What If a Seller Won’t Pay Closing Costs?

When purchasing a home, various fees and expenses arise at the transaction’s conclusion, collectively known as closing costs. These costs can include charges related to loan origination, appraisal fees, title insurance, and escrow deposits. While some closing costs are borne by the buyer and others by the seller, seller contributions towards a buyer’s closing costs are common in real estate negotiations. A seller may decline to cover agreed-upon costs, creating a dilemma for the buyer. This scenario requires the buyer to understand their contractual position and available options.

Typical Closing Costs and Seller Contributions

Closing costs encompass a range of fees and expenses incurred by both buyers and sellers to finalize a real estate transaction. Buyers pay between 2% and 5% of the home’s purchase price in closing costs, including lender fees like origination and underwriting, and costs for title searches and title insurance. Other common buyer expenses include recording fees, attorney fees in states where required, and initial deposits for property taxes and homeowners insurance into an escrow account. Sellers also incur closing costs, which can reach 8% to 10% of the sale price, primarily due to real estate commissions.

Seller contributions, also known as seller concessions, are funds a seller agrees to pay towards a buyer’s closing costs or other expenses. These contributions can be structured as a percentage of the loan amount or sales price, a flat dollar amount, or by covering specific fees. Sellers offer these contributions to make their property more appealing or to assist buyers with limited upfront cash.

The amount a seller can contribute is subject to limits, which vary depending on the type of loan the buyer is using. For conventional loans, seller contributions range from 3% to 6% of the purchase price, depending on the buyer’s down payment. Federal Housing Administration (FHA) loans and U.S. Department of Agriculture (USDA) loans permit seller contributions of up to 6% of the purchase price. Department of Veterans Affairs (VA) loans allow seller contributions of up to 4% of the purchase price. These contributions are negotiated and documented within the purchase agreement.

Reviewing Your Purchase Agreement

The purchase agreement is a legally binding document that outlines all terms and conditions of a home sale, including any understandings about closing costs. A buyer should review this contract to understand their position. The agreement should contain specific clauses detailing which party is responsible for various closing costs and any caps or limits on seller contributions.

Contingencies within the purchase agreement protect buyers, allowing them to withdraw from the contract under specific circumstances without penalty. Common contingencies include financing, appraisal, and home inspection. These clauses make the sale conditional on certain terms, such as securing a mortgage, the home appraising at value, or a satisfactory inspection, allowing for renegotiation or termination.

Deadlines specified in the contract are significant. Missing these deadlines can void a contingency, affecting a buyer’s ability to exit the contract without losing earnest money. The agreement includes default clauses that outline the consequences if either party fails to meet their contractual obligations. If a seller refuses to pay agreed-upon closing costs, this could constitute a breach of contract, triggering these default provisions.

Buyer’s Options When Seller Refuses

When a seller refuses to pay agreed-upon closing costs, a buyer has several courses of action. One approach is renegotiation, which involves re-engaging the seller to find a mutually acceptable solution. This could involve offering a slightly higher purchase price in exchange for the seller covering the closing costs, maintaining the seller’s net proceeds while reducing the buyer’s immediate out-of-pocket expenses. Buyers might also propose alternative concessions, such as the seller addressing repair items identified during an inspection or providing credits for a home warranty. Clear communication and a willingness to find a compromise are important.

Another option is for the buyer to proceed with the purchase and cover all closing costs themselves. This means the buyer will be responsible for the full range of fees associated with the transaction, including lender fees, title services, and prepaid expenses. This choice has direct financial implications, as it increases the amount of cash the buyer needs to bring to closing. It may be a viable path if the buyer has sufficient liquid funds and wishes to avoid delaying or losing the property.

A buyer may also consider terminating the contract and walking away from the deal. This is possible without penalty if the seller’s refusal constitutes a breach of contract or if a contingency allows the buyer to exit. For example, if the purchase agreement explicitly stated the seller would pay certain closing costs and they refuse, this could be a breach. If no contractual escape clause exists, walking away could result in the forfeiture of the earnest money deposit. A seller might pursue legal action for damages if the buyer breaches the contract without a valid reason.

Given the complexities of real estate contracts and potential financial consequences, seeking professional advice is prudent. Consulting a real estate agent can provide guidance on market norms and negotiation strategies. For specific legal interpretations of the purchase agreement or to understand the implications of a potential breach, engaging a real estate attorney is advisable. An attorney can clarify rights and obligations, and, if necessary, represent the buyer in pursuing remedies such as specific performance.