Seller Concessions- When/How/Why/How Much?

Seller Concessions- How & when to use them, and what are the limits?

When I am working with a buyer, I like to look at their big picture, it helps me to understand what they want, what is important to them, and it will help me structure a mortgage scenario that leaves them with the best possible mix of affordable payment, cash investment, rate/term & reserves. In this post, reserves & cash out of pocket is what we are talking about when it comes to seller concessions.

I think it is dangerous, especially for first time buyers, or one income families to have little in the way of reserves after a major move like buying a home.

Often, having even a couple months of major expenses in the bank can make a huge difference for those who find themselves in a tough spot, especially when they have a new mortgage!

So, one of my favorite go-to suggestions to buyers who have limited savings is to use less for down payment where it makes sense( easier to pay a few more dollars on the mortgage each month than it is to find several thousand at once )The other suggestion is to employ a seller’s concession.

A sellers’ concession for closing costs is usually only brought into the picture at time of initial offer & negotiation, it is often tough if not impossible to try to introduce this after a price has been set.

The wording should be included on the contract and read something like this:

“Seller agrees to contribute $X,XXX towards buyers closing costs, discounts & prepaids.”

This is a powerful tool we can utilize to create a better ‘deal’ for our buyers- when accepted, a concession can:

• Reduce the buyer’s out of pocket cost & create savings for reserves or needed repairs
• Be used to reduce a buyer’s interest rate- the concession, or part of it can be applied towards discounting the rate to lower the payment, saving tens of thousands over the life of the loan.
• Make a deal work in the first place- Often when there is a ‘gap’ or stalled negotiations, a restructured mortgage offer can bring buyer & seller together by reducing the rate, and keeping the payment the same or lower at a higher selling price. 

Another use for a seller concession is on the SELLER’s side of things- YES, you can suggest to your sellers that they offer to pay a certain dollar amount towards a buyers costs, this makes your listing ‘different’ and stands out as a display to all buyers in the market that your seller is willing to help them buy!

So what are the limits for concessions?

Here is a snapshot of what is currently allowed at most lenders (including Freedom Mortgage)

In today’s market, it is imperative that your mortgage professional know as many ways as possible to creatively solve problems & to be able to properly structure a borrower’s loan scenario so that it gives them the best possible outcome.  Anyone can take an application and collect a couple paystubs, but if you are not current on what program parameters & guidelines are, and if a mortgage rep is not actively involved in the process from beginning to end (from pre-approval to closing) then your clients may be missing out on opportunities to get the best overall deal.  Your mortgage pre-approval should give you & the buyers a snapshot of what the proposed transaction might look like, and where possible, provide options to improve the overall outcome for the buyers. Using a seller concession is only one tool that a mortgage originator can utilize to create a better overall transaction for your buyer, ask them about what other moves they can make to help create a well informed & happier customer for you both!

Have questions or comments?  I’d love to hear them.

Have buyer referrals?  Send those too!

(732) 938-2252 ext 303