Negotiation

How to get access to a landlocked parcel: the basics

You notice a landlocked parcel for sale, and you think, “Gee, that’s a nice parcel at an amazing price”. But after reading the fine print you realize there’s no road to it, and it doesn’t have an easement. The parcel is “landlocked”. “How will I ever get access” you wonder?

This is an important question, because access is needed to build. Here I describe the steps you can go through to obtain legal access.

You notice a parcel of land for sale and think, “Gee, that’s a nice property at an amazing price.” But after reading the fine print, you realize there’s no road to it, and it doesn’t have an easement.

The parcel is “landlocked”.

“How will I ever get access?” you wonder. This is a good question because you will need access to build.

Here, I describe the steps you can take to get legal access.

This is an “Intro 101” examination of the basics, not an advanced discussion. I describe the process in a super simple manner to those buyers who have no idea how to arrange access to a landlocked parcel. If you have more advanced questions, you will want to discuss those with a real estate attorney.

Key things to be aware of first

A “landlocked” parcel does not have access to a road because it is surrounded by property owned by other people.
The existence of a physical “road” that you can see with your eyeballs does not necessarily mean you have legal access.
Your aim is to get an “easement for ingress and egress” (access to go in and out). Once you have an easement, you can cross over your neighbor’s private property to get to your property.
An easement is the right to use the real property (real estate) of another for a specific purpose. The owner of the underlying land keeps the legal title.
Easements “run with the land”. That means the easement stays in place when you sell your property. It also remains when your neighbor sells his property. Humans come and go. Land and easements stay where they are. So, any future owner of your land would also have access via the easement, and any future owner of your neighbor’s parcel would still have to provide access.

Step 1: Verify that the parcel is truly landlocked

It does not make sense to go to the trouble of trying to create an easement if you already have access. So, the first step is verifying that the parcel in question is genuinely landlocked.

If the land is on an official paved or dirt road, you probably have legal access and do not need an easement. If the property is on an unofficial road or path, you may or may not need an easement. You cannot tell with your eyes whether the existing road is official. You also cannot tell by looking whether there is a legally recorded easement. The “road” could be unofficial and not an easement.

Order a title report to learn whether you already have access. When title companies decide whether to insure the title, they also consider whether to insure for “marketable access.” In my experience, “marketable access” corresponds to what I will call “legal access” about 99% of the time.

If the title company says that they will insure the title and will also insure for access, you can be pretty sure you have legal access.
If the title company says they will insure for the title but will not insure for access, you can usually assume you have no legal access, and your parcel is landlocked.

So, the easiest way to determine whether a property is landlocked is to order a title report.

When the title company agrees to insure for the title but declines to insure for access, a phrase like “The lack of right of access to and from the land” will appear in the exceptions section of the title report. When this phrase does not appear, the title company is basically saying they will insure for both title and access.

Step 2: Gather information on the history of access

If the owner of a parcel for sale has already tried to get access from a neighbor and failed, you need to know this. Maybe the seller has been feuding with his neighbor over access for years. This scenario suggests that you, the future owner, may also find the neighbor challenging to work with.

On the other hand, the history might offer good news. Suppose the seller subdivided his 10 acres back in the day. He sold 5 acres next to the street to his best friend from high school and kept the 5 acres in the back for himself. He forgot to create an easement across his friend’s land to his land. That’s a different situation. Creating an easement in a case like this should be easy.

Understanding the history will help you, as a buyer, to understand the likelihood that your efforts to negotiate an easement will be successful.

About 90% of the time, you will discover no history. The seller has never attempted to arrange an easement. This is because people commonly buy land as an investment, not to build. They have no reason to visit the land, so they never tried to create access. They bought it “as is” and are selling it “as is.”

Ask about the seller’s history of trying to establish access. You never know when you might learn something helpful.

Step 3: Consider who will create the easement and when

Will the city create the easement? No. The county? No. The transportation authority? No. The broker? No. The title company? No. The neighbor? No. The seller? Usually no.

So, who will create the easement?

You, the buyer, that’s who.

About 97% of the time, buyers of landlocked parcels must buy the land the way it is, close escrow, own it, and then start working to create an easement after closing.

About 2% of the time, the seller will entertain an offer with a contingency on the easement. This means the buyer can try to arrange the easement during their contingency period (part of the escrow period). If the buyer is unsuccessful, they can cancel escrow, get their deposit back, and walk away. If the buyer is successful, the buyer will close escrow. I say this happens 2% of the time because it is rare for sellers to entertain such a contingency. It can take months, a year, or more to go through all the steps to create an easement, and sellers typically want to close escrow in 21–45 days.

In unusual instances, like 1% of the time, the seller will agree to create the easement for the buyer before closing. Sellers may entertain this option when creating the easement is super-duper easy for them. An example of this situation is when the seller happens to own the adjacent parcel. He can easily create an easement across his own land. Another example is when the neighbor is a family member or close friend of the seller. A final example is when the seller has already negotiated access with the neighbor and only needs to put it in writing, get it signed, and record the easement with the county.

In my experience, buyers commonly want an easement before closing, and sellers seldom agree. It’s just wishful thinking on the part of buyers. Generally, buyers must buy the land and roll up their sleeves — in that order.

Sometimes, buyers who have not even submitted an offer on a parcel ask me for contact information for the neighbor. They think I can give them the neighbor’s phone number or email, and they can contact the neighbor and say, “Hey man, can I have an easement?” They hope the neighbor will say, “Yeah, sure, no problem,” and it will be easy.

Dear buyers, that rarely works.

First, I don’t have the neighbor’s phone number or email, and the seller does not have their contact information either. I can access title records, but those show only the neighbor’s name and mailing address, not their phone number or email.

Second, negotiating an easement takes more effort than a simple phone call. It can take months. So, a “hey man…” conversation is unlikely to be fruitful.

Third, you don’t own the parcel yet and are not even in escrow. So you don’t have the authority to negotiate an easement.

Fourth, more than one buyer will generally have this same idea, and it’s not good for many buyers to call the same neighbor.

So, buyers, please put this idea out of your mind. Landlocked parcels are being offered at a low price precisely because they are landlocked. If it were simple and easy to create an easement, the seller would have done it already. Further, he would have priced that $20,000 parcel you are eyeing at $200,000.

You must buy the land “as is” and work through the steps in this blog post to seek an easement after closing. Or don’t buy it. That’s the other option.

Step 4: Figure out where you want the easement

To seek an easement from the neighbor(s), you must figure out which parcel(s) you wish to cross. Get a map that shows your property and the neighbors. This map might be a plat map or an aerial map.

