Techniques for Covering Closing Costs

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Although the days of getting cash credits towards closing costs are seemingly coming to an end with the tightening of mortgage regulations, there are still viable ways to accomplish that goal. Both Non-Agency and Dual-Agency arrangements can be used for this purpose.

Often buyers mistakenly believe Dual-Agency is created when buyers approach a listing agent and ask, “if we don’t have an Agent can we receive the selling office commission (SOC) at closing for closing costs”? What’s actually created in this situation is a Non-Agency agreement.

When agents enter into such non-agency arrangements their obligations are to represent the seller and seller only throughout the sale; thus they will write the Purchase/Sale Agreement (PSA) to reflect that the buyer has no representation (they represent themselves). Non-Agency arrangements offer the buyer no professional representation whatsoever, as opposed to Dual-Agency.

These are not a strategies I recommend anyone (buyer or seller) engage in for minor monetary savings or to expedite a sale. If there needs to be a cash credit at closing to cover closing cost, and the seller does not want to pay-out additional monies over and above expenses already written into the listing agreement, these methods can accomplish that.

In the Dual-Agency relationship, The Purchase & Sale Agreement will reflect that the agency and Brokerage are in fact representing both parties and will be crediting a percentage of the SOC to the buyer. With the approval of the seller the buyer and agent prior to negotiating a purchase sign an agency agreement. This insures both parties (buyer & seller) are proceeding with professional advice.

Previously, as a dual-agent I’ve granted as much as two thirds of the SOC to the buyer, and then reduced the listing side of the commission by 1/3 so that the seller may also enjoy a savings.

Upon closing, the seller saved money and the buyer got a substantial amount of cash towards closing cost’s, Structuring a sale like this works well on a newer model or fully refurbished home where controversy over price and repairs are not an issue.

Dual-agency relationships can certainly be a vehicle towards conflict of interest by the agent if not handled properly, and should be avoided as a general practice. Non-Agency relationships can accomplish the same monetary goals, but offer the buyer no professional advice.

Nevertheless, if both parties desire and agree to either Dual-Agency or Non-Agency representation they will accomplish the goal of covering closing cost when other methods are not available.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.