The Hidden Downsides: When Sellers Pay Closing Costs

When selling a home, the seller often faces the decision of whether or not to pay for some or all of the buyer’s closing costs. While covering these costs can make your home more appealing to buyers, there are also several potential drawbacks to consider.

Key Takeaways

  • Paying closing costs reduces your profit from the home sale
  • It can lead to higher mortgage payments for the buyer
  • The buyer may be less invested/committed to the purchase
  • It can complicate negotiations and introduce appraisal issues

What are Closing Costs?

Closing costs refer to the various fees charged at the closing of a real estate transaction. They can range from 2-5% of the total home price. Common closing costs include:

  • Origination fees for new loans
  • Points paid to lower interest rates
  • Title searches and insurance
  • Surveys and inspections
  • Taxes and legal fees

Buyers traditionally pay most closing fees, but the seller can agree to cover some or all these costs.

Also read: Arizona Home Buying Closing Costs: What to Expect

How Seller-Paid Closing Costs Work

There are a few ways sellers can handle a buyer’s closing costs:

  • Direct payment – The seller simply pays an agreed-upon dollar amount toward costs.
  • Price inflation – Increase the sale price to account for expected closing costs.
  • Credits – Adjustments made to the final sale price at closing.

Covering closing costs benefits sellers by making their listing more attractive to buyers, especially first-timers. However, it also comes with financial and negotiation drawbacks.

How Can Sellers Handle Closing Costs Efficiently

If you decide to pay closing costs as a seller, here are some tips to make it work efficiently:

  • Start with a reasonable sale price based on comps.
  • Require the buyer to be approved for a loan.
  • Cap the amount you’ll pay at a fixed dollar value.
  • Make sure the buyer has funds to cover additional costs.
  • Include an appraisal contingency in the contract.
  • Place time limits on credits if the buyer delays closing.

Also read: Arkansas Home Buying Closing Costs

What Are the Disadvantages of Seller Paying Closing Costs

While offering to cover buyer closing costs can help sell your home faster and for more money, there are some definite drawbacks to consider:

1. Reduced Profit from the Sale

The most straightforward disadvantage is that any money you contribute toward the buyer’s closing costs comes directly out of your proceeds from selling the home. Whether you directly pay or inflate the purchase price, that money would otherwise go into your pocket.

For example, if you sell your $300,000 home and agree to credit the buyer $5,000 in closing costs, you’re really only pocketing $295,000 from the sale.

2. Potential for Higher Mortgage Payments

If you inflate the purchase price to account for closing credits, the buyer will likely have to finance a larger loan amount. This means they’ll end up with higher monthly mortgage payments at a higher interest rate over the long run.

Instead of the buyer financing $300,000, you’ve now pushed them into a $305,000 loan to cover your $5,000 credit. This incremental increase compounds over 30 years.

3. Buyer May Be Less Invested in the Deal

When you cover a buyer’s closing expenses, they have less personal financial stake in the deal. If a buyer isn’t investing their own cash upfront in the transaction, they may not be fully committed to following through.

Life events, cold feet, or other offers could lead them to unexpectedly back out – even late in the process. Then you have to start over with selling an already “sold” house.

4. Harder Negotiation on Price and Repairs

Paying closing costs or offering a credit gives the buyer more leverage during negotiations. When you willingly reduce your own proceeds to cover their costs, the buyer may dig in harder on other financial aspects of the deal – like the sale price, repairs requests, and appraisal gaps.

Once you open the door on credits, it sometimes emboldens the buyer to demand even more concessions. This can quickly eat into profits from the sale.

5. Risk of Delays or Collapsed Sale from Appraisal Issues

If your inflated purchase price exceeds the appraised value, it becomes a complex renegotiation. The buyer may need to increase their down payment or secure alternative financing for the gap. If they can’t, it puts the entire deal at risk after time and effort spent to reach closing.

Also read: What to Expect for Nevada Home Buying Closing Costs

What Are the Advantage of Seller Paying Closing Costs

There can be several advantages to a seller paying some or all of the closing costs for a buyer in a real estate transaction. Here are a few:

  • Sell the house faster: By offering to cover closing costs, sellers can make their house more attractive to potential buyers. This can be especially helpful in a competitive market where there are many houses for sale.
  • Increase the number of offers:  Offering closing cost concessions can entice buyers to submit offers, even if the overall purchase price is slightly higher than other listings.
  • Attract buyers with lower down payments:  Some buyers may be able to qualify for a mortgage with a lower down payment if the seller agrees to cover some of the closing costs. This can open up the pool of potential buyers for the seller.
  • Negotiate a higher selling price: In some cases, a seller may be willing to offer closing cost concessions in exchange for a higher selling price on the house. This can be a good option if the seller is confident that they can get a good price for the house.