Say neighbors B, C, and D surround your land. If you cross B, you will reach the road. Alternatively, if you cross C, you must also cross D, and then you will reach the road. In the first case, you will need one easement. In the second case, you will need two easements. So, figure out which direction makes the most sense.

Also, assess where you want the easement on the neighbor’s parcel(s). For example, is there a well-worn dirt path you will try to follow? Do you want to travel along the boundary of a property? Is your desired easement straight or curved? How wide will it be? Ask the city/county what width they require to grant a building permit. That will dictate the easement width you will try to arrange.

Step 5: Get contact information for the neighbor(s)

You will need the neighbor’s name and contact information. Their mailing address might differ from the address of the adjacent property you want to cross.

Vacant land sellers rarely have contact information for their neighbors. Remember, they’re selling land, not a house, so they don’t live there. But your Realtor can look up the neighbor’s contact information in title records. In California and some parts of Oregon, agents have access to title records in Realist through the MLS. To do this, you must give the Realtor the address or assessor’s parcel number (APN) for the neighbor’s parcel(s) you want to cross.

You can use the official plat map (not a Google map) to figure out the surrounding APNs. For example, if you are purchasing APN 1234–567–89, the plat map will have an 89 in a circle corresponding to the parcel you want to buy. If you plan to seek an easement across a lot with a 90 in a circle, the APN for that parcel will be 1234–567–90. Give your Realtor that APN. Then, she can look up the name and mailing address of the owner of that parcel.

Another way to find the neighbor’s contact information is to use a geographic information system (GIS). GIS systems are available free online. To find a GIS system for your area, Google “GIS <city name>” if the parcel is in the city. Or Google “GIS <county name>” if the land is in the county. Enter the neighbor’s APN into the GIS and see if their contact information pops up. Note that not all GIS systems have contact information for property owners — some do, and some don’t. Also, if there is contact information, it will be limited to names and addresses. There will be no phone number or email.

Armed with the neighbor’s name, you might be able to find the neighbor’s phone number and email just by using Google. This works best if the name is distinctive. Try it.

If that doesn’t work, skip-trace the neighbor. You can find skip-tracing services online.

Step 6: Ask the neighbor(s) for an easement

Now that you have the neighbor’s contact information, the next step is to contact them. You can send the neighbor a letter, call, email, or try going in person. Or, if you prefer, you can have your attorney do any of these things.

Explain to the neighbor that you are seeking an easement. Be prepared to explain to them what an easement is. Reassure the neighbor that they will still own the land under the easement. You just want to cross it. Let them know that the easement “runs with the land.” So, it remains in perpetuity and does not disappear if you sell or your neighbor sells. Describe where you want the easement to go. State how wide it will be. Discuss who will improve and maintain the easement.

If the neighbor objects, offer to pay them for it. How much should you offer? It depends on the value of the land…$500, $5000, $50,000. I don’t know. It’s negotiable.

When considering what you are willing to pay for an easement, factor these things into your thought process:

An easement will significantly improve the value of your land. This is because parcels with legal access sell for much more than those without access. Easements improve land value by 10–1000%. Ask your Realtor to estimate how much an easement might increase the value of your specific parcel.
The alternative to paying the neighbor for the easement is going to court to resolve the conflict. Attorney fees are expensive, $200-$500/hour. Compared to paying attorney fees, paying the neighbor for the easement might feel like a bargain.
By burdening your neighbor’s parcel with an easement, you might be reducing the value of their parcel. It’s only fair to pay him enough to compensate him for any loss in value that he might incur.

If the neighbor agrees to offer an easement, go to step 7 and consider skipping step 8. If the neighbor declines to provide an easement, go to step 8.

Step 7: Hire a surveyor

Easements should be recorded with the county. To record an easement, you and the neighbor must sign an agreement. That agreement must specify the precise location of the easement.

The description of the location of the easement cannot be casual like “along the existing path on the west side of John’s land at 1234 Main St”. A proper legal description is often complicated and looks more like this:

An easement and right of way for a road, sewer, water, gas, power, and telephone lines and appurtenances thereto under, along, and across a 60.00 foot strip of land lying within Section 10 and 11 all in Township 9 South, Range 2 West, San Bernardino Meridian, in the County of San Diego. State of California, according to United States Government Survey, the centerline of said 60.00 foot strip being described as follows: Beginning at the Northwest corner of the Northeast Quarter of said Section 11; thence along the Northerly line of said Northeast Quarter, South 86° 05’ 24” East 577.98 feet to the True Point of Beginning; leaving said Northerly line, South 5° 37’ 14” East 310.00 feet; thence South 04° 36’32’ East 164.03 feet to the beginning of a tangent 300.00 foot radius curve, concave Westerly; thence Southerly along the arc of said curve, through a central angle of 27° 07’ 51” a distance of 142.06 feet thence South 22° 31‘19” West 133.34 feet to the beginning of a tangent 100.00 foot radius curve, concave Northwesterly; thence Southwesterly along the arc of said curve through a central angle of 60° 02’ 43” a distance of 104.80 feet thence South 82° 34’ 02” West 174.36 feet to the beginning of a tangent 400.00 foot radius curve concave Southerly; thence Westerly along the arc of said curve, through a central angle of 13° 33’ 30” a distance of 94.66 feet; thence South 69° 00’ 32” West 115.77 feet to an intersection with the Westerly line of the Northeast Quarter of Section 11, Township 9 South, Range 2 West, distant thereon South 05°54’22” East 926.55 feet from the Northwest corner of the Northeast Quarter of said Section 11; thence along the Westerly line of said Northeast Quarter, South 05° 54’ 22” East 397.68 feet to the Southeast corner of the Northeast Quarter of the Northwest Quarter of said Section 11 South 05° 22’ 54” East 13.10 feet; thence South 30° 35’ 51” West 281.12 feet to the beginning of a tangent 180.00 foot radius curve, concave Easterly; thence Southerly along the arc of said curve, through a central angle of 29° 17’ 17” a distance of 92.01 feet thence South 01° 18’ 34” West 264.21 feet; thence North 88°41’26” West 30.00 feet; thence South 13°19’28” West 66.15 feet of the beginning of a tangent 100.00 foot radius curve, concave Northwesterly; thence Southwesterly along the arc of said curve, through a central angle of 70°31’28” a distance of 123.09 feet; thence South 83°50’56” West 43.41 feet to the beginning of a tangent 200.00 foot radius curve, concave Northeasterly, thence Northwesterly along the arc of said curve, through a central angle of 47° 02’ 06” a distance of 164.18 feet thence North 49° 06’ 58” West 117.28 feet to the beginning of a tangent 50.00 foot radius curve, concave Southerly thence Westerly along the arc of said curve, through a central angle of 77° 08’ 23” a distance of 67.32 feet; thence South 53° 44’39” West 59.15 feet to the beginning of a tangent 150.00 foot radius curve, concave Southeasterly; thence Southwesterly along the arc of said curve, through a central angle of 28°58’14” a distance of 75.85 feet; thence South 24° 46’ 25” West 609.78 feet to an intersection with the Southerly line of the Northwest Quarter of said Section 11; thence along said Southerly line, North 87° 41‘ 25” West 61.94 feet to the Southeast corner of the Southwest Quarter of the Northwest Quarter of said Section 11; thence along the Southerly line of said Southwest Quarter of the Northwest Quarter, North 87° 41’ 25” West 193.45 feet to the beginning of a tangent 50.00 foot radius curve, concave Southeasterly, thence Southwesterly along the arc of said curve, through a central angle of 57° 08’ l0” a distance of 49.86 feet; thence South 35° 10’ 25” West 169.73 feet to the beginning of a tangent 100.00 foot radius curve, concave Northwesterly; thence Southwesterly along the arc of said curve, through a central angle of 36° 19’ 10” a distance of 98.30 feet thence North 88° 30’ 25” West 31.23 feet to the beginning of a tangent 150.00 foot radius curve, concave Northeasterly; thence Northwesterly along the arc of said curve, through a central angle of 42°51 ‘10” a distance of 112.19 feet; thence North 45° 39’ l5” West 138.04 feet to the beginning of a tangent 189.53 foot radius curve, concave Northeasterly; thence Northwesterly along the arc of said curve, through a central angle of 29° 27’ 20” a distance of 97.44 feet to an intersection with the Southerly line of the Southwest Quarter of the Northwest Quarter of said Section 11; thence North 16° 11‘ 55” West 482.67 feet to the beginning of a tangent 500.00 foot radius curve, concave Southwesterly; thence Northwesterly along the arc of said curve, through a central angle of 12° 50’ 50” a distance of 112.11 feet; thence North 29°02’45” West 376.18 feet to the beginning of a tangent 300.00 foot radius curve, concave Southwesterly; thence Northwesterly along the arc of said curve, through a central angle of 22° 07’ 00” a distance of 115.80 feet; thence North 51° 09’ 45” West 168.16 feet to an intersection with the Westerly line of said Section 11 distant thereon South 03° 25’ 35” East 194.19 feet from the Southwest corner of the Northwest Quarter of the Northwest Quarter of said Section 11; thence continuing along the last described course North 51° 09’ 45” West 122.20 feet; thence North 14° 09’ 45” West to an intersection with the Southerly line of the Northeast Quarter of the Northeast Quarter of Section 10, Township 9 South, Range 2 West.

