Foreclosure in Wilmington>Question Details

Christopher…, Home Buyer in 19703

In a short sale situation, can I make an offer with the stipulation that the seller covers all closing cost? Does the bank ever cover closing cost?

Asked by Christopher J., 19703 Wed Aug 18, 2010

I'm a buyer interested in a short sale property. After two counters, I think we can reach an agreement on the price, but I would like the seller to cover closing cost. A short sale not being a traditional transaction, I'm left wondering if it would be feasible to even ask for the closing cost to be covered by the seller..

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16
You have to understand when you are involved in a short sale, there are 2 separate transactions going on. The real estate transaction and the transaction to allow the owner/mortgagor to payoff the loan short.

So when negotiating these transactions, the bank may agree to it or may not depending on the offer and the liens outstanding. I have had deals where the bank has agreed to paying closing costs and others where they have taken those funds away to pay the second mortgage.

The key is know what your getting into before you sign on the dotted line.

Keith Manson
First Weber Group
Certified Distressed Property Expert
Metro Milwaukee

http://www.milwaukeebailout.com
2 votes Thank Flag Link Wed Aug 18, 2010
It does not hurt to ask. I have seen the banks agree to closing cost previously. Most cases they will counter.

thanks,

Dawn
0 votes Thank Flag Link Sun Aug 22, 2010
You can ask the 'seller' to cover closing costs, however, the 'seller' in a short sale is ultimately the bank. And very often the bank will agree to cover closing costs. Remember, in a short sale the original 'seller' is selliing short because he has no money and the house is worth less than what is owed to the bank. These transcations take lots of patience. But it can be done. Any questions, you are welcome to call me at 302-429-7341.
0 votes Thank Flag Link Sun Aug 22, 2010
Thanks Sparks!

Christopher,

The seller must accept the offer. But, the seller is not the one who will actually be covering the transactional expenses to close the transaction. There may be the rare transaction where the seller brings some money to closing, but in most short sales, the seller brings no money to closing. All transactional expenses, attorney fees, Realtor fees, outstanding taxes, sewer bills, transfer taxes, etc are generally paid from the proceeds, which then reduces the net amount received by the bank. Therefore, it is the bank that will be covering your closing costs, or not, depending upon their decision.

Property Value (per Bank's due diligence through appraisals, BPO's, AVM's) - ?? Unknown

Sale Price 275,000
Loan Balance 300,000

Transactional fees paid from proceeds - 25,000

Net Proceeds to Bank - 250,000 on a 300,000 loan. The bank's decision to approve a sale depends upon the anticipated Net Proceeds compared to both the Loan Balance and the Property Value (per the banks due diligence.)

Some banks may have policies against paying any buyer closing costs in a short sale. Yes, the seller is the current homeowner, but it is the bank who will actually be covering your closing costs since it reduces the net proceeds they receive.

The closer the anticipated net proceeds approaches the market value (as determined by bank's research), the greater likelihood of an approval.

There is one more layer of decision makers. Frequently, a bank is the servicer of the loan, but the actual loan is owned by an investor. When the loan is owned by an investor, the bank's representative will remain the contact, and present the offers to the investor for approval.
0 votes Thank Flag Link Thu Aug 19, 2010
Deborah Madey, Real Estate Pro in Red Bank, NJ
MVP'08
Contact
Kamal not only are you incorrect about who the seller is but also with the net figure you quoted. Each bank is different, each transaction is handled differently even within the same bank. Sometimes the bank cannot net 80%, there's no perfect formula with short sales.
0 votes Thank Flag Link Wed Aug 18, 2010
I don't know if this will confuse you, because it did me. I just bought a short sale. The bank approved the price, the seller (the people living in the house) accepted my offer. They decided who would buy the house. The bank had no say in that decision, even when others offered more money. But then it was even more confusing, even to the agent. The bank picked up most of the closiing costs, without question. So, it seems the hard and fast rules, the ones that can't be bent, well, they are at the whims of the banks.
0 votes Thank Flag Link Wed Aug 18, 2010
This comment is to Kamal - Janet is correct - the Seller is the homeowner in a short sale. The lender is a third party who has to approve the sale or the seller cannot proceed.

