A term commonly heard today in the real estate market….”Sellers’ Concessions.” What are sellers’ concessions?
In real estate, a seller’s concession is a specified amount or percentage the seller is willing to pay on behalf of the buyer to assist in the buyer’s closing costs. If a seller agrees to pay a concession, it is added to the final closing statement or what is also known as a HUD-1 under seller-paid closing costs and is in addition to seller’s closing costs. Sellers’ concessions are more common in a buyer’s market than in a seller’s market; they are especially common with first time buyers.
A common method of reducing closing costs with sellers’ concessions is for the buyer to offer a higher amount than the list price with a buyer concession. For example: If the list price is $225,000, the buyer could offer $230,000 with a $5,000 seller concession at closing. This would reduce the total closing cost needed from $11,250, (that’s a 5% closing cost on $225,000) to $6,500 (that’s 5% of $230,000 minus the $5,000).
There are caps to what a seller can pay in a real estate transaction, depending on the type of loan the buyer is getting but buyers can request seller concessions to help reduce the amount of cash buyer needs at closing.
Often times by having a seller pay for certain items in your closing cost, it enables you to offer a higher offer. Therefore, you are effectively paying your closing cost throughout the life of the loan, rather than up front at the closing table because it’s built in your loan amount.
Although it may seem silly not to ask for a seller’s concession when buying a home, it’s important to remember that asking for a seller concession may result in your offer being declined, especially in a seller’s market. If there happens to be multiple offers on the home, it may cause the seller to have concern of the qualification of the buyer and lack of buyer’s resources.
If you are considering buying a home, call me, and I will be happy to give you professional guidance on what might be best for you.