Should Bay Area Home Buyers Ask Sellers to Pay Their Closing Costs?

Most home buyers in the San Francisco Bay Area encounter closing costs when purchasing a house. These costs include the borrower’s mortgage-related fees, along with third-party fees like the appraisal and title search.

In the Bay Area, sellers can pay for some or all of the buyer’s closing costs, as long as the buyer’s mortgage program allows for it. And these days, nearly all mortgage products allow seller contributions up to a certain amount.

But just because a seller can pay the buyer’s closing costs doesn’t mean they will. This kind of thing is usually determined during the offer and negotiating process, and it can depend on current market conditions. So let’s take a deeper dive into this common (and important) home-buying question.

Yes, Bay Area Sellers Can Pay Buyer’s Closing Costs

As mentioned above, home sellers in the Bay Area can contribute money toward the buyer’s closing costs — if they choose to. Generally speaking, a seller can pay anywhere from 3% to 9% of the buyer’s closing costs.

The maximum amount will depend on the type of mortgage loan being used and the size of the borrower’s down payment. For example, FHA loans typically allow seller contributions up to 6% of the sale price.

Conventional home loans (that are acquired by Fannie Mae or Freddie Mac) often allow sellers to pay 3% to 9%, depending on the loan-to-value ratio. That’s for a primary residence; the limits can be lower when buying investment properties.

Related: How much are closing costs on average?

Bay Area home buyers can choose whether or not they want to ask for a seller contribution — just like the seller can decide whether or not they want to pay it. In theory, there’s nothing wrong with a buyer making such a request. But in a hot real estate market, it could work against you.

So let’s shift gears and talk about real estate market conditions, and how they tie into all of this.

Consider the Real Estate Market

Should a Bay Area home buyer ask a seller to pay their closing costs? This will largely depend on two factors: (1) current real estate market conditions, and (2) the overall strength of the buyer’s offer.

Consider the difference between these two scenarios:

• Hot market: In a more active real estate market, it’s usually less common for the seller to pay the buyer’s closing costs — and for obvious reasons. Sellers don’t have to go “above and beyond” to accommodate an individual buyer when other offers are pouring in. In this case, the seller has more negotiating leverage.
• Slower market: In a slower housing market (one with plenty of homes for sale but fewer buyers), seller contributions are generally more common. In a sluggish market, you might even see for-sale signs that say things like “seller will pay closing costs” or “seller concessions available.” In these scenarios, the buyer might have more negotiating leverage.

These are the polar opposites of real estate market conditions. There’s some middle ground as well, when the local housing market is more or less balanced between buyers and sellers.

The bottom line: Bay Area home sellers are typically more flexible with pricing and negotiating in a slower market. On the contrary, they might be more inclined to stand firm in an active market with plenty of eager buyers.

The Potential Downside for Home Buyers

Asking for a seller concession in a hot real estate market could bring unwanted consequences for the home buyers. Specifically, it could cause the seller to reject the offer in favor of one with fewer “strings attached.”

So buyers should tread carefully and consider local market conditions, before putting an offer on paper.

When the Bay Area housing market is experiencing a hot streak (as in 2021 and the first part of 2022), sellers are often able to choose from a large number of offers. In such times, it’s common for homeowners to receive multiple offers the same day they list their homes. So they can pick and choose at their leisure.

If a seller reviews six offers, and only one of them asks for a closing cost contribution, that offer could fall to the bottom of the stack. The seller would probably be more inclined to accept an offer that doesn’t cut into their proceeds.

Seek Your Real Estate Agent’s Advice

This one of many areas where it helps to have a real estate agent on your side. An experienced agent can bring you up to speed on current market conditions. They can tell you when it makes sense to ask a seller to pay your closing costs — and when it might work against you.

An active real estate agent will deal with purchase offers each and every week. So they usually know the best way to play it, in terms of offer requests and conditions.

But at the end of the day, it’s up to the home buyer to decide what goes into the offer. There are no hard-and-fast rules about what you can and cannot ask for, aside from the mortgage program rules mentioned earlier.