As you can see, it’s complicated. Do not try this home!

Hire a surveyor to write a proper legal description of the location of the easement. The surveyor will also prepare documents for you and your neighbor to sign. After you sign, go to the county and record the easement.

Step 8: Hire an attorney

If the neighbor refuses to allow an easement, hire an attorney. You might also consider hiring an attorney long before this stage to help you with steps 1–7.

Choose an attorney who specializes in real estate. To find one, Google the American Bar Association for the county where the land is located. Call and ask for a referral to a local real estate attorney.

Your attorney will help you negotiate with the neighbor. They can also draft your agreement with the neighbor about who is responsible for the maintenance and improvement of the easement.

If the neighbor is uncooperative, your lawyer can advise you on whether the specific circumstances of your situation mean that you have a legal right to an easement. Then, your attorney can make this case in court if necessary.

Alternative approaches

You might be wondering if there are things you can do to address the lack of access without seeking an easement and without the expense of hiring an attorney. Here are some possibilities:

Offer to buy the neighbor’s property outright. Once you own it, you will have control and can create an easement on your land!
Offer to buy part of the neighbor’s property, enough to get you to a road. This would require subdividing the parcel or a lot-line adjustment. Sometimes the city/county will allow this, and sometimes they won’t. Before suggesting this to the neighbor, check with the city or county planning office to see if it’s allowed.
Ask the neighbor’s family member to convince the neighbor to give you an easement. This has worked for me.
If you’re not vibing with the neighbor for personality reasons, ask your spouse, significant other, family member, friend, or attorney to negotiate. They may have better luck.
Offer something of value to the neighbor. Examples include a) more money than you initially offered, b) “first right of refusal” so that he can be first in line if you ever sell your land in the future, c) a gate/road that you will install at your expense, d) fencing between your properties that you will install at your expense or e) that chain saw he keeps borrowing, etc. You get the idea. This is the “carrot” approach.
Explain your next steps to the neighbor if he declines the easement. For example, you will hire an attorney, so he will have to hire one. This will cost him money, and there will be a long, drawn-out court fight, etc. This is the “stick” approach and is not recommended unless you’re ready to burn all other bridges.
Offer to pay for a professional mediator to assist both parties in negotiating the easement.
Offer to sell your property to the neighbor. This will not achieve your goal of getting an easement, but it will get you out of the situation.
Wait for the neighbor to sell their property or pass it on to their heirs. Statistically, houses turn over every seven years on average. The next owner might be more accommodating.
Wait for the neighbor to put their property on the market for sale. List your land at the same time with the same Realtor. Buyers won’t be too concerned about your lack of access if they purchase both properties. This is because they will own the neighboring property.
Ask the neighbor for “personal permission” to cross. This is different from an “easement”. It applies only to you (and your family, guests, etc.) and does not “run with the land.” This means that the permission will disappear when you transfer the property or the neighbor transfers his property. It will not allow you to build or increase your property’s value when you sell it. But it will enable you to put your feet on your land for now.
Sell your land on the open market in its current landlocked state for whatever price you can get. Be sure to disclose the lack of access to the next buyer. This disclosure is a legal requirement.
Try arranging an easement in a different direction across another neighbor’s property.

Conclusion

Buyers purchase landlocked parcels every day. It is very common because parcels that lack access are offered at a bargain price. By studying this basic outline of the steps needed to create an easement, buyers unfamiliar with the process can assess whether buying a landlocked parcel makes sense.

How to ask if seller financing is available

by Tammy Tengs

A buyer texts me and says: “will the seller carry the loan?” As a land broker, buyers ask me this all the time. It’s totally reasonable to ask about the availability of seller financing because there are very few conventional loans for vacant land.

The thing is, when a buyer asks the question in this simplistic way, I cannot give them an answer. And, there’s no point in me contacting the seller, my client, with a simple “hey man, will you carry the loan?” Because I already know what the answer will be. The answer from the seller will be “no”. Or, if it’s not a flat out “no”, it will be a bunch of questions:

How much will the buyer put down?
What interest rate?
How many years?
What price?
What are the monthly payments?
Who’s paying the closing costs?

