That 3% isn't closing costs though, it's a standard down payment. Sure, closing costs can be included in the loan resulting in no out of pocket costs, but just because they can doesn't mean they will. I guess it all depends on how badly somebody wants to sell... 3% of a 500k house (still cheap in CA) is 15k. I don't know many people who wouldn't think twice about giving that much money to they buyer just to buy their house from them.
It is very standard practice in a buyers' market. Happens every day down here. When we were looking at $300kish houses sellers were offering 6% without a problem. We didn't end up buying b/c we wanted to pay down more debt first though.