Seller contributions to the buyer.

This financial concept is one of the reasons for the increase in foreclosures.  One of the main causes of a homeowner to declare bankruptcy is that they can’t make their monthly payments on their home and can’t sell the home for the amount of money owed on it.  Another reason is the fact that many buyers finance 100% of their mortgage.  Added together, the homeowner finances more on the home than it is worth and when something goes wrong with their financial plan, like the loss of a job or other loss of expected income, they can’t pay the mortgage company what they owe on the house and must give it up to foreclosure. 

Here’s how it works.  Many buyers ask the seller to pay for some or all of the buyer’s closing costs.  This allows the buyer to include these costs in the mortgage that will be paid over the long period of time.  It also decreases the amount of equity the buyer has in the home.  If the buyer is able to stay in the home for a long period of time, this may be a good financial strategy for the buyer.  If something happens to reduce the time the buyer will occupy the house there won’t be much equity in the home when the buyer goes to sell it – in fact, the buyer may be forced to “bring money to the table” at the closing.

 The name Seller Contribution is actually a misnomer since the seller usually gets the full amount they are expecting from the sale of their home.  The buyer pays an additional amount to the seller, which the seller then returns to the buyer at the closing to cover the costs of buying the home.  That additional amount is included in the mortgage that the buyer will pay over the longer period of time.

 Looking at the local MLS statistics, 35% of the first quarter sales involved a seller contribution.  For Tarrant County only, the number increases to 40%.  This percentage has been increasing for the past 5 years at least.

              2003                            MLS Total                                   15885
                                                Seller Paid                                     3237
                                                Percent Paid                                  20%

                                                Tarrant County Total                      4166
                                                Seller Paid                                       879
                                                Percent Paid                                  21%

             2004                            MLS Total                                   17596
                                                Seller Paid                                     4431
                                                Percent Paid                                  25%

                                                Tarrant County Total                      4556
                                                Seller Paid                                     1195
                                                Percent Paid                                  26%

             2005                            MLS Total                                   19271
                                                Seller Paid                                     5520
                                                Percent Paid                                  29%

                                                Tarrant County Total                      4902
                                                Seller Paid                                     1430
                                                Percent Paid                                  29%

             2006                            MLS Total                                   21497
                                                Seller Paid                                     7053
                                                Percent Paid                                  33%

                                                Tarrant County Total                      5680
                                                Seller Paid                                     2068
                                                Percent Paid                                  36%

             2007                            MLS Total                                   19719
                                                Seller Paid                                     6933
                                                Percent Paid                                  35%

                                                Tarrant County Total                      5132
                                                Seller Paid                                     2053
                                                Percent Paid                                  40%