Closing Cost Assistance
TLDR: Closing Cost Assistance is cash equivalent of how much you’re willing to give to the buyer at closing, reducing their cash to close and the amount that you ultimately receive for the property.
What is Closing Cost Assistance?
Closing Cost Assistance goes by many names, including seller subsidy, seller assistance, and closing assistance, but they all boil down to the same thing: helping the buyer with cash required to close.
Under normal market conditions, it’s not uncommon for the buyer to request closing assistance in an offer. Why would you provide assistance? Whether you lower the purchase price or offer a seller subsidy of the same amount, both actions end up netting you the same amount while making it easier for the buyer to afford the purchase.
What is Standard?
In highly competitive markets, it’s not uncommon to be declined any seller assistance at all. In average markets, 2-3% is a common ask with the initial offer. For exceptionally inexpensive properties, seller subsidies of 5% are not abnormal.
Example of Seller Assistance
Suppose your house has been listed on the market for $225,000 for a few weeks and you receive an offer for $215,000 with $5,000 in closing assistance. That would net you $210,000. To you, that would be no different than being offered $210,000 with no closing assistance–you’d still net $210,000. Similarly, if you were offered $220,000 with $10,000 in closing assistance, you would receive $210,000. When looking at offers, be sure to calculate the net amount, not just the offer price.
Seller Beware: The Sky is Not the Limit
There are two caveats when it comes to Closing Cost Assistance:
The seller subsidy may only be applied toward closing costs, not to the down payment.
If the purchase price is increased to account for increased seller subsidy, the house must still appraise for the increased purchase price–the lender won’t cover any dollar amount above the appraisal.
For example, if you’re offered $230,000 on your house with $20,000 in seller subsidy, the house may not appraise for $230,000, and you’ll be in a pickle.