Then, since the buyer has not stated the terms they are proposing, what happens is a lot of back and forth between buyer, agent and seller. It’s a big ‘ole unnecessary time-sink for all involved.

So, my friends and valued buyers, I offer you my advice on the best way to approach a listing agent to ask if the seller will carry the loan. I will show you how to save time and get positive results.

Let’s get started.

Sample Ideal Email Inquiry From a Buyer

Below is an example of an email that you might send to the listing agent.

“Hi Some Broker,

I’m interested in that parcel APN 987-654-321 at 1234 Some Street in Some City in Some County. I was wondering if the seller would consider carrying the loan with the following terms:

Price $80,000
Down payment $20,000
Principal $60,000
Interest rate 6%
Term 15 years
Monthly payments $506.31
No pre-payment penalty
Closing costs (escrow/title) shared 50-50
Closing in 21 days

Please let me know if the seller would consider these terms. If yes, I am prepared to submit a written signed offer.

Thank you,

Some Buyer”

Notice the specificity? Notice how the email includes everything that is needed and nothing that is not needed? See how the inquiry clearly spells out the terms including the price, down payment, interest rate, length of the loan, and monthly payment? Do that. Please.

How to Calculate Monthly Payments

It’s easy to calculate the monthly payment so that you can include it in your email. However, it’s not as simple as just dividing the amount owed by the number of months that you plan to make payments. That only works if your interest rate is 0.

To get the monthly payment for a fully amortized loan, use an online calculator:

http://www.moneychimp.com/calculator/mortgage_calculator.htm

http://bretwhissel.net/amortization/amortize.html

What Terms Should You Offer?

Buyers, in order to draft the email above, you will need to decide up front, before even asking the Realtor if seller-financing is available, what terms you are proposing. This will require a little advance thought on your part. So, spend a few minutes running some numbers. It will be worth it when you get a positive reply. Below are some customary seller-financing terms to help you out.

Down payments typically range from 20% to 50%. Please do not offer less than 20% for reasons spelled out here.
Interest rates on seller-financed land generally range from 4% to 10%. I recommend that you not offer less than 6%.
Terms (length of the loan) typically ranges from 2-10 years.

Out of all these items (down payment, interest rate, and term) the thing that sellers care most about is the down payment. To increase your odds of success, make the down payment as large as you can.

How Not to Ask a Realtor if the Seller Will Carry

For comparison, let’s look at how not to ask a Realtor if the owner will offer seller-financing.

Buyer: Yo, will the seller carry the loan on that parcel?

Agent: Which parcel?

Buyer: The one on the internet

Agent: Which parcel on the Internet? What street, city, county, state please?

Buyer: The land listing

Agent: I have 50+ land listings.

Buyer: The one priced at $100,000?

Agent: There are two, the one in California or the one in Oregon?

Buyer: California

Agent: OK, that’s the one in Riverside. I will be pleased to ask the seller if they will carry the loan. In order to ask the seller, I need to know the price, down payment, interest rate and term that you are proposing. Then I can ask the seller.

Buyer: Can’t you just ask the seller if he will carry, like, in general?

Agent: Sorry, no, because if I do the seller will ask me to specify the terms before he decides. What terms are you proposing please? I need your proposed price, down payment, interest rate and the length of the loan.

Buyer: I can put 25% down

Agent: OK what price, interest rate and term?

Buyer: 6% interest

Agent: Are you offering $100,000? How long would you like the term to be?

Buyer: No, I only want to pay $80,000.

Agent: OK what term?

Buyer: 10 years

Agent: Payments would be $666.12 per month. I will ask the seller and let you know when he replies.

Buyer: No, I can only afford about $500 per month

Agent: OK then let’s change the term to 15 years. I will ask the seller if he will consider $80,000 with $20,000 down at 6% interest for 15 years, payments to be $506.31 per month. I will let you know when he replies.

Buyer: OK thanks

Buyers, you don’t want to spend a bunch of time going back and forth on the phone, text or email just to get an answer to your question, do you? I mean, the email/text exchange above took like half an hour. You don’t want to invest that same half hour with five different Realtors on the five different parcels you’re interested in, right? It would be much easier for you to spend a little time thinking about it before even contacting the agent and just send the agent the email I recommended above. You could even use it as a template and send it to multiple agents on several parcels, editing key items slightly for each one. Save yourself a bunch of time!

Who Should Name Their Terms First: Buyer or Seller?

I find that Buyers usually want sellers to name their terms up front and sellers want buyers to name their terms up front. So, who goes first?

I recommend that the buyer “go first”. Here’s why: As a listing agent who represents the seller, it doesn’t make sense for me to even ask seller if they will carry the loan at the time of taking the listing. Why? Because if I ask the seller if they will carry at the time of signing the listing agreement, the seller’s answer is almost uniformly “no”. So, there’s no point to even asking. Almost all sellers prefer cash, and, at the time of listing, they are usually thinking their parcel is so special it will sell quickly and for a full cash price. At the outset, sellers see no reason to carry the loan. This means that if you’re the first buyer me to ask, “will the seller carry?” it’s likely that I won’t know the answer to your question.

And I cannot just pose this question to the seller “in general” or “hypothetically”. I find that sellers run into a mental block when they are asked whether, in theory, they might consider carrying the loan. Most sellers have no clue whether they should ask for 20% down or 50% down, whether the interest rate should be 4% or 10%, whether it makes sense to carry for 2 years or 15 years. I find that most sellers cannot wrap their mind around the question of whether they might carry in general for some hypothetical nameless faceless buyer. Sellers can only think about financing when the precise terms are spelled out by an actual buyer. It’s a psychological thing.

So, as an agent, instead of asking the seller at the time of taking the listing whether or not they will carry, I wait a month or two until I get the first inquiry about seller financing from a buyer. Then I ask the buyer to name their terms. Armed with those terms, I go to the seller and say hey there is real buyer proposing actual specific terms and I ask the seller if they will consider those exact terms.

This strategy is more likely to get a positive response from the seller. One reason is that a couple of months into the listing period, sellers are starting to see that their parcel has not flown off the market with a full price all cash offer. By this time, sellers are beginning to think about new ways to get their land sold. A second reason is that if I can specify exact terms to a seller, he can ruminate about it in a concrete way. Is the 20% down proposed by the buyer sufficient, he will wonder, or would it be better to counter at 30% so that the buyer has more “skin in the game”? Is he willing to carry for 10 years, as the buyer requests, or will he need the money in 5 years for his kid’s college education? Is the 6% interest rate proposed by the buyer less or more than what he earns on his other investments? What would it be like to get a regular check for $506.31 per month? That might be nice, he will think.

