Once in a great while I have an issue that inspires me to write about.
Today my issue is Seller Paid Closing Costs.
Specifically new construction subdivisions. They offer promos with the seller paying the closing costs.
The phrase tickles me. Who pays the closing costs? Is it the buyer or the seller? The seller can’t pay it without the buyer’s money. So isn’t it actually the buyer that pays? That is neither here nor there.
What is exceptionally distasteful to me is the asterisk.
“$2500 in Closing Costs!*”
And then at the bottom of the page it reads: *With Approved Lender, Attorney and Title Company
What does this mean? It means you have to use their lender. What does that mean? They are taking most of the $2500 off with an inflated loan origination fee. This is “fake money.” Loan origination is anywhere from ½% to 3% of the loan. If they are charging 2.5% and you can find a 1% rate then you aren’t saving anything.
Regarding the closing attorney there should be a savings here. An average attorney fee for a simple residential closing in this area is $600. If the closing attorney is familiar with the subdivision and has reviewed the title several times there should be a discount. However, who do you think the closing attorney is representing in this situation? It is an inherent conflict of interest. I have heard of the closing attorney pressuring buyers to close because they actually represent the interests of the seller. Isn’t paying the $600 out of pocket better to have someone representing your best interests?
And then there is the title insurance. Again the closing attorney should be getting a discount for a re-issue rate for having researched the property before. If the rate is double than normal and they take off half, have you really saved anything? No you have not.
The best thing to do for a prospective buyer is to hire their own agent. A Buyer’s Agent. This agent’s fiduciary responsibility is to the buyer, NOT the developer. Their job is to sell them a house that best suits their needs. The On-Site Agent’s responsibility is to sell a home within that subdivision. Often the On-Site Agent will discourage buyers from hiring their own agent, even telling them they will save money if they don’t bring in an outside agent. This is hardly ever the case. Even if there are some front end discounts the buyer ends up losing with meeting timelines and negotiating inspection repairs or fixing cosmetic issues.
The bottom line is a buyer should hire an agent to work for them you and forgo the “free” closing costs. They will end up happier and will likely save more money.