Home Buying in San Diego>Question Details

lily, Home Buyer in San Diego, CA

for short sale case, which party should pay closing cost and how much will it be?

Asked by lily, San Diego, CA Thu Jun 2, 2011

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Almost everything is negotiable in real estate, including closing costs in a short sale. However as most sellers are at the end of their financial rope in a short sale you are much less likely to get the seller to pay closing costs. In a deed of trust state like Arizona they would rather it go to foreclosure than pay closing costs usually. The lender may include enough "rope" ie difference in what they will accept as net vs gross to allow some money to go towards closing and one may ask the bank to contribute,
1 vote Thank Flag Link Wed Jun 8, 2011
In this aspect, a Shortsale is no different from a Forclosure:
The "Seller" (Homeowner) is sort of a figurehead; they will have be in the middle, signing and approving everything, but they are not the Negotiators, their Bank is.
The Bank is basically selling you their interest in that house, and the monies are coming out of their pockets.

If you can negotiate, (in your offer), for the Bank to pay all or part of the Closing Costs, then go for it.

But be realistic; you are probably going to have to inflate the offer by 3% to get them to accept the Closing Costs. The money has got to come from somewhere.

The advantage to you would be that you will put out less from your pocket.
1 vote Thank Flag Link Thu Jun 2, 2011
Hi Lilly,
It depends. It could be the seller, buyer or the bank. In most cases the seller has no money to pay for closing costs so the bank will usually pay for most of if not all closing costs. Sometimes the bank will ask the buyer to pay some costs and if the price is right for the buyer it may not be such a bad idea. Short sales unlike many foreclosures are many times in great condition because the home owner still lives in the house and is taking great care of it. Short sales can take some time to close and can weigh on a buyers patience but they can be a great choice for a savvy buyer. Dawn Lewis 619-981-3917

0 votes Thank Flag Link Wed Jun 8, 2011
Normally, there are closing cost on both ends of the transaction, however in the case of a shortsale, there are certain cost that the seller will not pick up such as surveys and termite inspections. The buyer will still have cost that vary from each mortgage broker or bank. The cost will vary also depending on the purchase price. A good practice would be to review your good faith estimate thouroughly and ask questions of any cost that you are not certain about.
0 votes Thank Flag Link Wed Jun 8, 2011

Closing cost are always negotiable. On shortsale transactions, since the lender is the ultimate seller they are the one who you need to negotiate, however in past couple of years that we have been mainly doing shortsales we rarely see a lender who is willing to pay for closing cost. You should ask your Real Estate agent to provide you the information about the seller contribution upfront to make sure it fits within your parameters. and Closing cost varies depending on the purcahse price, Title and Escrow Company and the lender you chose to work with.
0 votes Thank Flag Link Wed Jun 8, 2011
Closing costs are negotiable as are any back taxes due on a short sale. Also the agents' commissions are subject to reduction based on the banks final, acceptable sale price. I have closed 4 short sales in the last 3 yrs. They are tedious and my experience with the selling banks has been that they are overloaded and slow to respond to offers. Even to get a reply back with their price.
0 votes Thank Flag Link Mon Jun 6, 2011
Negotiate well, and make sure that you get the okay from the respectful bank or financial institution, however most of these institutions have a 4 or 5 page addenda program that cancels them out of most if not all financial obligations at closing. Speak up however and see what they will agree to!
0 votes Thank Flag Link Mon Jun 6, 2011
Most of the agents have covered it for the most part. As you can see from the responses there is no definite answer, yet they are all correct. I have succesfully negotiated closing costs in short sales from 0% to 6%. The benk, type of loan, and financial situation of the the seller all are taken into consideration. The approval letter usually states that the properties are sold "as is" and is why they will likely reject home warranties and repairs.
0 votes Thank Flag Link Sat Jun 4, 2011

In a traditional sale the closing costs can be negotiated through the contract process (for example, a buyer can ask in her offer for the seller to pay closing costs, or can make a slightly higher offer and ask for money to be credited back through escrow for closing costs).

