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Explanation of seller concessions in real estate

By
Real Estate Agent with Coldwell Banker Realty/Coldwell Banker Commercial NRT 30SA0872839 

Seller concessions in real estate refer to financial incentives or benefits that a seller offers to a buyer to help facilitate the sale of a property. These concessions can take various forms and are often used to make a deal more attractive to buyers, especially in a competitive market or when buyers might need extra assistance to close the deal. Here’s an overview of
how seller concessions work and some common types:

How Seller Concessions Work

  1. Negotiation Tool: Seller concessions are typically negotiated as part of the purchase agreement. They can be offered upfront by the seller or requested by the buyer during the negotiation process.

  2. Loan Approval: Concessions can sometimes help buyers qualify for a loan by covering costs that the buyer would otherwise have to pay out of pocket, thereby reducing the amount of cash needed at closing.

  3. Limits and Restrictions: There are often limits on how much a seller can offer in concessions. These limits are typically set by mortgage lenders and vary depending on the type of loan, the loan-to-value ratio, and whether the property is a primary residence, second home, or investment property.

Common Types of Seller Concessions

  1. Closing Costs: One of the most common types of concessions. These include fees for loan origination, title insurance, appraisal, and other costs associated with finalizing a real estate transaction.

  2. Home Repairs: Sellers may offer to pay for certain repairs identified during the home inspection, either by completing the repairs before closing or providing a credit to the buyer to cover the costs.

  3. Prepaid Expenses: These are costs that the buyer would pay upfront, such as homeowner’s insurance, property taxes, and mortgage interest. Seller concessions can cover these expenses, reducing the buyer’s initial cash outlay.

  4. Interest Rate Buydowns: Sellers can offer to pay points to the buyer’s lender to lower the interest rate on the buyer’s mortgage, making monthly payments more affordable.

  5. Home Warranties: Sellers might offer to pay for a home warranty, which covers the repair or replacement of major home systems and appliances for a specified period after the sale.

Benefits of Seller Concessions

  • Attracting Buyers: Concessions can make a property more appealing to potential buyers, especially in a buyer’s market.
  • Faster Sales: By reducing the financial burden on buyers, concessions can help speed up the sale process.
  • Higher Offers: Buyers might be willing to offer a higher purchase price if they know they will receive concessions that reduce their immediate costs.

Considerations and Limitations

  • Appraisal Issues: The home must appraise for the higher purchase price that includes the value of the concessions.
  • Loan Program Restrictions: Different loan programs (FHA, VA, conventional) have specific guidelines and limits on seller concessions.
  • Market Conditions: In a seller’s market, where demand is high, sellers might be less inclined to offer concessions as they are likely to receive multiple offers.

Understanding seller concessions is crucial for both buyers and sellers as they navigate the real estate market. For buyers, it’s a way to make homeownership more affordable, while for sellers, it’s a strategy to make their property more attractive and expedite the sale.

Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

As always another great blog that you are sharing with us today in the Rain.  Make it a great day!

May 22, 2024 09:51 AM
Thomas Santore Lic Associate Real Estate Broker

Thank you very much,

Tom S

May 23, 2024 06:44 AM