Which is Better for Home Sellers?

If you’re trying to sell your home, you may find yourself asking the question, “Which is better, lowering the price of the home, or offering to pay some closing costs?”

In short, there is no right or wrong answer to that question, it’s just a matter of which strategy gets the home sold? Both options have pros and cons.

In states that require you to pay transfer taxes on the sale of property, a higher sales price will result in additional closing costs. Also, a higher sales price leads to a higher commission for your listing broker.

For example, if you’re selling a $500,000 home you’re required to pay 2 percent in taxes on the sale of the home and a 6 percent commission, the higher purchase price will cause you to incur an additional $800 in closing costs versus just offering to pay some of the buyer’s closing costs.

If you decide to give the buyer a $10,000 credit toward closing costs, make sure that the credit is clearly spelled out in the purchase-and-sale agreement. You need to make sure the buyer’s lender is fully aware of the credit and approves of the credit well in advance of the settlement of the transaction.

The federal income tax consequences for you would be about the same whether you get the higher price or give the buyer a closing-cost credit.

Because of the recession and housing market downturn, some people are eager to have a little extra cash to do work on their homes. If the lender agrees to the closing-cost credit, the buyer will be able to get a slightly higher loan amount and have some cash left over to make repairs to the home or buy new furnishings.

However, the buyer might want the lower price. In some areas, real estate taxes are based on the sales price of the home. If the buyer accepts the closing-cost credit, he or she will start out paying a bit more in real estate taxes from that point forward. For some buyers, paying more in taxes from the purchase forward might be less to their liking than just getting the home for less.