Average house prices in the US have risen 6.6% in the last 12 months. Now, the average home costs just over $379,000.
Whether we’re in a buyer’s or seller’s market is up for debate. But as the cost of living increases alongside the market, it’s becoming more challenging to buy.
Even if you do save up for a deposit, there’s a necessary expense you mustn’t forget: closing costs.
Closing costs are split between the seller and buyer. Each owes fees to different parties. Some buyers use sellers assist, or seller concessions, to cover their closing costs.
This clever way of restructuring your sale or purchase can benefit both the buyer and the seller. Read on to learn more about sellers assist and whether you should consider it for your property.
What Is Sellers Assist?
Closing costs are an oft-forgotten expense. But if a buyer doesn’t budget for them, it can be detrimental!
Closing costs for a buyer average out at between 3-6% of the cost of the home they’re buying. For sellers, the cost is usually lower.
Closing costs on a real estate transaction include insurance, taxes, and sale fees. Some common examples are:
- Property appraisal fee
- Survey fee
- Attorney fee
- Underwriting fee
For buyers in the US, the average closing cost total per property sale in 2021 was just under $7,000.
As closing costs are such a large expense, sometimes the seller may help the buyer cover their end. This agreement is called sellers assist.
However, sellers assist does not mean that the seller loses $7,000! Here’s how the agreement works for the buyer and the seller.
How Does Sellers Assist Work?
How can a seller fork out an average of $7,000 without losing money? Because the agreed-upon amount is then factored into the house sale price!
For example, if a buyer wants to purchase a $400,000 home, their closing costs may come out at $12,000. As that is a large sum of upfront payments, they may ask the seller to pay. The seller will have the capital on hand from having sold their home.
However, the buyer will then pay the seller the closing costs as part of the house sale. In other words, they’ll buy the house for $412,000.
Though the buyer will still have to pay the costs eventually, they’re now on finance. The upfront costs transition to becoming part of the mortgage.
There are regulations for the total value of closing costs that your seller can cover. For a typical house purchase, it ranges between 3% and 9% of the total house cost, depending on the details. Sellers assist for investment properties is capped at 2% of the total house sale.
Other regulations determine that the new house price must still sit reasonably within the appraisal of its value. But within those two limits, buyers and sellers are free to make whatever deal suits them best.
Is Seller Assist a Good Idea?
For a buyer, sellers assist cancels out closing costs for the time being. Does that mean they’re always a good idea?
Generally speaking, all buyers have a limited amount of capital on hand for a down payment. When an average of $7,000 is sucked out of that sum, it means fewer properties are available to them.
However, if you can buy a home with sellers assist, you can use all of the capital for the house deposit. That means you can invest in more valuable properties.
Over time though, the costs will be greater. The closing cost value is now added to the sale price. Buyers will pay interest on the value of those costs in their mortgage payments.
Whether they’re a good idea for you as a buyer is a personal decision that depends on your financial planning.
Why Sellers Might Help You
As we mentioned, sellers can also benefit from sellers assist.
Whether sellers assist is offered on a sale is completely at the discretion of the seller. Many prefer the simplicity of not offering sellers assist on their property. But it can be beneficial, especially for those trying to sell quickly.
When sellers assist is available, the pool of potential buyers expands substantially. Now, those who couldn’t afford to make an offer may consider it.
In a buyer’s market, it can also help your property stand out. If buyers are debating between several properties, but yours has concessions, it could swing their choice in your favor.
Most importantly, seller concessions essentially cost sellers nothing. They do have to pay for the costs upfront. But then they receive that capital back from the higher sale price.
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It is a very low-risk, low-cost strategy for marketing and moving your home in any market.
Advantages of Sellers Assist
Sellers assist can benefit both parties. The major pros are efficiency, security, and choice for the buyer and seller.
Faster and More Secure Sales
Even if a buyer is aware of closing costs, they can only find out the final sum a few days before the sale. What if they’re higher than expected and the buyer can’t pay? That could slow down the sale, or even make it fall through.
When a seller covers these costs, it reduces these risks.
Higher Sale Price
As we explained, the buyer pool expands when sellers offer concessions. This increases competition between the buyers, and can lead to higher offers! Even if you sell to a buyer who didn’t need sellers assist, they may have offered so high because of the competition.
More Purchasing Opportunities
Of course, there are benefits for the buyer too. If a seller offers concessions, they have more capital to play with. That means that can invest in more expensive properties.
But buyers can also use this capital to stand out! As closing costs are reduced or eliminated for the buyer, they can make a higher offer. Especially in a seller’s market, this makes it more likely that the seller will choose their offer.
Drawbacks of Sellers Assist
Overall, there are few drawbacks to sellers assist, especially for the seller. But buyers should consider these two points.
More Expensive Over Time
Sellers assist usually directly increases your mortgage total. This adds to your mortgage payments. If you don’t pay your closing costs upfront, you’ll be paying more to finance them.
Potential for Rejected Offers
Not all sellers want to offer seller concessions. As a buyer, if you make an offer with sellers assist attached, your offer may be declined.
This may feel counterintuitive, as the agreement has little to no impact on the seller. Surely they’d rather take a higher offer and pay concessions for a faster sale! But it’s not always the case, and could jeopardize your offer’s success.
However, if your only way to buy is with concessions, there is another option.
If You Can’t Buy With Seller Concessions
It may be possible to create a similar concession arrangement with your bank. Just like the seller, they’ll pay your closing costs, then add them to the sale price.
This is the worse of the two options, though. You will pay more over time, but some banks will also increase your interest rate to offer this service! By contrast, sellers assist shouldn’t come with any change in your mortgage interest rate.
Your property may then cost you far more than it’s worth by the time your mortgage payments are over. In this case, it may be better to find another property that offers sellers assist. Or you could lower your overall budget and buy without concessions.
Tax Implications of Sellers Assist
Sellers assist increases the total sale price of a home. Does this affect how you pay tax on your sale or purchase?
Usually, the tax implications are minimal. Of course, you should check with a lawyer that this is true in your case. But since the sale has only increased by a few percentage points, it shouldn’t have a large impact.
While there will likely be no tax increase, sellers assist may open up the way to tax deductions – specifically, mortgage interest tax deduction. If your agreement includes mortgage discount points, you may be able to get a tax deduction.
As always, check with your lawyer whether this applies to your case before deciding.
The Simpler Sale Solution
Sellers assist is a modern solution that can help both parties. It speeds up house sales and attracts more buyers. But it can still involve complex negotiations to decide what will and won’t be covered.
There’s a better way to shift your property quickly and painlessly: accepting a cash offer.
Selling your home for cash eliminates closing cost negotiations between the two parties. And it will never involve a chain.
How much could you earn from an instant cash offer to sell your house? Enter your address in our online calculator to find out now!
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