Sep. 8, 2006: Who pays when 'seller pays closing costs'? The buyer...
Not all of the phone calls I get in response to these columns are from angry Realtors.
I like the calls I get from real people, rather than Realtors or brokers. Even so, a brief telephone call is not the always the best way for a person to wrap his or her mind around a new idea.
As an example, I had a very nice call in response to the article I wrote arguing that the buyer pays for everything in a real estate transaction. The caller was a very sweet man, but he insisted I must be wrong, because the seller of his home had paid his closing costs.
I explained to him that I write deals that way all the time, that I prefer to do things that way no matter what the buyer's financial circumstances, because, for now at least, retaining your own cash is usually more profitable than the interest-cost of the additional borrowed funds.
But - emphasize that "but" - it doesn't matter. You're paying your own closing costs either way. If you pay them in cash, you can watch the money come out of your checking account. If "the seller pays the closing costs," all you're doing is exchanging one price discount for another. Your money stays in your checking account because you are paying more for the home and financing the closing costs.
"But, but, but," the caller sputtered.
"I know," I continued. "This is hard. If the seller hadn't paid your closing costs, would the purchase price have been the same?"
"Heck, no!"
"So you took a three percent discount in closing costs instead of shaving three percent off the price?" I asked.
"That sounds about right."
"So you borrowed three percent more from your lender than you would have done if you had paid the closing costs out of pocket."
Silence - the threshold of rhetorical surrender.
"So who paid the closing costs?" I asked.
"When you put it that way..."
"Who paid for everything?"
"I'll be danged if you haven't got me convinced."
If only my Realtor and broker callers were this reasonable.
Greg Swann is the designated broker for BloodhoundRealty.com, a full-service Metropolitan Phoenix real estate brokerage. This article originally appeared in the West Valley regional sections of the Arizona Republic.
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Am I link-baiting? You bet. The quid pro quo is free content for your site that pulls eyeballs and excites interest.<a href="http://www.bloodhoundrealty.com/" target="_blank"> Phoenix Realtor Greg Swann</a> suggested I share this with you:
