Closing Cost Concessions – The Clearer the Better

In a real estate transaction, who will pay what closing costs is negotiable.  In addition to selecting a designation as to whether the Seller or the Buyer will designate the Closing Agent and pay for Owner’s Policy and Charges, parties often want to add specific language to the sales contract altering these costs and/or providing Seller concessions toward Buyer closing costs.  Doing this is perfectly acceptable and quite common, but it is important to be as clear as possible when drafting up such terms as they are often open to interpretation and may not result in exactly what your Seller or Buyer had in mind.

One example of closing cost concession language that is open to interpretation is “Seller and Buyer shall split equally Buyer’s title charges”.  In this case there can be confusion as to what “title charges” are.  Does this include the Closing Agent’s settlement fee?  Does this include the municipal lien search?  Does this mean that only the owner’s title policy premium will be split?   One can see that this simple sentence can give rise to multiple questions, and may result in a different interpretation than the parties anticipated.

Another example of unclear language is “Seller shall pay $1000 toward closing costs”.  Here, a question arises as to whether the Seller plans to pay $1000 toward all closing costs combined?  Or is it only toward the Buyer’s closing costs, with the Seller continuing to pay the documentary stamp taxes on the deed and the estoppel fee?  Sometimes a Seller who is not familiar with the real estate contract may assume that all closing costs are “Buyer’s costs”.  If that is the case, they may be very unhappy to find that they have committed to paying both their closing costs and to contributing $1000 toward the Buyer’s costs when they were anticipating that they were only paying $1000 in total.

The above are just a couple examples of potentially ambiguous language to avoid.  To make sure that you do not run into issues with ambiguity, here are a few things that you can do.  First, listen to and understand what your Seller or Buyer is trying to accomplish, and make sure that they understand what costs they will be responsible for.  Second, make sure your language is as specific and clear as possible, and that it clearly identifies who is paying what costs.  Third, if there is any ambiguity, have a conversation with a representative for the other party to make sure everyone is on the same page.  Finally, make sure that the settlement statement is reviewed prior to closing to ensure that the Closing Agent preparing the statement also understood what the parties intended, and prepared the settlement statement accordingly.

If you need any assistance with the above or have any questions, we urge you to consult with your local real estate attorney.

Sincerely,

Berlin Patten Ebling, PLLC

Article Authored by Jessica Featherstone, Esq. jfeatherstone@berlinpatten.com

This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.

All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged. 

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