It’s a Seller’s Market in the Twin Cities, so Why should I pay a BUYER’S Closing Costs?

The market is hot and sellers are in the driver’s seat once again in the housing market. So why in the world would any one of them be expected to kick in for a buyer’s closing costs? 

One of the items on the seller’s estimate of proceeds included in every market analysis I do has a place for a “Seller's contribution to a Buyer’s Closing Costs.” I always include several thousand dollars as an estimate to prepare my clients that this could come up at negotiations. A significant portion of buyers, whether using  FHA , VA or conventional financing, will require assistance with their closing costs. 

Just the other day, a potential seller said that he didn’t think he should have to pay a first time buyer’s closing costs.  I had to explain to him that buyers in ALL price points, whether purchasing a first home or moving up to a second property, might ask for seller concessions. You might be asked in negotiations to contribute to a buyer's closing costs so they can BUY your house! 


After our conversation, I decided to see what how often homebuyers are asking for closing costs in the Minneapolis/St Paul north metro. I looked at the sales of single family residential homes in Anoka County during June 2016. Even I was surprised by the results, well over 50% of homebuyers received closing cost assistance during the month. But when I broke it down by price, I was even more surprised. I found that in the price ranges from $100,000-$400,000 more than 60% of buyers negotiated for the seller to pay some closing costs. And from $400K to $500K, over 50% still requested and received assistance. Even with homes sold at over $500,000, 1 in 4 buyers received seller paid assistance. 

I decided to look at all four north metro counties to see if this was just an Anoka County phenomena. Nope….nearly the same results when I reviewed the aggregate of sales for Anoka, Chisago, Ramsey and Washington Counties together. 

Why Do So Many Buyers Need Help? Today most buyers are required to put down a minimum of 3% of the purchase price of the home as a down payment. If a buyer wants to avoid private mortgage insurance using conventional financing, this will require 20% down. The closing costs for a buyer include title insurance, home owner’s insurance, appraisals, loan origination fees, name search fees, filing fees and more. As a REALTOR® working throughout communities in Anoka County and the north metro Minneapolis/St Paul area, I see these closing costs will run anywhere from $4000-$8000 and even more for more expensive homes. Add this amount with a required down payment and few buyers will have sufficient funds to purchase a home.

Understanding Closing Cost Assistance Buyers have the option of waiting and saving additional money to cover the down payment and closing costs or asking for seller assistance. In many cases a financial institution will allow a seller to assist a buyer by paying either points to reduce the interest rates and/or closing costs.

How does this work? Let’s say that a home is on the market for $200,000. The buyer writes their offer for $200,000 and their financial institution allows up to 3% seller’s assistance with fees and closing costs. They decide to ask the seller in their purchase agreement for $5000 in seller paid concessions, thus the net offer to purchase the home is $195,000. If the offer is accepted, the seller’s proceeds at closing would then be reduced by the $5000. Sellers do not have to come up with the funds in cash if there is sufficient equity in the home to cover both the buyer's and the seller's costs.

If a seller does not want to pay the closing costs, the buyer in many cases, will not be able to purchase the home. 

Sellers Can Still Receive a Full Priced Offer! Take that example with the home listed at $200,000, if a buyer wants to offer full price but needs $5000 in closing costs, he would just write the offer price at $205,000 . The seller's net offer is full priced.

When a seller looks at their home sale as a business deal where the bottom line is key, being open to assisting a buyer with closing costs is a very smart decision. As long as a seller is happy with the NET number received, it doesn't matter whether some of the proceeds went to pay closing costs or not. 
  
Need to know more about buying or selling a Twin Cities home? Let me be your professional guide. If you are buying, selling or relocating to Minnesota and need help from a professional REALTOR®, give me, Teri Eckholm of Boardman Realty, a call or visit my website for a FREE Home Buyer Success Guide or FREE Home Value Report. I specialize in acreage and lakeshore properties in the north and east Twin Cities metro area including Ham Lake, Lino Lakes and all communities in the Forest Lake School District. Serving Anoka, Chisago, Ramsey and Washington Counties in Minnesota.

Copyright 2016 www.terieckholm.com

What is a Low Ball Offer in a Hot Real Estate Market?

In a hot real estate market, what initial offer can insulting to a home seller? 10% less than asking? 5% less? A full priced offer with 3% of buyer's closing costs paid by the seller?