So, buyers, when you name your terms this gives the seller something concrete to focus his thinking on. It works much better this way and he is more likely to say “yes”. Trust this advice from the experienced land broker.

Consider Your Audience

As a buyer, it’s best if you can learn something about the seller and agent before preparing your detailed inquiry about seller-financing. Is the seller younger or older? Is the Realtor a residential broker or a land broker?

If the seller is older, you will want to propose a shorter term for the seller-financing. While banks can entertain long loan terms like 15-30 years, because they exist in perpetuity, land sellers are not banks. They are humans with finite lifespans. Some sellers are older and naturally want to get paid off while they are alive. So, consider the seller’s age when deciding what term to propose. The older the seller, the shorter the term you should propose.

The reason to consider whether the listing agent is a residential broker or land broker is that residential brokers will be less familiar with seller financing. Residential brokers sell mostly houses and condos and may have only one or two land listings. Since conventional loans are plentiful for houses, Residential brokers may not be aware that there are few conventional loans available for vacant land. A residential Realtor might wonder “why doesn’t the buyer just go to their bank?” Residential brokers may even greet your seller-financing request with suspicion. Some may not have a clue how to prepare a seller financing offer, calculate monthly payments, create an amortization schedule, etc. (By the way, these are just some of many reasons that land sellers should list with land brokers not residential brokers, but I digress….) Buyers, if your audience is a residential Realtor, it is even more important to spell out your proposed terms in detail in your first inquiry as I have shown you above. If you do this, you will look like a serious buyer. In addition, you will be educating the residential broker so that they will see that preparing an offer like this would not be all that cumbersome (for them). Then they may take your “seller financing?” question more seriously.

Also remember that your “audience” for this inquiry, the listing agent and the seller, are probably not mathematicians or loan brokers. So keep it simple! I recommend that the type of loan you propose be as basic as possible. For clarity, make it fully amortized. This is because loans that are amortized involve just a single monthly payment and when you’re done making those payments the whole principal will be paid off. It’s an easy concept for sellers to grasp. Try to avoid proposing a balloon payment and never ever propose multiple balloon payments such as “I’ll pay you $20,000 up front, then monthly payments, the another $30,000 in 1 year, then more monthly payments, then $40,000 in 3 years.” OMG. Do not ask for an interest-only loan because that involves a balloon payment at the end. A final recommendation is to avoid proposing multiple options. Never say “we could do it this way or we could do it that way”. You might think it’s totally logical that the seller would prefer to have choices, that way the seller can get more what he wants and so is more likely to carry the loan. Wrong. It just confuses the negotiation. Think about Trader Joes. One of the reasons they are so successful selling tomato sauce and frozen burritos is that they offer one option not multiple options. If you want the seller to say “yes”, just propose a single garden variety amortized loan with one set of terms.

Finally, buyer, keep in mind that most sellers prefer all cash. So, your audience for your “seller financing?” question will be someone who really doesn’t want to carry the loan. You will have to entice them. So, don’t go in with an offer that is low price AND a small down payment AND a low interest rate AND a long term because that’s not going to work. Give the seller something to hang his hat on. Make him want to work with you. You’re not the only buyer out there. You are in competition with other buyers, actual or theoretical, past, present or future. And while you cannot make your offer superior to other buyers in all ways (because you’re not offering cash), you can make it superior to all other buyers in one way – and that’s on price. So, if you’re going to request terms, at least offer full price.

Buyer Worries

Sometimes buyers worry that if they send a detailed inquiry like the one I am suggesting, the seller will get the mistaken impression that it is an actual offer. They fret that if the seller says “yes” they will be “under contract”. Not true. In real estate, a contract has to have two signatures. And when a buyer sends this kind of inquiry to a Realtor, and the Realtor forwards it to the seller, and the seller says, “sounds good”, nobody has signed anything. The seller’s positive response just means “I invite you to submit a formal offer and, if you do, and I will look at it favorably”. However, until there is a signed agreement, there is no deal and either party can walk. So, buyers, don’t be afraid to state your terms up front with some specificity.

From the Perspective of the Realtor and Seller

In addition to increasing the odds of getting a positive response, something that benefits the buyer, the strategy that I am advocating also serves the purposes of the Realtor and seller. Asking the buyer to give a few minutes of thought to the kind of seller-financing deal he wants, weeds out those buyers who are not serious about the parcel in question and are just sitting around in their jammies, watching Netflix, surfing Zillow, and blasting off “seller carry?” emails to random agents. After all, not all “buyers” are buyers. And there’s no point in getting a seller’s hopes up if the buyer is not really a buyer. I find that real buyers are willing to spend a few minutes crafting their seller financing proposal. It’s a good test.

Conclusion

If you’re interested in purchasing a piece of land, it’s reasonable to ask a Realtor whether or not their seller client will carry the loan on a parcel of land. The best way to do it is to briefly specify all terms up front. This will increase your odds of getting a positive response!

Can the seller counter over the asking price?

by Tammy Tengs

Recently, I received a full price offer from a Realtor who was representing a buyer. I was representing the seller. Surprisingly, my client declined the full price offer. He gave the buyer a written counteroffer that was higher than his asking price.

Let’s just say that my client had his reasons.

The Realtor representing the buyer went absolutely ballistic! She threw a tantrum and sent me several flaming e-mails. She implied there was some conspiracy afoot.

I listened politely. I mean, gosh.

So while that other Realtor is taking a time-out in the naughty-girl corner, let’s talk, just you and I. From this experience, it became clear to me that not all buyers, and perhaps not all agents, understand that it’s acceptable for sellers to decline full price offers. Buyers and their agents may not grasp the reasons why a seller might do that. Further, sellers may not realize the drama that they unleash when they counter over the asking price.

Does The Seller Have To Accept A Full Price Offer?

The short answer is “No.”

Real estate is not like shopping at the supermarket. When you go to the grocery store and an item is marked $1.29 you can be confident that when you take it up to the cash register you will be allowed to purchase it for $1.29. Even if the computer register makes a mistake and shows it at $1.50, for example, you can still talk to a manager and he will likely give it to you for $1.29 because that’s the price marked on the item.

Real estate doesn’t work that way.

Does the Seller Have to Explain Their Reason for Declining A Full Price Offer?

No. In fact, the seller does not even have to reply to the buyer’s offer at all, even a full price offer. The seller can remain entirely silent.

Of course the listing agent may well explain the seller’s reasons to the buyer’s agent if she feels it is in her client’s best interest. For example, if the seller wants the buyer to re-submit a revised offer, the listing agent might explain to the buyer’s agent the reasons that justify the higher price. However, there are times when the listing agent, acting as the seller’s fiduciary, will feel that it’s in seller’s best interest to say nothing. In that event, she will remain silent.

