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Home buyer leverage with seller concessions

By
Real Estate Agent with Century 21 All Islands

It is often more beneficial to the buyer to obtain a "seller concession" towards the buyer's closing cost than a further sales price reduction in today's market.  This is a very effective buyer's tool that is alll too often forgotten and not used in the purchase negotiations.  On a conventional loan, the seller may credit the buyer's costs up to 6% of the closing costs.  The same holds true on an FHA loan.  On a VA loan, the seller may credit up to 4% of the sales price.  The seller's concession towards the buyer's closing costs and mortgage interet rate is especially relevant when the buyer's debts and income can only qualify the buyer for a set loan payment.  The key here is that the concession can be used to "buy down" the interest rate to qualify the buyer when a simple sales price reduction in the same amount as a concession towards the buyer's closing costs may not.  

Example:

Sales Price:                    $550,000

Down Payment:               $110,000 (20%)

Loan amount/payment:   $$440,000 at 6% interest= $2,638.00/mo.

A price reduction of 6% of the sales price ($33,000) would create a sales price of $517,000 and an 80% loan amount of $413,600. At an interest rate of 6%, the principle and interest monthly payment would be $2,479.  If the sale price was kept at $550,000 and the seller agreed to a 6% of the sales price concession ($33,000), the buyer's total closing cost would be paid (approx. $8,000) and the left over $25,000 could be used to buy down the buyer's interest rate to 4.50% in today's interest rate environment.  The principle and interest monthly payment on the $440,000 loan amount would then be $2,229.

CONCLUSION: The seller concession towards the buyer's closing cost of $33,000 created a loan payment for the buyer of $250 less than if the seller had simply agreed to a sale price reduction of $33,000.  This could easily be the difference between the buyer qualifying and not.  In today's market sellers are willing to consider a lot of creative options to sell their property.  Try this out...it works!                                                                                                                  

 

 

Show All Comments Sort:
Sergio Rebollo Jr.
Real Estate TeamMates - Miami, FL

Larry....Welcome to ActiveRain.  This is a great community to network with others as well a great place to learn from other's experiences and knowledge.  I've enjoyed it; I hope you enjoy it as well.  Congrats on your first post.

Sergio Rebollo Jr.
Exit Prime Realty
Coral Gables, FL  33134
305-582-4062

Miami Short Sale Specialist - Profile

Nov 26, 2008 12:09 PM
Keith Elliott Jr
KEIRE Realty Group - Manassas, VA
Principal Broker/Owner

Hello Larry,

Welcome to Active Rain and congrats on your first post! The opportunities to learn and network are incredible here. Best of luck to you!

-Keith

Nov 26, 2008 02:40 PM
Marcy Fedalei
Keller Williams Realty - Spartanburg, SC

Great start on ActiveRain! Welcome and thanks for sharing your thoughts and ideas.

Nov 26, 2008 11:25 PM
Yvette Gardner
Keller Williams Realty, Spartanburg, SC - Spartanburg, SC

Welcome to the Active Rain community. This is a great site with lots of information.  Have fun with it and hope to see more of your blogs soon! 

Nov 26, 2008 11:32 PM
Vicente A. Martinez
Prudential Douglas Elliman Licensed Real Estate Salesperson - Woodhaven, NY
Realtor, Brooklyn - Long Island - Queens Homes

Hi and welcome to active|rain. There are thousands of tips, tools, and tricks of the trade here. Be sure to check them out. Best of luck and see you around.

Nov 27, 2008 04:31 PM
Dan Magstadt
Paramount Residential Mortgage Group, Inc - Lake City, FL


 

 

Congrats on your first post - Welcome to ActiveRain!!

DM

Nov 28, 2008 12:00 AM
David Painter
Keller Williams Realty - Spartanburg, SC

Good to have you on Active Rain.  This is a good site for gathering information and interesting to see what others are blogging about.

Dec 03, 2008 02:14 AM
Julie A. Black
KAUAI DREAMS REALTY Kauai Real Property Specialist - Kapaa, HI
CLHMS, CRS, GRI, Realtor, Broker

Hi Larry: It was nice to see your house on the caravan. Good luck. 

May 30, 2009 03:02 PM
Christine Gerbehy
Berkshire Hathaway Home Services Fox and Roach Northfield - Egg Harbor Township, NJ
Making waves, one home at a time...

Hey!  Scanning through people that haven't been on in awhile,wondering why you haven't been back?  Lots of good info here on Active Rain, stop by!

Nov 27, 2015 10:19 AM