Can a Homebuyer Get Sellers to Contribute to Closing Costs in Today's Northern Virginia Market? Answer: It Depends

One of the most frequent questions that I get from clients is whether sellers are willing to contribute towards closing costs.  I recently wrote an article with a detailed breakdown of purchaser's closing costs in Virginia.  Depending on several variables including lender's fees, location of the sale, price of the property, and settlement service provider, closing costs can amount to 2-3% of the final sales price.

To a homebuyer who is scrounging up every last dollar to pay for a down payment, moving costs, new furniture, etc., learning that they have to come up with extra cash for closing costs often comes as a shock to their wallets.  Several years ago at the height of the seller's market, it was almost sacreligious to expect sellers to contribute anything towards a purchaser's closing costs.  For cash strapped buyers, every bit of help from the home seller makes it easier for the buyer to purchase the home.  And for motivated sellers, offering to contribute to a purchaser's closing costs can facilitate a faster sale and open the property up to more potential buyers.

So the question remains, "Can a Homebuyer Get Sellers to Pay Closing Costs in Today's Northern Virginia Market?" 

My attorney background and legal training teaches me to answer every question like this with the answer:

It Depends. 

Depends on what?  It depends on a seller's motivation to sell their property, how long the property has been on the market, how much money a seller is making on the deal, but most of all it depends upon the price range of the sale. 

To answer this question, I performed a thorough analysis of the seller subsidies recorded for all the home sales in Alexandria for July 2007.

Closing Cost Analysis 

I divided up the sales into three price categories:  1) Under $400,000;  2) $400,000 to $750,000; and 3) $750,000 and up.

Under $400,000

In July 2007, there were 93 sales with an average sales price of $290,342.  In 67 out of 93 of these transactions, or 72%, the seller contributing something towards the purchaser's costs.  The average subsidy was $4,672 representing a 1.6% seller contribution.  

$400,000 to $750,000

92 sales with an average sales price of $549,647.  41 out of 92 transactions, or 42% involved a seller subsidy.  The average subsidy was $3,306 representing a 0.6% seller contribution.

$750,000 and above

Of the 28 sales averaging $1,040,257, only 5, or 18%, had any subsidy at all.  The average subsidy was only $813 representing a negligible seller contribution.

Lower Price Range Closing Cost Analysis

After seeing these figures, I further subdivided the lower priced category into three sub-categories: 1) $100K-$200K; 2) $200K-$300K; and 3) $300K-$400K.

$100,000 to $200,000 

9 sales with average price of $173,072.  7 out of 9 (78%) involved seller subsidy averaging $3,722 or 2.15% seller contribution. 

$200,000 to $300,000

37 property sales with average price of $252,205.  30 (81%) involved seller subsidy averaging $5,209 or 2.09% seller contribution. 

$300,000 to $400,000

47 sales at average price of $342,727.  30 (64%) involved seller subsidy averaging $4,244 or 1.23% seller contribution. 

CONCLUSIONS: 

If you are buying a home in Northern Virginia in the under $400,000 price range, chances are high that the seller will contribute something towards your closing costs, sometimes even paying all the closing costs to get the home sold.  In the middle price ranges, seller contributions still exist but are not as common and much smaller.  Seller contributions to closing costs are phased out almost completely in the upper price ranges. 

This study confirms the reality that most purchasers in the upper price ranges will not need to ask for seller contributions in order to purchase the home because they will often have quite enough cash to complete the sale without the assistance.  First time buyers and those buying in lower price ranges will be those most likely to require closing cost help from sellers and those most likely to receive it.

Overall, 53% of Alexandria home sales in July had some form of seller subsidy.

My advice for Northern Virginia homebuyers in this market is to ask for some closing cost help from sellers -- it's a negotiating item, you never know what you will get or what the seller's motivations are, and if you don't ask, you won't receive.