Why Would a Seller Decline A Full Price Offer?

First, rest assured that the vast majority of sellers will accept a full price offers. Or, they may give a buyer a counteroffer on a couple of details but accept the full price.

However, there are reasons why some sellers may not accept full price. Here are a few of those reasons:

1. The seller may have received another written offer

In fact, the seller may have not just one additional offer – he may have two or more. The other offer(s) may be higher than your offer, lower than your offer, or the same as your offer. Regardless, the seller is free to accept one offer, counter one offer, counter multiple offers, or decline all offers. There is no “first come first served” in real estate.

In practice, the way it usually works is that when a seller receives two or more offers, the seller will either 1) accept the best offer, or 2) counter one offer on a couple of details, or 3) counter two or more offers. In the event of a bidding war, the parcel is likely to sell for over the asking price.

2. The seller may have received another verbal offer

Even if the seller does not have another written offer, he may have received another verbal offer via his agent. He may be hoping to get more from the competing buyer. It could be that the other buyer is planning to put their verbal offer in writing any day now, but has not gotten around to doing that yet.

3. The seller may be unhappy with the terms

Offers are not all about price. Offers consist of price and terms. Sure you may have offered full price, but did you ask for a 120-day escrow period so that you would have time to come up with the money? Is your offer contingent on selling your house in another state? Did you ask the seller to pay for all of the closing costs including your portion? Did you say you were going to get a bank loan on vacant land with 5% down when the seller knows that no such loans exist? Did you ask the seller to pay for a perc test for septic, a well inspection, and a survey? If you answered “yes” to any of these questions, the seller may be saying to himself “Give me a break. I’m not even going to reply to this frivolous offer” even if it is full price. Sure, the price is fine. But the seller doesn’t like the terms.

4. The buyer’s agent may have “shown her hand” to the listing agent

The agent representing the buyer may have inadvertently or deliberately disclosed to the listing agent the buyer’s extreme motivation to purchase or even the buyer’s willingness to pay more if necessary. The buyer’s agent may have said that she thinks the parcel is a “good deal” or “very well priced”. She may have called the listing agent incessantly asking if there are competing offers, or pressuring the listing agent for a response. This is a “tell” that the buyer is very interested and is pushing her agent to get a response from the listing agent and seller.

The listing agent (who is the seller’s fiduciary) may advise the seller that she believes the buyer may be willing to pay more than the asking price. This advice may cause a seller to decline or counter a full price offer even when the seller has no other offers.

5. The listing agent’s phone may be ringing off the hook

If you think a parcel is so awesome that you are motivated to offer full price, then it stands to reason there are other buyers just like you. The listing agent may be receiving considerable interest – a high volume of phone calls and lots of e-mails. The listing agent has likely shared this information with the seller. The seller may take this as a sign that he can get more than his initial asking price for the parcel.

6. The seller may have had a change of heart on list price based on reliable or unreliable new information from outside sources

After signing the listing agreement at a particular price, the seller may discuss the price with his “financial advisor” Spike, his neighbor Mary Sue, or his favorite uncle Herb who used to sell real estate back in 1958. New advice (reliable or unreliable) may cause him to change his willingness to sell at his original list price. Wisely or unwisely, this may cause him to decline your full price offer.

7. The seller’s confidence in the economy may have improved since he listed the parcel

The actual economy for land sales typically does not change in 3-6 months, the timeframe of a typical real estate listing. However, the seller’s psychological confidence in the economy based on news reports could easily change in a period that short. The seller may be thinking “sure I listed my property at $X five months ago, but now the economy has improved so I want more money for my land”.

8. The buyer or the buyer’s agent may be acting like a jerk

Sellers do not want to sell their land to buyers who are acting like jerks or who are represented by agents who are acting like jerks. An example of a jerky thing to do would be to submit a full price offer and then get angry, threatening litigation if the seller doesn’t immediately accept the offer (like the agent who inspired this blog post did). Any mention of the L-word for any reason is naturally a huge turnoff to sellers. Sellers do not want to do business with buyers who seem litigious or who might create a complicated unhappy escrow experience. As a pure business decision, a seller is unlikely to accept a full price offer from someone who is acting like a jerk.

Advice to Sellers

Yes, technically you can ask a buyer to pay more than the listing price. But let’s face it – you will create an unhappy melodrama between the buyer, buyer’s agent and listing agent. More importantly for you, a move like this is unlikely to be successful.

Countering over the asking price may cause the buyer to disappear. There are some buyers who, upon receiving such a counteroffer, will think you’re an unfair meanie and will walk away just on principle.

As a seller, it’s far better to list the property at a price you are actually willing to accept. If the price you are willing to accept changes, then talk with your Realtor immediately about modifying the advertised listing price.

Also listen to your Realtor. Ask your Realtor to do some updated research. Maybe the higher price you think you can fetch is ill-considered and you should keep the list price the way it is. After all, it hasn’t sold at current listing price yet, now has it?

As a strategy, countering over the asking price should be reserved for only the rarest of circumstances. And only when you’re mentally prepared for the buyer to say “no thanks”.

Advice to Buyers

If you think a parcel is an awesome deal, it is likely you’re not alone in that opinion. When you find a fabulous real estate opportunity, be aware that multiple offers and counteroffers over the asking price are a possibility. The best way to avoid a bidding war is to write a “clean” offer. That means you should offer full price and, in addition, offer 50% of all closing costs including title insurance. To increase the odds of acceptance, write into your offer that the seller can choose the escrow and title company. Finally, submit your offer quickly before anyone else sees the listing!

Advice to Agents

If you are a buyer’s agent and you submit a full price offer and get no response please don’t jump to the conclusion that there’s some conspiracy afoot against your buyer like the agent who inspired this blog post did. There are many reasons why a seller would decline a full price offer that have nothing to do with you and your buyer. Even if you get no reply, remember, a non-reply, while no fun, is legal.

Further, the buyer’s agent should remember that the listing agent has a fiduciary responsibility to the seller, not to you or to your client. The listing agent has no ethical responsibility to tell you what the seller is thinking. A seller could be declining your full price offer for any number of reasons and the listing agent has no duty to tell you the reason. She may. She may not.

Just politely contact the listing agent to inquire about the status of your buyer’s offer. Be careful about seeming too desperate and “showing your hand” because the wily listing agent may use that to her client’s advantage. Monitor the MLS listing daily to see if the seller might have increased the listing price. If you get the news that your full price offer is declined just ask your buyer if they want to submit a better offer.

As the economy improves, you will see more and more bidding wars, declined full price offers, and counteroffers over asking price. Just take a deep breath and take it in stride.

When you are acting as a listing agent, make sure your sellers know that they should list at a price they are actually prepared to accept. If the price they are willing to accept changes, encourage them to contact you immediately to discuss whether it makes sense to officially change the listing price.

Why do sellers have to sign so many pages just to counteroffer on price?

by Tammy Tengs

When clients say they want to counteroffer on one item, such as price, and I give them a whole stack of paper to sign they generally raise a curious eyebrow at me.

So let me explain what’s happening.

Here’s a Typical Scenario

You’re a seller and you have received an offer on your land. Woo hoo! Happy dance! You’re pleased to have an offer. However, the price the buyer offered is too low. No problem – you will give the buyer a counteroffer on price.

Let’s say the buyer offered $150,000. You decide to counteroffer at $175,000.

The original offer from the buyer has 11 pages plus a bunch of additional disclosure pages for a total 15 pages (or more) and looks like this:

The one page counteroffer that your Realtor prepared for you to sign looks like this:

Your Realtor tells you that you must sign both the one page counteroffer AND the multi-page page offer.

“Why?” you ask.

You’re tired. You’re grumpy. You’d rather be curled up eating a plate of vegan brownies and watching another episode of RuPaul’s Drag Race instead of dealing with all this paper pushing . . . oh wait, that’s me I’m talking about . . .never mind . . .

Anyway, you just want to sign one page . . .

Plus, you’re confused because the original offer contains the low price of $150,000 and you will not accept that price. Won’t the buyer get the wrong idea and think you’re accepting their low offer, you wonder? Why can’t you just sign your one page counteroffer at $175,000? Why do you have to sign all those other dumb pages too?

In my office I get this question at least once a month.

Here’s the Scoop

In California, sellers who give buyers a counteroffer, actually “accept” the buyer’s offer “subject to” the seller’s counteroffer.

“Huh?” you say. “I thought I was rejecting their low offer, not accepting it” you say to me.

Let me explain. The offer will usually be on the standard California Association of Realtors (CAR) vacant land purchase agreement (VLPA). Look at paragraph 38 at the top of page 11. See the box there for you to check? When you give the buyer a counteroffer you will check the box in paragraph 38 like this:

Checking that box and signing all pages of the offer means that you are cool with all the other stuff in the offer except the things you put in the counteroffer. If you are countering on price only, then you are saying you are comfortable with other blah blah the buyer put in their offer like the length of the escrow period, the buyer’s choice of title company, who pays the closing costs, etc. That is, you are “accepting” all that other stuff.

But wait, wait, just a minute now, are you really OK with all that other stuff you wonder?

Well, I guess you will have to actually read the fine print in the original offer won’t you?

After you’ve actually read the offer, discuss any questions with your Realtor. She will be pleased
to advise you on what is reasonable and customary in your area. If you’re not comfortable with somet
hing in the offer, and want to propose an alternative, put that in the counteroffer too. Counter on everything you want to at the same time in the same counteroffer.

After preparing a complete one page counteroffer and signing it, check the box on the offer indicating that you are accepting the offer but only subject to the attached counteroffer dated <today’s date> and initial/sign all pages of the offer. Your agent will then give the whole thing to the buyer (like 16 pages total) and tell them that you are “countering” which is the same thing as “accepting their offer, but only subject to your counteroffer”.

It will be clear to the buyer that you have agreed to all of aspects of the buyers offer except those things you mention in the counteroffer. Basically, anything you put in your counteroffer as seller over-rides the corresponding item in the offer. So, for example, if you put “Price to be $175,000” in the counteroffer that overrides the price of $150,000 in the offer. As another example, if you were to put “closing in 21 days” in the counteroffer that would override a 45-day closing in a buyer’s offer. There is no confusion.

Conversely, because you are “accepting” the offer (subject to the counteroffer), anything you omit from your counteroffer will be considered agreed to by both parties. For example, if you don’t mention in your counteroffer how closing costs will be apportioned, then the cost-sharing proposal in the buyer’s offer will be the one that both parties have agreed to.

So if you want to address anything as seller, the first counteroffer is the time to do it. It’s a bad strategic idea to bring up changes later in the negotiation and an even worse move to bring them up after escrow is open. (I remember on my high school debate team we were admonished “no new arguments in rebuttal.”) So read the fine print and put it all in this initial counteroffer.

The Bottom Line

Selling land is not only about price. It’s about price and terms. Review the terms in the offer. When giving the buyer a counteroffer, California sellers should sign the one page counteroffer and the entire offer too!

Isn’t the other guy supposed to pay those closing costs?

by Tammy Tengs

No one likes to pay real estate closing costs. Buyers ask me: Isn’t the seller supposed to pay those? Sellers say: What are all these crazy costs – isn’t the buyer supposed to pay?

As a land broker, what fascinates me is that buyers ARE sellers. Sellers ARE buyers. Or they will be, in a few years, or on a different property. They’re the same people! Of course, when they switch sides, they will forget that they thought the other guy should pay.

So, who should pay for closing costs? My answer is: It’s negotiable. But it is generally unwise to negotiate! Regardless of the side you’re on, agreeing to split costs is in your enlightened best interest.

But first, what are “closing costs”? Let’s concentrate on the big ones and set aside the miscellaneous costs. The important closing costs in California are title insurance, escrow, and natural hazard reports. Three other cost items are also significant but not considered “closing costs:” back taxes, other liens, and the real estate commission. So, to discuss all the big numbers, I will touch on those too.

The negotiation on “who pays what” starts when the buyer submits an offer. The buyer proposes “who pays” in paragraph 3 of the standard California Vacant Land Purchase Agreement. The buyer makes their proposal by checking boxes.

There are two customary patterns for sharing closing costs:

First Common Pattern for Sharing Closing Costs

Split all closing costs 50-50 between buyer and seller like this:

The 50-50 split is the pattern I prefer. I’ll explain why below.

Second Common Pattern for Sharing Closing Costs

Another standard pattern is where the seller alone pays for title insurance, the natural hazard report, and miscellaneous costs. The buyer and seller divide the escrow fee 50-50.

The seller is responsible for delivering a clear title. Therefore, the logic of this pattern is that the seller pays for title insurance to show the buyer that the title is clear. Further, California law requires the seller to disclose any natural hazards. Hence, the seller pays for a natural hazard report to comply with the law.

This second pattern is typical for houses and condos in California, so it is also often used for vacant land.

Who Pays Back Taxes, Liens, and the Commission?

Now consider other big-ticket items: back taxes, liens, and the real estate commission. These are not considered “closing costs.”

The boilerplate language says the seller will pay for those items:

Paragraph 16B says, “Title is taken in its present condition … except for…monetary liens of record …. Seller will take any necessary action to deliver title free and clear of such lien….”

Paragraph 20 says, “The following items shall be PAID CURRENT … real property taxes and assessments….”

