Buying and selling real estate is for the most part, just a negotiation process. As a buyer you are trying to get the best deal and terms possible, while as a seller, you are trying to get, at a minimum, your listing price. Almost never is there a situation where there is no negotiation and back-and-forth about pricing and terms during a home sale. One of the most common terms requested by the buyer is that the seller pay for part of or all the required closing costs. These fees paid for by the seller are called“Seller Concessions”.
Seller Concessions
Seller Concessions rarely cover all of the closing costs and there are limits to what it can cover (see Seller Concessions Guidelines below). Often, the seller will just cover a percentage of these costs. Some examples of what the seller may cover in the closing includes:
Attorney Fees
Appraisal Fees
Inspection Fees
Loan Origination Fees
Recording Fees
While it is uncommon, other costs they may cover include;
Pre-Paid Property Taxes
Title Insurance
Upfront Mortgage Points
All of these areas of interest can be covered by sellers concessions represented as a percent discount that the seller is willing to discount the selling price. Usually, this request is brought to the seller by the buyer’s real estate agent, highlighting the importance of working with a good agent.
Why are Seller Concessions an attractive option?
As a buyer, it is obvious why you would want Seller Concessions. It allows you to save the money that you would have had to put out of pocket and potentially apply that towards your loan/mortgage to have a lower monthly payment.
As a seller, offering Seller Concessions makes your property very appealing to the buyer. With that being said, offering Seller Concessions can lead to selling your property quicker. A buyer having that knowledge up front will make them more willing to work within your price range. Seller Concessions can also be used as a tactic due to the fact that it not only provides a discount off of the purchase price but causes the amount of cash out of pocket required by the buyer to be lowered and thereby resulting in more offers. In addition, Seller Concessions are considered as a sales expense, making them tax deductible.
The Downsides
As a buyer, asking for Seller Concessions can make your offer unattractive and be the reason that a seller may not want to work with you. The implication of Seller Concessions must be strategic and asked for in the proper situations. Sometimes, if a property has multiple bids, it may be a better idea to place a lower bid, but cover the closing costs yourself.
Seller Concessions Guidelines
There is a misconception that through Seller Concessions, a seller may put up more than the amount for the closing costs and the remainder of that balance is then given to the buyer or put towards the loan or mortgage – this is incorrect. The seller is legally restricted to paying only the amount of the closing costs.
When requesting Seller Concessions it is important to know the regulations of the loan type you are receiving – different loans legally, have varying maximum Seller Concessions. This was put in place by different loan and mortgage rule-makers to combat inflation in local real estate markets. Researching and understanding, or working with knowledgeable real estate counsel, about these capacities is important to do before going forward in the negotiation. Today the FHA allows for a maximum of 6% of the selling price to be put towards seller concessions. For VA loans 4% is the max seller concession allowed.
Closing Thoughts
Seller Concessions are very common within real estate negotiations. Both, the buyer and seller have reasonings to use or request seller concessions. Though not always applicable, Seller Concessions are a great option to be aware of and to use or request for your benefit.
However, before getting to this part of the buying process, you need to be approved for financing, with your offer accepted. When you’re ready to go forward in the buying process, Cambridgehomeloan.com has everything you need for your financing and real estate goals! Get a pre-qualification to start shopping for your home today. Click Here!
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