Closing Costs for a Sacramento Short Sale

Let’s start with who pays the closing costs in a Sacramento short sale? Is it the bank or the seller? If we’re talking about the seller’s closing costs, then the answer is it’s the seller. Surprise you? It shouldn’t when you stop to think about it because it’s the seller who owns the home. People often get confused when it’s a short sale, and they tend to think the bank pays the closing costs and, in a way, the bank sorta does, but not really. Because the bank is not the seller — a short sale is not a foreclosure, not an REO. It’s a voluntary sale by the seller that is authorized by the bank.

One of the reasons the bank authorizes the short sale sale is to mitigate losses. Another is to make sure that home in Sacramento won’t sell for a higher price through foreclosure. This is the formula for short sale: Short sale price less closing costs and commissions equals net to the bank: SP$ – CC+C = payoff to bank. If the bank can reduce the closing costs, the bank gets a bigger check.

Then, along comes a buyer who often wants her closing costs paid, too. Buyers often ask will the bank pay closing costs for a buyer on a short sale? If you don’t have to ask, then don’t ask. I’ll tell you why. Because if the seller receives an offer from Buyer Angie who needs 3% of the sales price to be credited to her as closing costs and an offer from Buyer Andy who can pay his own closing costs, which offer will the seller take?

Now, you might wonder why it makes any difference to the seller since none of the proceeds will land in the seller’s pocket. But it does make a difference to the seller of that Sacramento short sale. It makes a difference because if after waiting 60, 90 or 120 days for short sale approval, the buyer might walk away if the bank refuses to approve payment of closing costs for the buyer. Does the seller want to wait 60, 90 or 120 days only to go through the process again with a new buyer who can pay his own closing costs? No, the seller wants to close with the first buyer.

Which buyer has better odds of closing? Angie or Andy? Of course, it’s Andy. In a multiple-offer situation — and yes, even Sacramento short sales are receiving multiple offers — a buyer who can’t close without a closing cost credit is likely to lose.

Photo: Elizabeth Weintraub, McClatchy Library, Midtown Sacramento