What does Buyer Pays All Closing Costs really mean?

2 Replies

Hi guys!

It seems to me that there can be a lot of quibbling over what this means exactly. I see this phrase in wholesale advertisements all the time.

I think that when an end buyer buys from a wholesaler, it is understood that the buyer pays the closing costs. However, are there fees that are not considered "closing costs"? 

Are real estate comissions considered a closing cost? 

Are Attorney fees considered a closing cost?

How about Pro-rated taxes?

What is the standard for wholesale deals? In other words, are there fees that the seller still has to pay? I'd hate to pitch "no out-of-pocket money from you to sell your house because we pay your closing costs" and then at closing, the seller finds out he has to pay some fee. Just want to be clear on what the seller still has to pay at closing.

Thanks for your thoughts in advance!

@Robert Solis

 Clearly, it is impossible to know what is/was in the mind of an individual, when they write that statement.  However, there are some basic principals we should be able to agree on, which then clarifies what this statement "should" mean.

Principals of the Wholesale deal:

  • There should be no realtor commissions, if it is truly Wholesale. The only time there would be, is if someone is trying to wholesale you a property that is listed on the MLS. Then my question is, "Why didn't you or your agent find that yourself?" If you are bringing an agent to the table on a true, off-market, wholesale deal...WHY?
  • The only closing costs should be those legally required to (1) facilitate the sell of the property & transfer, registration of deed; (2) satisfy your lender's requirements; (3) pay the closing agent - title company or atty.

Now, assuming those things are true, a purchaser would generally cover all true closing costs in a wholesale transaction. Where it gets a little weird is if you are purchasing with a FHA insured loan, because there are specific items the FHA requires each party to pay for and doesn't allow the other party to pay. In those cases, you have to get a little more creative and may have to do something like pay a non-refundable "option fee" directly to the seller, if they can't come to the table with the cash. In a straight MLS type deal, the seller pays all commissions, and there is generally negotiation around what closing expenses of the buyers the seller will cover. If the seller agrees to cover any of the buyer's closing costs, it is generally done as a cash "allowance" to avoid the issue of specific costs the FHA requires the buyer to pay. Those closing allowances are simply deducted from the seller's proceeds from the sell, assuming they aren't under water on the note.

@Robert Solis

Assuming anything when it comes to contracts is what gets new and seasoned investors in trouble. Doubt me?  Go to a civil court in your town any day of the week and look at the messes people get themselves into because contracts were not well thought out when drafted. 

To answer you question, "all closing costs" should be clearly and specifically defined in the contract. Otherwise, the court gets to decide what was meant by the language. 

If it ain't in writing, it doesn't exist.

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