If seller agrees to pay a stated amount of closing costs and the actual closing costs are less, does the buyer keep the difference?

I’ll reprint the entire question:

“I am the seller and will be paying closing costs for the buyer. On our contract with our agent she showed up to $17,000 in closing costs. We have learned that closing costs are now less that that amount. My question is - does the buyer get to keep the money over the actual closing cost.”

Maybe…it depends on how the contract was written and how pissy the buyer wants to get. An agent who puts a dollar amount in for closing costs is lazy, a rookie, or is just plain ignorant. I’ve always counseled my agent to use percentages and here’s why:

First most loan programs have a maximum seller contribution for costs and any amounts paid from seller to buyer over said amount is classified as a seller concession or inducement to buy. On conventional home loans with less than 10% down payment, the maximum seller contribution is 3%. Any contribution after 3% is subtracted off the sales price dollar for dollar and thereby lowers the loan amount too. Not understanding the difference between seller contributions and seller concessions and the corresponding maximums for the loan program/down payment thresholds, can kill a deal quicker than crap through a goose.

This is why I said “maybe”…but most likely once the buyer/buyers agent realizes any push to keep a surplus will simply equate to a sales prices reduction in underwriting…so there is no net gain…they won’t push it. If your buyer is using a conventional loan with a 3% max, then this would in fact be the case. As it would for any conventional loan with less than 10% down payment.

If they are using a conventional loan with more than 10% down or government loan, the max is 6% and they could push it. So you’d better check with your agent and read your contract to discover the down payment and the type of program the buyer is using.

Since it is usually not the intention of a seller who is willing to pay closing costs to pay more than the actual closing costs…the percentage method solves the problem 99% of the time. With really big loan amounts, a surplus is still created using the 3% method so you simply add the verbiage “up to 3%” to make sure the seller is not on the hook for any surplus.

If you discover there is a loophole in the contract opening the door for the buyer to take advantage, get your agent to write an amendment to the contract saying “Seller agrees to pay up to $17,000 toward buyers allowable closing costs”.

Good Luck!
Rob K. Blake
The Mortgage Insider