In a short sale the seller typically has no money and therefore likely will not agree to pay closing costs. The bank, who is also losing money, normally will not pay for anything - closing costs, repairs, home warranty. But it is always worth a try. Speak with your agent and figure out the best way to present your offer so that the bank will not deny approval. The second suggestion above actually worked for a client of mine in a short sale to cover back HOA fees that the seller could not pay (the bank approved it).

Best of luck,

Rachel LaMar, J.D.
LaMar Real Estate, Inc.
0 votes Thank Flag Link Sat Jun 4, 2011
Lily, the subject of closing costs should be included in your offer. Like some other agents said, it doesn't hurt to ask now. But - you said in another post that the bank is doing an appraisal, but it's not back yet. If you already submitted your offer without asking for closing costs, and the appraisal comes back low, you can ask for them to be paid to make up some of the difference between the lower appraisal and what you're paying; at least you'd have a good reason to ask.

Good luck!
0 votes Thank Flag Link Fri Jun 3, 2011
Hi Lily,
You should definitely try and ask for closing costs from the seller (who is truly the bank). It is all part of the negotiation that your agent should be handling for you Let me know if you need any assistance & good luck!

Sinead McAllister
McAllister Homes Real Estate
0 votes Thank Flag Link Thu Jun 2, 2011

Maureen is correct, but it doesn't hurt to ask. Maybe the bank will agree, nothing lost by asking.

Best of luck!
Deborah in AZ
0 votes Thank Flag Link Thu Jun 2, 2011
In a short sale, the seller generally has no money, so he or she will not pay for the buyer's closing costs. However, the seller's bank may pay some or all of the buyer's costs. The things the bank generally will not pay for are a home warranty, a termite report, termite repairs and any other repairs to the home.
As a buyer's agent, I recommend to my buyers that we ask for closing costs.
0 votes Thank Flag Link Thu Jun 2, 2011
A good average for closing cost is 3% of the sales price....it's a matter of who is going to pay for that cost.
0 votes Thank Flag Link Thu Jun 2, 2011
Its not a matter of who SHOULD pay the closing costs but who is willing too. A short-seller will probabley never NEVER pay closing costs, they have no reason too! As far as the banks, I'm seeing more of them who will cover closing costs. I just had a short-sale listing approved by Bank of America and they are paying 3% of the buyer's closing costs - up to $10,050!

0 votes Thank Flag Link Thu Jun 2, 2011
In most cases, since the bank is losing money on a short sale, they will not pay the buyers closing costs. However I have seen it done in some circumstances. The negotiator that the listing agent uses will try to get the costs covered but it ultimately is up to the bank. The banks have a net figure that they want to get and they will take all costs into consideration.
If you were buying a foreclosure you may have a better chance of getting your closing costs covered. The closing costs for a purchase that is financed can run from 2.5% to 4% depending on the purchase price, type of loan and the time of year the transaction closes.
The best thing to do is get fully approved by a reliable lender and have your agent write the offer in a manner that will benefit you the most. You must be prepared for the seller's bank to deny paying your closing costs and determine if you could proceed if they deny paying your costs. It can take several weeks to several months to hear back from the bank in a short sale.

Jerry Heard - Broker
CA DRE # 00648687
0 votes Thank Flag Link Thu Jun 2, 2011
ALSO, I forgot to mention... If you "increase" the offer amount to cover your closing costs, from a lending standpoint, the house still has to appraise for the increased price... In other words, if the home appraises for 200K, that's it... You cant raise the price to 210K and expect to borrow based on a value of 210K. Your Loan To Value will be based on the 200K value. (lesser of value, or purchase price)
Web Reference: http://www.lehmangrp.com
0 votes Thank Flag Link Thu Jun 2, 2011
Ron & Dan both brought up something interesting, and that is increasing the sales price by the amount you want them to contribute to your closing costs. That stems from the theory that if you were going to offer X for the home without the seller paying your Y amount of closing costs, then if the seller were to pay your closing costs, then an offer of X + Y would be the same "net profit" to the seller. That works out pretty well when you are dealing with a rational seller, like most resellers are. However several times I have seen that same offer being made on a short sale or bank owned property, and the bank counter-offers with that same exact price (X+Y) but WITHOUT paying the closing costs... the buyer then counters back to X without the seller/bank closing cost credit, and about 50% of the time the seller/bank accepts. But banks are sneaky and will try to spin things their way during negotiations. Carefully read those details in their bank created addendum.
0 votes Thank Flag Link Thu Jun 2, 2011
If the lender is forgiving the entire difference they are picking up the seller’s closing cost. If the seller has funds to cover the cost the lender will make them pay in most cases. If the lender is going to seek a deficiency, they will front the cost and try to recover it from the seller. If you are the buyer, offering to pay all of the closing cost may help getting the lender to approve the deal.
Web Reference: http://jamessimms.com/
0 votes Thank Flag Link Thu Jun 2, 2011
Its all in the negotiation. I don't think there is a normal set of circumstances... If it makes sense to the bank, and you have a good agent, you can get closing costs paid...

