Better to offer less money or more money but ask for closing credit?

Question

Hi all,

Looking at making a final offer on a property and wanted some input on two options I have in mind:Is it better to make an offer for $519,000

or

Is it better to make an offer for $544,000 (his counter-offer) but ask for $25k in closing credits which I can use to buffer any potential issues with repairs/upgrades/renters not being happy with rent increase, etc?

Thanks in advance!

Ricardo Hidalgo · Answer

Lender fees, taxes, insurance and title fees can... not sure why it wouldn't be a write off. These are cost to doing business for an investment acquisition. Your downpayment can't be written off.

Jon Puente · Answer

Hey Gurleen,

Both have advantages, however it depends on if you have enough cash to close and do what you need to do post closing (repairs, maintenance, or just living expenses).

My personal opinion is to do the 544K and ask for 25K concessions and use that to buy your rate down + pay closing costs.  If you were able to get a 4% today on a Conventional loan, and then refi after 24-36 months, that would be pretty sweet!   This would be called a 2-1 Temporary Rate Buy-Down and as long as its a primary residence, you are good.

Great Question!

Chris Davidson · Answer

@Gurleen Bhinder offer the one you like best. It really depends on the seller, some like to say I sold it for this where others just care about the net which is all they are getting anyways.

Personally if using a loan I like going higher price and credits as it cuts down closing cost but doesn't increase down payment significantly thus keeping more cash in my pockets. If using credit or cash I go with the lower price as it doesn't make sense to pay the seller so the seller can pay me.

Dustin Allen · Answer

@Gurleen Bhinder

It depends.

Each scenario offers different benefits.

Higher Purchase Price with Credit - this will leave you with more cash in your pocket at closing but will also leave you with a higher DTI

Lower Purchase Price no credit - This Will decrease your payment and increase your cash flow but cost you more upfront.

Neither is wrong by any means. Be sure to check with your lender about the credit. There are limits on how much a seller can credit and they can vary by loan product and/or lender.

Evan Polaski · Answer

Better for who?  You or the seller?

From seller's perspective, if you came to me with either, I would pick the lower purchase price, if any real estate agents were involved, as their commission (coming out of my pocket) is more if you offer more.  Of course this is also contingent on condition of property and if the $25k credit is to be used against inspection items.

From buyer's perspective, I would likely want higher price with credits to minimize my out of pocket costs, assuming this is a financed deal and your lender will let you use seller credit toward your down payment, if repairs don't eat it all up.

Brian Miller · Answer

You won't have enough closing costs to cover that kind of credit, and the seller can't fund your down payment. You can have the seller pay your inspections and a home warranty out of that credit which will help some. If you have an offer contingent on inspections, that is the time to negotiate a credit for inspections. Most sellers are less likely to concede much for repairs if there has already been a large concession up front. If you're using a realtor, they should hopefully be able to explain further. If not, you may want to find someone else to represent you.

Paul De Luca · Answer

What kind of loan are you getting? That will affect the size of the seller closing credit/seller concessions you can get. Ask your lender if you can even get a credit that large.

Personally I recommend to almost all my clients to inflate the purchase price a bit to get the seller credit that they are looking for. Less cash in the deal, higher CoC return, and more liquid funds today for the buyer to make improvements if needed.

The property could also appraise below the purchase price if you inflate that too much.

Caleb Brown · Answer

I would verify also you can ask for that much in concessions/closing credits. There could be a limit. Does the property need repairs? Also do you have a local agent to get a feel on the market and what sellers are accepting?

Gurleen B. · Answer

From what I understand closing costs cannot be deducted from your taxes. Are you doing something differently?

Ricardo Hidalgo · Answer

I prefer to make an as is offer with the fewest amount of concessions to get the lowest purchase price possible. Closing cost tend to be write offs and I can get a better equity position to leverage for the future that could be tax free.

Better to offer less money or more money but ask for closing credit?

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