What it is…Seller credit is the practice of crediting a home buyer a percentage (or fixed dollar amount) of the sale price from the sellers proceeds.
Example…$100,000 Home sale price. Buyer offers the seller $100,000 for the home and requests a 3% seller credit (or $3,000). The net offer is $97,000.
The good…Seller credit is one of the last vestiges of assistance the Government allows to assist home buyers and sellers to craft a workable deal. In the last 6 months there were 847 Berks County homes sold between $100,000 and $200,000. Are you ready…505 of them used a seller credit to complete the deal (60%). In that same time period 378 homes sold between $200,000 and $300,000. 190 Of them used a seller credit to complete the transaction (50%).
Many Berks County home buyers have the credentials to purchase a home. They are simply cash deficient. This is where the seller credit helps.
The Bad…While the seller credit helps fill the buyers cash necessity it does put additional pressure on the home sale. Put simply, the home has to appraise for the asking price. What happens if the Buyer and seller agree to the $100,000 sale price with the 3% seller credit and the home appraises for $97,000? The buyer cannot purchase without the $3,000 and the seller was never getting more than the $97,000 to begin with. NOTE: This is where the good real estate professional comes in.
When the seller accepts the $100,000 for the home they are obligated to pay commission on that amount even though they are only netting $97,000. This is more of an issue at higher price ranges. Make sure you address this with your real estate professional at the time you list the home.
There is also the issue of transfer tax. It is normally split between the buyer and seller in Pennsylvania. Both parties will pay the transfer tax on the sale price not the net after the seller credit. Again, this is more of an issue at larger price points.
The Misunderstood…Almost everyone that has dealt with a berks County home seller and received an agreement that includes a seller credit has heard the following statement: “Why am I giving the buyer money to purchase my home?”
Answer: To get it sold. More flexible purchase options help a home sell better. To take away this option is counterproductive. Use all tools in the arsenal. If the Government is allowing it use it. There will come a day when this is not an option and home prices will suffer from it.
The numbers speak for themselves. Over half of all home sales in Berks County have seller credit included. There are cases where the buyer does not even need it. It just makes sense because the interest rates are so low. They may need a write off and mortgage interest is still applicable. The buyer may be planning to remodel the home and will use the additional funds to do so. By doing this the upgrades are pre-financed in and the buyer does not have to refinance later and wait for the upgrades.
Buyers, Speak to your local mortgage lenders to find out more about seller credit limits and how they can assist you. There are also mortgage programs that allow a lender credit.
Remember, it is sometimes better to give so you can receive!
Jeffrey C. Hogue