"You mean I'm financing my closing costs??" - what it really means when you ask for sellers concessions

By
Real Estate Agent with Keller Williams Realty - Lakeside Market Center


One of the most confusing aspects of the purchase process for home buyers is sellers concessions.  They've heard their mortgage lender mention it, in lieu of the buyers needing to bring to closing all of their closing costs, pre-paids, etc.    It's also been discussed with their buyers agent during the process and while sitting down to write an offer on a home.   It is still confusing to most buyers though unless you draw it out for them - who is really paying for what, and what it means to them in the amount they will finance.  The table below is an example of a buyer who is putting 3 1/2% down on their FHA mortgage and asking for the allowed 6% in sellers concessions:

$100,000 purchase price
6% in sellers concessions toward pre-paids, closing costs, and/or tax prorations
Purchasers down payment 3 1/2%
Sellers net $94,000
Amount financed by the purchasers :  $96,500



Notice that I highlighted the "Sellers net".
  This is what the seller will be concerned about as they go over your offer to purchase.   If the "net" isn't  what they had in mind and counter offer, they probably will do so at the expense of the sellers concessions towards you.  Let's say for example that the sellers have decided they want their "in our pocket" to be $97,000.  If you need all 6% of the  allowable sellers concessions in order to purchase the home you will have to finance your closing costs.  An example of a counter offer to make it work for the sellers and for you:

$103,200 purchase price
6% in sellers concessions towards pre-paids, closing costs, and/or tax prorations
Purchasers down payment 3 1/2%
Sellers net $97,008
Amount financed by the purchasers:  $99,588



Helpful tip Ask your mortgage lender to give you 2 or 3 different Good Faith Estimates.   In these estimates the lender can estimate your payment based upon 2 or 3 different mortgage amounts.   If you do this prior to writing your offer to purchase you will be able to make a comfortable decision on what would be your final offer to the seller.

close

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Topic:
Home Buying
Location:
Michigan Macomb County
Tags:
fha mortgages in mi
tips for macomb county mi home buyers
sellers concessions for home buyers

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Rainmaker
786,820
Mike Jaquish
Realty Arts - Cary, NC
919-880-2769 Cary, NC, Real Estate

Excellent point, Kris, and also one overlooked by many buyers.

The Seller has to have a certain NET proceeds to sell, and there is more than one way to get there.

Sep 18, 2009 05:10 AM #1
Ambassador
3,823,858
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Kris, many Buyers think that their Selling price is the Sales Price minus the Seller Paids Costs, and have a hard time understanding that is not what happens.  So I have started to go over this with them when I pre-qualify them, so that they better understand the process.

Sep 18, 2009 01:50 PM #2
Rainmaker
575,553
Terry & Bonnie Westbrook
Westbrook Realty Broker-Owner - Grand Rapids, MI
Westbrook Realty - Grand Rapids Forest Hills MI Re

In nearly all cases the seller is interested in the net. Getting to the final number is what they want to know before the agree to sign. Getting the examples makes it easy for the seller to make a good decision.

Sep 18, 2009 03:03 PM #3
Rainer
340,913
Kris Wales
Keller Williams Realty - Lakeside Market Center - Macomb, MI
Real Estate Blog & Homes for Sale search site, Macomb County MI

Mike,   Buyers will always ask "What is the sellers bottom line" and of course I don't know that.  The best way to know that is to make an offer to purchase.  The counter offer is the first clue :-)  This is why I love it when the lender provides several different GFE's.  We can pull one out at any time to crunch the buyers numbers.

George,  I wish all mortgage reps would do this.  Makes it much less confusing for the clients.  Thanks!

Terry and Bonnie:   I have a feeling you do the same thing also :-)  Hope all is well with you both.

Sep 18, 2009 11:37 PM #4
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"The Lovely Wife" (Broker Bryantnulls Wife) The One And Only TLW.
President-Tutas Towne Realty, Inc. - Kissimmee, FL

Kris...

What's the Seller's bottom line? I so could not resist :)

TLW...ROAR!

Sep 19, 2009 12:13 AM #5
Rainer
340,913
Kris Wales
Keller Williams Realty - Lakeside Market Center - Macomb, MI
Real Estate Blog & Homes for Sale search site, Macomb County MI

Billie:   I could always tell my buyers that if their offer doesn't get hung and blown away with buckshot, that we're close :-))

Sep 19, 2009 12:30 AM #6
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"The Lovely Wife" (Broker Bryantnulls Wife) The One And Only TLW.
President-Tutas Towne Realty, Inc. - Kissimmee, FL

LOL...

Now that was flippin' hilarious :)

P.S. Go use that wit on Allison's post on the dashboard. What fun she's going to have :)

TLW...ROAR!

Sep 19, 2009 12:39 AM #7
Rainer
340,913
Kris Wales
Keller Williams Realty - Lakeside Market Center - Macomb, MI
Real Estate Blog & Homes for Sale search site, Macomb County MI

Billie,   Allison cracks me up.  I think that article will be hijacked by the end of the day...good stuff :-)

Sep 19, 2009 12:45 AM #8
Rainmaker
1,041,251
Charles McDonald
Charlottesville Real Estate Solutions - Charlottesville, VA
REALTOR®, Blogger, Principal Broker®, Owner

This is a great example and I can see where this is helpful to present to clients!

your friend in Charlottesville Virginia!

Sep 19, 2009 12:51 AM #9
Ambassador
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"The Lovely Wife" (Broker Bryantnulls Wife) The One And Only TLW.
President-Tutas Towne Realty, Inc. - Kissimmee, FL

Kris...

I've already done a mini "RainJack" on it. She has a wonderful sense of humor :)

I'm gonna go round up CTann and let her loose on that post :)

TLW...ROAR!

Sep 19, 2009 12:54 AM #10
Rainer
340,913
Kris Wales
Keller Williams Realty - Lakeside Market Center - Macomb, MI
Real Estate Blog & Homes for Sale search site, Macomb County MI

Charles,  Good to see you, hope all is well for you in Charlottesville!

Billie,  I love C :-))

Sep 19, 2009 12:57 AM #11
Ambassador
557,018
"The Lovely Wife" (Broker Bryantnulls Wife) The One And Only TLW.
President-Tutas Towne Realty, Inc. - Kissimmee, FL

I just emailed her the post. She's younger than me. She has the energy to round up the crew :)

Poor Allison. I don't we've ever RainJacked her :)

TLW...ROAR!

Sep 19, 2009 01:16 AM #12
Ambassador
557,018
"The Lovely Wife" (Broker Bryantnulls Wife) The One And Only TLW.
President-Tutas Towne Realty, Inc. - Kissimmee, FL

Oh...

And today's the big day. I'm just sitting at my pc waiting for the Son and Grand Kids to arrive.

Any minute now my entire world will change :)

TLW...ROAR!

Sep 19, 2009 01:18 AM #13
Rainer
340,913
Kris Wales
Keller Williams Realty - Lakeside Market Center - Macomb, MI
Real Estate Blog & Homes for Sale search site, Macomb County MI

Billie,  C does have an abundance of energy!  (Wish I had it...:-)   Today is *the* day?   I cannot put in to words how happy I am for you and Bryant.  Having those kids close finally.  I'm sure there will be lots of happy tears shed today!  Your world will change - it will be ehanced.  Hope you're feeling well today hon.

Sep 19, 2009 01:27 AM #14
Rainmaker
720,487
Teri Eckholm
Boardman Realty - White Bear Lake, MN
REALTOR Serving Mpls/St Paul North & East Metro

Kris--Every once in awhile I see the lightbulb finally go off when I explain to buyer's that seller paids are not "free" money. It is a means to an end but they are paying for it one way or the other. Sometimes I run into people who have sold a home, not through me, who "think" they gave away something they didn't want to give. Had they been explained the process properly and were happy with their net number, I don't think this would have been an issue. 

Sep 19, 2009 02:14 AM #15
Rainer
340,913
Kris Wales
Keller Williams Realty - Lakeside Market Center - Macomb, MI
Real Estate Blog & Homes for Sale search site, Macomb County MI

Hi Teri,   We need to get to that "light bulb" moment early in the process with buyers, as it helps with the decision making process while viewing homes.   And yes, I've seen the same thing with sellers.  Now when I list a home I go over the "net" with them at the time of the listing.  Stressing that the "in your pocket" is what we shoudl be concerned about, as most buyers here will ask for sellers concessions.  Thanks Teri, it's good to see you.

Sep 19, 2009 05:18 AM #16
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Rainer
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Kris Wales

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