Seller Paid Closing Costs - What's Included?

It is common to see the following language on a contract prepared for a residential transaction in our market: “Seller agrees to pay "X"% of the sales price toward buyer’s closing costs.” This seems to be fairly straightforward at first glance, but occasionally we encounter a disagreement at closing between the listing and selling agents (or even the seller and buyer) as to what is meant by “closing costs.”

To avoid such controversy and keep your closings on track, we recommend the following language be used in in the contract when addressing the issue of seller paid closing costs:

“Seller agrees to pay ___% of the purchase price (or $___________, as applicable) toward Buyer’s closing costs. Closing costs shall be defined for this purpose as any and all charges related to the closing which are allocated to the Buyer by agreement herein or by custom, whether such charge is optional to Buyer or not and regardless of the name given to such charge. Such charges shall include, but not be limited to, all loan fees, points, government fees, pre-paid items, escrow account deposit, real estate commission, and owner’s title insurance. The parties acknowledge that the purchase price was negotiated with this seller concession in mind, and it is the intent of the parties for the Buyer to receive the full benefit of it. In the event the amount of this seller concession exceeds the actual closing costs, the Seller authorizes the balance to be applied toward a principal reduction in the Buyer's loan or a reduction in the Buyer's share of prorated taxes for the year of closing, as approved by the Buyer's mortgage lender, if applicable.”

While it may not be possible to completely eliminate the occasional dispute over this issue, using the suggested language should go a long way toward minimizing such disputes. Please call your local Realty Title closing agent with any questions or specific situations.

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