Further, the seller likely signed a separate listing agreement with his agent, agreeing to pay the entire commission, including the buyer’s broker commission. This will change with the recent National Association of Realtors legal settlement, but at this writing, the seller generally pays all. Ask your Realtor what the current customs are in your market.

So, the escrow officer will deduct liens and back taxes from the seller’s proceeds. Escrow will also likely deduct the commission from the seller’s side.

Because these items are not considered “closing costs,” there are no checkboxes for them in paragraph 3 of the agreement.

Let’s summarize. Unless there is some agreement to the contrary, the seller will pay back taxes, liens, and (probably) commissions. The buyer will not pay for these.

Asking Sellers to Pay for Everything and the Kitchen Sink (and There is No Kitchen)

Buyer’s agents occasionally check every box in paragraph 3 and ask the seller to pay for all!

They write that they want the seller to pay for a well test, and sometimes they ask for that when there is no well! They also want a perc test, the corners marked by a surveyor, and this and that. Offers where they throw it all in and see what sticks are usually prepared by an agent accustomed to selling houses, not land.

When receiving an offer like this, it’s best to take a deep breath and pull out the counteroffer form.

While all items are negotiable, it is not customary for sellers to arrange or pay for “extras.” I generally advise my sellers to decline to pay for these items.

When sellers decline to pay, it is still customary to allow buyers to perform any surveys or inspections they care to do. So sellers, if you receive an offer asking you to pay for everything and the kitchen sink, prepare a polite counteroffer. State what you will and won’t do and what you will and won’t pay for. Invite the buyer to arrange and pay for any due diligence they care to do.

Buyers and Sellers View Not Sharing the Cost Burden as Unfair

Buyers dislike it when sellers ask them to pay what they perceive to be the “seller’s” costs, and sellers hate it when asked to pay what they think are the “buyer’s” costs. If asked to carry the other person’s load, each party will think the other is an unfair meanie or a trickster. They will think you’re trying to slip costs into the fine print, which will affect the success of the negotiation.

The parties are likely to be far more accepting of negotiation on price. Buyers understand and accept that sellers want the highest price possible. Buyers may even be a little sheepish. They may be worried about submitting a low-price offer and nervously awaiting the seller’s counteroffer on price. Further, sellers understand the reality that buyers want the lowest price possible. The other party is unlikely to be perceived as “unfair” or “mean” simply by counteroffering on price.

Thus, it is in the best interest of both parties to accept the costs of transferring real estate. Negotiate only on the price.

Advice to Buyers

You should propose to split all closing costs with the seller 50-50, consistent with pattern 1.

Why?

Keep your end goal in mind. As a buyer, you want the seller to accept your offer as written without a counteroffer, right? You also want the seller to accept it before another buyer submits a higher offer, yes?

If you ask the seller to pay for all costs on some items, consistent with pattern 2, the seller may wonder if this is customary. He may phone Aunt Bessie, who was a real estate agent in South Dakota back in 1940. He will ask her whether she thinks this is fair. He may email Cousin Bernie in Long Island, who recently sold his house, to see what closing costs he paid. He may communicate back and forth with his agent on how to respond to your offer. He may request an estimate from escrow to see how significant of a hit all these costs will be.

All this flagellation takes time. The risk of time passing is that another buyer may appear on the scene in the interim.

The annoyed seller may give you a counteroffer on who pays what closing costs. The seller might reason that as long as he is countering on closing costs, he might as well ask for a higher price, too. After all, no extra effort is required to slip the price into the same counteroffer. Suppose you, the buyer, are not offering full price. In that case, the seller may factor in your unequal cost-sharing proposal and “take it out on you” on price.

As a buyer, you want to fly under the radar. You want your first proposal on how to share closing costs to seem fair and reasonable. You want the listing agent to take your offer to the seller and describe it as “clean.” You hope the agent will recommend that her client accept it as written. The best way to increase the likelihood of that is to propose sharing all costs 50-50.

Here is an example illustrating the issues: California land buyer Sally calls her agent. She wants to submit an offer of $13,000 on another agent’s land listing priced at $13,000. Sally’s agent reminds Buyer Sally that she must also pay closing costs. Her part of the closing costs would be approximately $850. Buyer Sally replies that she only has $13,000 and does not have $13,850. Buyer Sally wonders aloud whether she should ask the seller to pay all closing costs. The wise agent recommends that Sally not do that. She suggests that Sally submit an offer at $12,000 and offer to pay half of all closing costs. Sally does that. The seller counters at $12,500, Buyer Sally counters at $12,150, and the seller accepts. Sally pays a price of $12,150 plus $850 in closing costs for a total of $13,000. Both the buyer and seller are happy.

Now imagine if Buyer Sally had submitted an offer at $13,000 and asked the seller to pay 100% of closing costs. The seller would be pleased with the full-price offer, but he might have countered by asking Sally to pay her own darn closing costs. Then Sally would have had to back-peddle on her offered price to afford her part of the closing costs. The seller would have felt annoyed at Buyer Sally for walking back on the price, and the deal might have fallen through.

This hypothetical example demonstrates why buyers should offer to split closing costs. That way, the buyer and seller can negotiate on one thing, price, not two things, price and closing costs.

Advice to Sellers

You should agree to either of the two cost-sharing patterns described above. Both are common and customary.

If the offer is less than full price, do not negotiate closing costs—negotiate on price only. Why negotiate two things (price and closing costs) when you can negotiate one thing (price)? It all comes out the same in the end, anyway. Don’t nitpick over details.

Here is an example: Seller John has his parcel listed for $100,000. Suppose Buyer Mark offers $70,000 and proposes that John pay most of the closing costs. Seller John will be tempted to reply, “Well, I’ll accept Buyer Mark’s (low) price if Mark pays 100% of all closing costs. But, John’s savvy agent knows that Buyer Mark may balk at a request to pay what Mark perceives as Seller John’s part. The negotiation will become all about the principle of the thing. If John were to pay the bulk of the closing costs as the buyer requested, his costs would be $3000. So, the listing agent advises John to give Mark a counteroffer of $75,000 and agree to share closing costs as proposed. Buyer Mark feels the counteroffer is quite reasonable in light of his low offer. He accepts the counteroffer. Seller John admires his competent agent, whose advice got him more money than expected. Both the buyer and seller are happy.

Advice to Agents

As a good fiduciary, you’re likely thinking that when you represent sellers, you want the buyers to pay, and when you represent buyers, you want sellers to pay. Remember, though, that you don’t want to win the battle on closing costs only to lose the war on price.

A good fiduciary should tell both buyers and sellers that they should carry their own weight.

Don’t sweat the details on closing costs. Negotiate only on price