Also many banks are not taking anything less than BPO price or the appraised value. Check the new FDIC rules.

I am sorry but we have to be careful what we tell people here or it makes things much more difficult for them.
0 votes Thank Flag Link Wed Aug 18, 2010
Actually, in a short sale, the seller is the lender, not the homeowner. And the short answer is yes, you can ask. and in some cases they say yes. The trick here is whether the lender is netting anywhere between 80% to 82% of BPO
Web Reference: http://www.kamalsalim.com
0 votes Thank Flag Link Wed Aug 18, 2010
When you write the seller, are you referring to the homeowner? Most short sale transactions are a result of some kind of hardship from the homeowner, how and why would they pay your closing cost? If you are referring to the bank (which is not the seller but the third party) it will depends, it's usually partial at best. The listing agent or the individual negotiating the short sale will be the best person to ask; they can check directly with the bank to determin their "policy".
0 votes Thank Flag Link Wed Aug 18, 2010
It never hurts to ask, right?! The worst they can say is no.

However, I'm trying to recall where I heard this, but I think some banks and even Fannie Mae are now restricting the amount of funds a seller can refund in closing costs, if they allow it at all. Does anyone else know what I might be thinking about?

Another thing to keep in mind is that the seller is already in financial straits, otherwise they wouldn't be doing a short sale. So don't be surprised if they aren't willing to negotiate on this point.

Best of luck and I hope it works out for you!
Web Reference: http://tim.flynnteam.com
0 votes Thank Flag Link Wed Aug 18, 2010
The net is the bottom line, In most transactions in SS, the bank DOES NOT like to pay any assistance to the purchaser and in MOST transactions will not!! We have sold thousands of SS assets and the bank will only pay what is necessary to close AFTER the lender comes back to the seller and buyer with their counterposal. My wife has a VP position with a rather large lender in their LMD. So, we discuss this situation on a daily basis.
0 votes Thank Flag Link Wed Aug 18, 2010
The bank is interested in the net amount that will be received from the sale. A property that is listed for $10 that sells for full price, minus $2 in closing costs, nets the bank $8. If the same property sold for $8, same net to bank. Of course, this is oversimplifying.

You say you think you can come to agreement on the price, but price is not the only consideration. If you ask the bank to pay closing costs the NET price is reduced. So…you haven’t gotten agreement on the price.
0 votes Thank Flag Link Wed Aug 18, 2010
Yes, the bank will often agree to some closing costs..... a lot has to do with what they will net.
If you are asking for a lot of closing costs I think you should be prepared for the bank not to agree to pay as much as you would like. So if you truly need to have all of your closing costs paid for you may want to reconsider a short sale.
0 votes Thank Flag Link Wed Aug 18, 2010
Good evening Christopher,

I would say if you can afford to pay the closing costs yourself, you should try to pay them to keep from complicating the negotiations. The bank will likely want more money since assisting in closing costs cuts into what they receive if you add the closing cost on top of the agreed price they may or not allow it.

If you need the assistance because of negotiating the price, then ask your Realtor to check to see if the value is there and if they think it will appraise. The bank likely knows the current market value and is requiring that amount. When you go for your loan, your bank will want the property to appraise for the contract price including the closing costs.
0 votes Thank Flag Link Wed Aug 18, 2010
It is harder to work with a bank in covering closing costs, but it can be done. There are some banks who will agree, more hat will not.
0 votes Thank Flag Link Wed Aug 18, 2010
Deborah Madey, Real Estate Pro in Red Bank, NJ
MVP'08
Contact
Yes, if the net to the seller is the same, I don't see why the bank would mind. It can be set up that the realtor fee is based on the net selling price not the price including closing costs. It won't hurt to ask.
0 votes Thank Flag Link Wed Aug 18, 2010
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