Mortgage 101
June 11, 2024

What to Know About Seller Concessions

Estimated reading time: 3 minutes

When navigating the housing market, both buyers and sellers want the same goal: a place at the closing table. One resource that helps smooth out the process for all parties is the inclusion of seller concessions.

What are Seller Concessions?

Seller concessions refer to anything that the seller concedes, or “gives in” to the buyer during a real estate transaction. This effectively rolls the costs into the buyer’s mortgage to alleviate the necessity for large amounts of upfront money out of the buyer’s pocket.

What Do Seller Concessions Cover?

Concessions can cover a variety of one-time costs, including certain closing or prepaid costs. As you move through the mortgage process, your lender will provide you with a loan estimate. This document includes what your projected closing costs, monthly payments, and interest rate may be.

Seller concessions may cover the following costs or fees:

Are Seller Concessions the Same as Price Reductions?

No, seller concessions are not home price reductions. Price reductions occur when a seller lowers the price of their residence for the buyer. The coverage of prepaid costs by seller concessions are often rolled into the home’s purchase price, making the purchase price slightly higher than originally listed. When the sale is concluded, the buyer will pay down the concessions over the lifetime of the mortgage.

As an example, let’s pretend you’re selling a home for $100,000. The first-time homebuyer that put in an offer would have approximately $10,000 to cover the down payment, closing costs, and other prepaids for the home. To ease their out-of-pocket expenses, you offer $6,000 for concessions. The purchase price of the home is then bumped up to $106,000 and the buyer now only requires $4,000 for closing. In this scenario, the property must appraise for the increased offering price.

Your pool of prospective buyers has now been expanded exponentially to those who have less money to put down. Depending on the loan program a buyer chooses, there may be a minimum borrower contribution. It’s best to ask your Loan Originator about this requirement.

Do Seller Concessions Only Benefit the Homebuyer?

Concessions can benefit both the buyer and seller. Homebuyers may be able to afford more expensive homes with the reduction of upfront costs or simply have more cash left over after the loan closes. This is especially important for first-time buyers with more limited cash flow. By rolling costs into the mortgage payment, a young first-time homebuyer may be able to accrue more personal savings and feel financially in control after such a big financial commitment.

Sellers can use concessions to attract homebuyers when struggling to sell their property or to ensure a quick closing. Sometimes, a seller may be waiting for the close of their first house to use toward the purchase of their next property. If their home sits on the market for over a month, seller concessions can help the seller stay on their timeline.

How Should I Negotiate Seller Concessions?

The best way to know how to negotiate for seller concessions is to ask your real estate agent. As an expert negotiator, your agent will help you prioritize your concession requests and your offer.

Seller concession limits depend on the buyer’s mortgage type and the size of the down payment. To learn more about seller concessions, your affordability, and home financing options, contact us today!

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