Think about it... A 200K offer with no closing costs paid by the bank is the same bottom line as a 210K offer with 10K closing costs paid. It is the same net 200K.

Get a good agent, and a good lender that will give you an idea of costs up front so that you know what your costs will be. Also work with your lender on the personal finance side of things to see what you want to put into the deal, and whatever difference there is, your agent will work with you to negotiate into the terms...

Good luck! Its a great time to buy, so hope you find a home that you love...

Web Reference: http://www.lehmangrp.com
0 votes Thank Flag Link Thu Jun 2, 2011
I see that most banks are paying their 1/2 of closing costs, but it depends on the bank. Several are not paying transfer taxes, etc...so then the buyer will have to pay. Typically, the home owner does not have any money, or very little...so they very rarely bring in money. Buyers usually have to pay their half. The buyer half of closing costs usually run 1-4% of purchase price.

Let me know if I can help you in any way!

Joan Wilson (Realtor, SRES, Ecobroker, Certified REO and Short Sale/HAFA Specialist)

California Cool 4 Sale
Prudential California Realty
Direct Phone: 760-757-3468
Fax: 760-946-7894
License # 01341483

It is my Goal to Increase the Success and Profitability of Those I Serve
0 votes Thank Flag Link Thu Jun 2, 2011
I've noticed in most of my borrower's short sale purchases that the lender being shorted (seller's lender) will not approve more than 3% of the sales price for a seller credit (which is really the seller's lender's credit since the seller typically doesn't have any money in a short sale). Several times they haven't approved any, and in some situations they've approved more (all on lower sales prices under $100k).

In California, when using a mortgage, standard settlement costs on any sales price will usually be at least $3.5 to $4k - escrow/title, lender fees, appraisal, 1st year of homeowners insurance (however the escrow account can be optional depending on the loan program and your down payment amount)... and they increase from there depending on the sales price/loan amount (since that affects how much escrow & title fees are, and to an extent how much a "point" on your mortgage would be, if you elect to buy down your interest rate) as well as if you choose to have an escrow account set up (adds many months of taxes & insurance you have to put down in reserves). On a $500k sales price it's quite possible to have $15k in settlement costs, depending on those variables I mentioned above.

Before you make an offer on a short sale, you should really get pre-approved, and part of that pre-approval process should be the loan officer going over what your total settlement costs are expected to be, what out of pocket costs you will likely have during the process and when those will occur, as well as what options the loan program allows for other parties (i.e. the seller's lender) to pay any of your costs.
0 votes Thank Flag Link Thu Jun 2, 2011
The answer below is correct. Depends upon the bank and the agency representing the seller. Better just hope it closes in a 60 day period as they are always sllllloooooooow. Good luck!
0 votes Thank Flag Link Thu Jun 2, 2011
Hi Lily,

With a Short Sale, there is no norm for closing costs as it is all negotiated with the bank. Once the offer has been approved by the bank, then the real negotiations start. What was negotiated with the seller can become inconsequential at that point. The terms of the sale are laid out in the Short Sale Approval Letter.

Once you have a copy of that letter, you will know what the bank expects of you and the seller.

We hope this helps. Feel free to ask any further questions.

Best to you,

Mark & Kari Shea
Shea Real Estate
Serving Greater San Diego
0 votes Thank Flag Link Thu Jun 2, 2011
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