Monday, August 10, 2009

Read the Counter-Proposal!

We're seeing a lot of sales contracts with counter-proposals from the seller stating that the seller will only pay for non-recurring closing costs. A non-recurring closing cost is a fee that is only paid once, at the closing. If a fee will need to be paid more than once over the life of the loan, then it is known as a recurring closing cost. In the counter-offers we're seeing, the dollar amount of the closing cost concession in the counter-offer will very often be the same as in the offer, but there can be a big difference in how much money actually gets passed from the seller to the buyer if only non-recurring closing costs are going to be paid by the seller.

As an example, let's assume that the buyer asks that the seller pay $6,000 towards the buyer's closing costs and pre-paids. The seller counters by saying they will agree to pay $6,000, but only towards the buyer's non-recurring closing costs. If the buyer agrees to that, the seller will not have to pay for the following recurring closing costs:

• the first year of homeowner's insurance
• the money used to set up the insurance portion of the escrow account
• the money used to set up the tax portion of the escrow account
• interest from the date of closing until the end of the month

In many cases, the total of these fees is well over a thousand dollars. That's extra money that the buyer will need at closing.

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