Seller concessions in contracts.

I am in a situation where the buyers need to ask the seller to contribute toward VA required repairs, in an amount higher than agreed to when we wrote the original contract.  The repairs turned out to be higher than anticipated.

We are currently getting estimates so, at this point, who knows what that amount will be.  At this point, I am keeping my happy face on, and I hope we can get this worked out so everyone can be somewhat happy, and a vacant home can have a new live in owner.

Interesting comments you've gotten here. It looks, once again, like things are different in different real estate markets. 

Sandra, a very well-written piece, I must say. You brought us up to speed admirably from a definition to what is now pertinent and finished it off the way I like to do every transaction, where even though there is compromise, everyone walks away feeling that they've won.

 

Good topic.  Thank you for your thoughts, lots of good comments.

Great post Sandra, we really don't like lenders recommending seller concessions. And obviously on resales sellers have a real distaste when they have to pay their closing costs, and are asked to pay buyer closing costs.

Sandra, 

I think you make some good points, but it very much depends on the market, which varies so much across the country.  Depending on whether the property is priced at the top of the market or priced well already and also depending upon the number of competing offers, some buyers really need to have the closing costs paid, or they won't be able to close the deal.  No agent should recommend that the buyer ask for closing costs on every deal, it should always be according to the deal.

I would have to agree sort of with comment 54, for the sellers it is all about what they net. How the deal is finally framed or presented is not as important unless it brings in additional risks.For buyers the more concessions you ask for the weaker your offer. In a seller's market that means more missed homes in a multiple bid situation.

Sandra  I learn something everyday in the Rain.  Thank you for sharing

Sellers are mostly interested in the net to them after the sale closes. Providing a credit to a buyer who has an attractively priced and well structured offer can still be winner for a seller.

That said, in our current local environment market which is dominated by multiple offers and prices in excess of asking there are very few requests for seller credit since it reduces the amount of the net to the seller.

 

I'm with Marti, #48 on this issue. A qualified buyer is one who has the resources to buy the property without any concessions due to funding. Only a distressed seller would accept such terms and in today's market, that's not likely at all, don't you agree?

Offers are always more competitive without concessions and adding the money back to the sales price, definitely hurts the chances of the property appraising.

Great post and great dialogue with the comments. Always fascinating to hear from others on a topic!  

I agree that supply is down in the market.  We ar seeing less and less concessions and more and more bidding wars in today's market.  

You do have to explain to the seller that their net does not change when the seller makes a buyer concession. The seller will worry about the bank appraiser and that needs an explaination.

I always explain to sellers that it's just a net number. If someone offers you $195 and asks for no contributions, that's the same as a buyer that offers $200K and asks for $5K in contributions. At the end of the day, seller gets the same amount, but for some buyers they need to finance their closing costs. Buyers aren't getting anything for free because the sellers aren't giving them anything. It's just a re-allocation of the numbers.

The shift is on.  With low to normal inventories, it is tough to get concessions unles you bump the purchase price up to accomodate them.  The killer offer is one with a discounted price and seller concessions....dream on.  Do the comps and advise your buyers wher the offer should be and things will go much smoother.

In your first sentence, you said "seller concession", but it seems at though you are really talking about "seller contributions."  A "Seller Contribution" is defined as a monetary amount that the Seller has agreed to contribute toward a Buyer's Closing Costs/Pre-Paids.  This is typically 2-6% of the sales price.

A "Seller Concession" is something completely different.  Generally, Seller Concessions are prohibited within lendng guidelines.  This is defined as an inducement or an incentive to purchase.  They may include cash, furniture, automobiles, decorator/carpet allowances, moving costs, and other giveaways, as well as financing concessions that exceed HUD/Fannie Mae/Freddie Mac limits. When these exist, the value of sales concession must be deducted dollar for dollar from the sales price when calculating the maximum LTV ratio for underwriting eligibility.

In regards to fees for an  FHA mortgage, the Tax Service Fee is now the ony thing that HUD does not allow the Buyer to pay.  With a VA mortgage, there is a list of common fees that HUD will not allow the Buyer to pay.  If the Seller does not agree to pay them, then the Buyer will need to take a higher interest rate for the lender to be able to cover those expenses.

In the Atlanta market, we have A LOT of First Time Home Buyers.  A good majority of them need the Seller Contributions in order to be able to purchase the home.  If the Seller does not agree, the Buyer wll have to move on to another property where the Listing Agent has done a good job in setting expectations for the offers in our market. 

When reviewing an offer, the Seller really should ony be concerned with their net.  The Listing Agent should explain to them that a $200,000 offer with no seller contributions is the same as a $205,000 with $5,000 being paid.  I know there are some Sellers who stand on principal of not paying anything, but lets hope they are in no hurry to sell.  That Listing Agent may have their work cut out for them with that property.

Yes, buying and selling is a cooperative agreement.I wonder how many agents have actually lost getting their offers accepted due to higher demand with so much competition.

Sandra, Most buyers seem to want to ask for everything.  Fortunately, most sellers are prepared for that.  That is why so many sellers want to ask more for their property than they should.  They all "want some room to negotiate".  I do understand that mentality, I have done it myself.  Unfortunately, it does seem to keep the cycle going.  Maybe sometime soon we will be able to get back to some sanity.