However, it’s important to remember that sellers aren’t obligated to pay closing costs. There can also be disadvantages to consider, such as reducing the seller’s net proceeds from the sale.  Ultimately, the decision of whether or not to offer closing cost concessions is up to the seller.

Reasons Why Sellers Pay the Closing Costs of the Buyer

While this article focuses on the drawbacks, there are still sometimes good reasons for sellers to pay buyer closing costs:

  • Increasing competitiveness – In hot markets with bidding wars, covering costs can make your offer stand out.
  • Attracting first timers – Especially key for affordable homes attractive to new buyers.
  • Speeding up timelines – Keeps buyers invested to close quickly.
  • Supporting higher price – Allows room to increase the purchase price.
  • Closing certainty – Shows the buyer you’ll remove roadblocks to close.

Is It Worth It for the Seller To Pay Closing Costs

Whether it’s smart for sellers to absorb buyer closing costs depends on your specific situation and priorities:

Worth it:

  • Fast-moving seller’s market with low inventory
  • Affordably priced starter home likely to attract first-timers
  • Willingness to trade reduced profits for speed
  • Provides room to increase the asking price
  • Bridge small appraisal gaps by supporting buyer

Not worth it:

  • Balanced market with moderate buyer demand
  • High-end luxury property segments
  • Maximing sale proceeds is the priority
  • Concerns about buyer backing out of the deal
  • Limited funds to handle surprises or delays

Evaluate market conditions, property type, and personal finance goals to decide if paying closing costs aligns with your needs as a seller.

What Happens if the Buyer Pays Closing Costs

If the buyer handles their own closing costs instead of the seller paying them, here’s what happens:

  • Larger down payment – Buyer needs more cash savings for both down payment and closing costs.
  • Shop for lower costs – Buyer incentivized to lower total costs by shopping lenders.
  • Potentially higher interest rate – May accept higher rate to lower overall payments.
  • Less negotiation power – Buyer cannot push for concessions once they take responsibility for costs.
  • Committed to the deal – More invested financially so less likely to walk away.

It Can Speed Up The Sale Process

When sellers pay closing costs, it can expedite the entire sales process by keeping buyers motivated and dealing with obstacles in their way. By accepting lower profits, sellers essentially buy speed and efficiency.

This becomes especially true in competitive markets. When buyers know other offers likely won’t include credits for their costs, they move decisively on homes providing this incentive from the seller side.

How Can I Avoid Paying Closing Costs

As the buyer, there are also a few options to reduce or eliminate the closing costs you pay at the completion of a home purchase:

  • Negotiate with sellers – Ask them to lower the price or pay some fees.
  • Shop around with lenders – Compare loan estimates to lower origination fees.
  • Increase your down payment – More equity upfront means lower loan amounts and costs.
  • Pay discount points – Prepay interest to receive lender credits toward costs.
  • Time the closing – Ask to sync up closing at the end of the month/quarter.
  • Apply for down payment assistance programs – If eligible based on income requirements.


Paying closing costs on behalf of home buyers can be an effective selling strategy in many market conditions. However, sellers should carefully weigh the financial downsides before extending this offer to potential buyers. By reducing your proceeds, giving up negotiation leverage, and facing deal uncertainties, you take on risk by covering buyer costs.

Evaluate all alternatives and consult experienced real estate professionals before deciding what approach aligns best with your needs and priorities. In the right circumstances, absorbing closing costs allows selling faster while supporting a higher price. But in many cases, you may end up leaving money on the table and facing a more stressful transaction.

Frequently Asked Questions (FAQ)

What are the main disadvantages for the seller?

The main disadvantages are reduced profit from the sale, potentially higher mortgage payments for the buyer if they finance closing costs into the loan, and higher risk of the deal falling through if the buyer is less invested.

Does paying closing costs guarantee my home will sell faster?

No, nothing can guarantee that. But offering this incentive signals to buyers that you are a motivated seller, which could make your home more appealing versus similar listings.

What if I need the full asking price for the house when I sell?

If maximizing your sale proceeds is vital, then paying buyer closing costs may not be feasible. You’d have to weigh if the potential risks are acceptable for your situation.

How much do sellers typically pay in closing costs?

This varies greatly by market conditions, home price point, and buyer negotiations. Sellers often pay 2%-5% of the total home price toward buyer closing fees, which could mean several thousand dollars.

Can I offer a closing cost credit instead of paying directly?

Yes, sellers can provide a general closing cost allowance that the buyer applies at closing, rather than handling direct payments. This gives the buyer flexibility on allocating it.

Should I always negotiate closing costs?

Not necessarily. As a seller, you can certainly list your home with no closing cost contributions offered. This avoids those risks and expenses altogether.

What alternatives exist besides paying closing costs?

Other options include adjusting your listing price, allowing escrow closing credits, inspection repair allowances, home warranties, or other terms to appeal to buyers.

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