Housing prices negotiations stalled? Why closing costs are your best bargaining chip.

Housing prices to high for you, but too low for the seller?  Don't fret. Asking a stubborn seller to cover closing costs ill lead to housing prices that make both of you happy.

When Sarah and I were in the process of purchasing our current home, we ended up negotiating for a price on a house that had been on the market for a while. We were able to find some out-of-date online listings that had indicated that the housing prices had dropped pretty consistently over the course of a year, to the point where it was about 20% lower than the original asking price.

During our negotiations, it became pretty clear that the previous owners had long decided on a minimum price that they would sell the home for. They came up with a number and pretty much would not budge from it (a number that was about 24% lower than the original asking price of the home).

We felt that the price should go a little lower than the number that they wanted. Housing prices in the neighborhood where we were looking had stalled, there were several other houses on the market nearby, and the house itself had been on the market for a while, so we weren’t going to budge upwards, either.

At that point, a friend of our family made a suggestion. “Why don’t you simply ask them to pay the closing costs? That way, they can save face and get the price they intended to for the home and you’ll pay a little less?”

This suggestion worked perfectly. They agreed to cover the closing costs in their entirety in exchange for sticking with their bottom price. We saved several thousand dollars.

In our situation, we were able to take advantage of asking the seller to pay closing costs because the seller was fixated on a certain dollar amount for the sale. In other situations, the advantage might not be as clear-cut, but it can often serve as a negotiating piece that can lower your total cost by quite a bit.

Besides the fact that it can save you significant money, asking the seller to pay closing costs can help with short-term cash flow. By doing this, you’re not paying your closing costs with out-of-pocket money. That money can be vital during a move when you’re doing things like paying for a moving service or buying a few basic furnishings.

Of course, it is important to remember that this isn’t a guaranteed money-saver. From the buyer’s perspective, it’s merely lowering the amount they get for the house.

What it does do – and it was particularly evident in our situation – is it allows the seller to come away with a selling price that they’re happier with. That has psychological value for many people, and that psychological value can keep your money in your pocket if you’re a buyer.

The tactic of asking the seller to pay the closing costs and other fees won’t always save you money, but it’s important to remember it as a bargaining chip.

The key with any major purchase like this one is to minimize the total amount you’re paying. In many negotiations, closing costs can make the difference in that final total. If you play your cards right, it can make thousands of dollars of difference in your favor.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere.