Closing costs – What are they really?
By Meredith Caruso
March 20, 2017 – During the course of a transaction, it's fairly common for a seller to offer a certain amount of money towards the buyer's closing costs – and many Realtors feel that adding a quick, simple line about this change in the contract's additional terms section is sufficient.
Often, however, it isn't that easy, and ambiguous contract language tends to create conflict.
For example, adding a line like "furniture is included" is not helpful to the parties. It isn't specific enough to identify what is being conveyed, and referring generally to "closing costs" can also be confusing.
As a result, it's important to understand what the term "closing costs" means. It isn't always limited to costs associated with a buyer's loan.
So how does a Realtor know what a party's closing costs are? Look to the terms of the contract. If using a Florida Realtors/Florida Bar contract, potential closing costs are covered in paragraphs 9(a) and 9(b). For the CRSP contract, look to paragraphs 5(a) and 5(b).
The costs listed in these sections are considered closing costs for the respective party – costs that either the buyer or seller must pay for the parties to close. This is not an exhaustive list, however. Other sections of the contract may also obligate a party to pay for an additional item.
If a seller wishes to only give credit towards certain types of closing costs – only the buyer's loan expenses, for example – then the seller should specifically limit it to that item in the contract.
Additionally, issues can arise over whether the amount being credited is a set amount. For example, if the seller is crediting X amount towards a buyer's specified closing costs, but the closing costs are less than X, does the buyer receive the balance or is it returned to the seller? The answer depends on the wording used in the contract and possibly the buyer's lender, since some won't allow the buyer to walk away from closing with the full amount of cash described in the contract.
To avoid last-minute conflicts and closing delays, make sure that the language about closing costs is specific – that it includes the amount covered and addresses what will happen if the costs are less than the amount to be received.
If the parties have any questions regarding the legal sufficiency of language being added to a contract, they should speak with their personal attorney.
Meredith Caruso is Manager of Member Legal Communications for Florida Realtors
© 2017 Florida Realtors