When housing inventory is as tight as it is currently in many north and east Minneapolis/St. Paul metro communities, what is considered a "lowball offer" might be less than you think.
 
As a REALTOR®, I have seen my share of sellers who were insulted by a buyer’s offer over the years. There are times when anything less than a full priced offer is insulting. But should a buyer be afraid to request a few thousand toward closing costs with a fear that the seller will balk and accept the next offer in line?
 
A lot depends on the price and location within the Twin Cities. In some neighborhoods, it could be insulting to offer less than full price especially if it is a home priced under $200,000. There are an abundance of first time buyers out there looking for affordable, move-in ready homes. There are so many buyers out there that a well prepared and priced property can get an offer (or 2, 3 or more) in a matter of hours and be in pending in a matter of days. There are many neighborhoods and communities throughout Anoka, Washington, Ramsey and Chisago Counties with a very small number of homes for sale. Well priced homes do not stay on the market long.  It can be tough being a home buyer with a limited budget in  this changed market.

In fact some situations buyers will feel frustrated and that they might never get a home. The get advice from friends and relatives to never pay full price. Sellers always negotiate. But in reality, many sellers will not negotiate significantly. And a perceived offensive or  "lowball" offer could put the buyers’ dream home purchase in jeopardy.

How to Coming up with an Acceptable Starting Point:

• Request that your REALTOR® to do a market analysis. When representing a buyer, I will look up the recent comparable homes sold in the neighborhood before the "what to offer" discussion begins. In this low inventory market, a seller that lists at market value but could still be in a multiple offer situation due to demand. If the home is properly priced and in high-demand area, anything that is not close to full price could mean that the seller will wait for another offer. By looking at the neighborhood comparables, my buyers better understand what offer will be considered reasonable.


• Consider the original list price. If a seller started off too high and adjusted the price of the home it could be priced right now. If a market analysis shows the current price of the home is fair, offering 5-10% less could be considered insulting. When a buyer has found "THE: house and fallen in love with it, it might make sense to make an offer closer to the asking price rather than haggle and risk losing it.


• The Overpriced Home. If the market analysis shows the home to be significantly overpriced and the offer will be more than 10% less than current the current asking price, it may be helpful to provide the comparables to the seller and his/her agent. Sometimes when the offer is accompanied by documentation to back up the offer, the seller is less offended.But be careful not to overlook good comps to justify your offer. This strategy can be worse that not providing documentation at all.


• Buyer’s Plans to Remodel and Update. Some buyers think sending a long list of planned updates complete with associated estimates is a good strategy to negotiate for a price reduction. Often these lists include changes that reflect cosmetic and personal taste. Most sellers are not impressed when a buyer’s offer indicates that they are offering tens of thousands less due to paint, carpet and other cosmetic changes. If the updates are necessary due to age or wear, make note of the fact. But slamming a well maintained and updated home to justify a low offer is insulting and make continued negotiations difficult if not impossible.


• Avoid Considering Price Paid for Home. I have come across a few buyers who research tax records to determine the price the seller paid for the property. They assume if someone purchased a home at a very low price, they have a ton of equity. This can be true but not always. Some sellers have taken the equity out of their home for improvements or for other reasons. And well sellers do have equity, they usually don't intend to give it away either. Keep the negotiations focused on the fair market value of the home.

Right now, sellers are in excitedly anticipating a non-contingent, pre-approved home buyer to write an offer on their home. In most cases, they understand the market and have worked hard to prepare their properties to entice a written purchase agreement (or several). But buyers must think through their offers; the perfect starting point for negotiations must contemplated thoroughly. Discussions can go south very quickly between buyer and seller when the initial offer is deemed rude.

Need help coming up with that perfect starting point for your home offer? Let me be your professional guide. If you are buying, selling or relocating to Minnesota and need help from a professional REALTOR®, give me, Teri Eckholm of Boardman Realty, a call or visit my website for a FREE Home Buyer Success Guide or FREE Home Value Report. I specialize in acreage and lakeshore properties in the north and east Twin Cities metro area including Ham Lake, Lino Lakes and all communities in the Forest Lake School District. Serving Anoka, Chisago, Ramsey and Washington Counties in Minnesota.

Copyright 2015 www.terieckholm.com