrown on which side is going to carry closing costs. Once I got an understanding of what it was really about, instead of getting obsessed about who’s gonna carry the closing costs, think of closing costs as a last minute bargaining chip. The first thing is you have to know is it a buyer’s market, a seller’s market, or is the market pretty much at equilibrium. If you are the buyer in a buyer’s market, then by all means, firmly request that a seller carry the closing costs. If you are attempting to buy in a seller’s market, you have to factor in the closing costs and see if closing the deal is still worth it to you. In a seller’s market, closing costs give them a little leverage to “rattle your chains”, so to speak, so actually, if closing costs become too much of an issue, I would consider threatening to walk if the case is the seller wants to lord it over you.
On the flipside, if you are the seller in a seller’s market, the leverage is yours. You can state up front that you will not be carrying closing costs; you have the leverage and can always recruit another client. Different people have different ways of doing things; I always thought it was tacky to jerk a buyer around just because you can. It’s not a class move, and leaves them with a bad taste in their mouth. What happens if this particular buyer has more money to spend on other properties down the line? What you just did is lost yourself a potential return customer. Remember, it’s a seller’s market TODAY but it won’t always be that way. Cycles are natural in every process of life, including business. Now if the case is you are the seller in a buyer’s market, buyers will know their leverage is to not get committed to any one deal unless the deal is sweet enough. In this case, I’d offer to cover closing costs (as much as you can fit it in to your profit margin), to make yourself a more attractive candidate.
If the market is at equilibrium (a standstill), then it’s anybody’s ball game and you negotiate as you see fit. In the grand scheme of things, it never hurts to save a buck, but you can also be “penny wise and pound foolish”. If there’s a method where how you manage closing costs determine whether you make a profit or not, I’m not familiar with and maybe I need to be enlightened. My personal thoughts are not to really dwell on closing costs if you can get a 50%/50% split.
Included in that are agent’s commissions and I never thought it was a good idea to ask either agent to take a point (percentage point) of their commission. I’ve always kind of figured you get exactly what kind of service you pay for.
Where ability to negotiating closing costs came in handy for me is when as either buyer or seller, and an issue arose around some structural item I didn’t want to get involved with the repair work, conceding a little on closing costs and letting the other party handle it sometimes worked out better. Or likewise, if a repair issue came up that I didn’t mind tackling (or I know I can get it done cheaper than industry standard), why not present the other side with an industry standard estimate and offer to take care of an issue?
When I was in business, I heard a lot of people throwing industry jargon around, but not truly knowing the effect and the WHY they were saying what they were saying other than it sounded good. Yes, you need to know what closing costs consist of so that you don’t get taken for an unnecessary ride (there are a lot of little “nibblers” in the closing process that it does matter if they squeeze an extra $50 or $100 out of you, because they work in large volumes of closings). But for the most part, if closings costs make or break your deal, it’s probably not a good deal, unless there’s some special incentive to close.
