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  • Mistakes that Salt Lake Home Sellers Make. Number 10

    Posted on March 1st, 2011 admin No comments

    Why should I pay the Buyer’s Closing Cost? No one paid my closing cost when I bought my home.

    “Paying the buyer’s closing cost” is a misleading statement. No one but the buyer can pay their closing cost. A more accurate statement would be: “The seller will allow the buyer to finance their closing cost over the life of the loan by adding them to the agreed upon purchase price.” Awkward but accurate.
    The number that a seller should pay attention to is the net equity. When you receive an offer your agent should provide an estimated breakdown of all the selling expenses and come up with the net amount to you. This is the final amount that the escrow officer will hand you at closing. In small non-sequential used bills if desired.

    Here is an example:
    Your home is listed for $159,900 and a buyer brings you an offer of $161,900 and ask that you pay $4800 in closing cost. This is actually an offer to you of $157,100. That is $161,900 – $4800 = $157,100. At settlement (close of escrow) the escrow company would credit you a sales price of $161,900 and then debit you $4800 and credit the buyer $4800 toward their cost. The buyer’s loan will be for $4800 more than it would have been if they had just paid their closing cost with cash and bought the home for $157,100. But now the buyer has more cash in their pocket (but has a higher monthly payment) and you sold your house.
    One gotcha to this is that the property must appraise for the higher amount. Which by definition is more than fair market value. This higher amount may also effect your capitol gains tax if it was an investment property and normally the real estate commissions are paid on the lower net amount.

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