Seller concessions are certain costs associated with homebuying that the seller agrees to pay. These can include costs related to home improvements or repairs that are needed, as well as closing costs or fees, which are the final expenses associated with closing on a home loan.
Some examples of sales concessions include:
Provide a decorating allowance, a sum of money for the buyer to put towards a desired renovation or furniture.
Include furniture or other loose home items, such as window coverings, appliances, or a pool table with the sale.
Allow the buyer to choose the moving date.
Offer a one-year home warranty.
Include a car with the home sale.
Seller concessions can help home buyers reduce the overall upfront cash required at closing. In other words, it provides cash-strapped home buyers an opportunity to buy a home with less money upfront than if they paid for all of their own closing costs.
However, seller concessions also have some drawbacks. For example, they may lower the net proceeds for the seller, or they may raise the purchase price for the buyer. They may also affect the appraisal value of the home or the loan-to-value ratio of the mortgage.
Therefore, it is important to negotiate seller concessions carefully and strategically.
Here are some tips on how to do that:
Know your market
If you are in a seller’s market where there is high demand and low supply of homes, you may have more leverage to ask for concessions. If you are in a buyer’s market where there is low demand and high supply of homes, you may have to offer more incentives to attract buyers.
Know your limits
Different loan types have different limits on how much seller concessions can cover. For example, conventional loans have the following limits: Less than 10 percent down payment: the max seller’s contribution limit is 3 percent of the property’s sale price.
Between 10 percent and 25 percent: a seller can contribute as much as 6 percent of a property’s sale price.
Greater than 25 percent: Seller’s concession limits are as high as 9 percent of the sale price.
Know your buyer. Try to understand what your buyer’s needs and preferences are. For example, if they are looking for a move-in ready home, they may appreciate a decorating allowance or a home warranty more than a lower purchase price. If they are looking for a bargain, they may prefer a lower purchase price and fewer concessions.
Know your costs
Before you agree to any concessions, make sure you know how much they will cost you and how they will affect your net proceeds. You can use a net sheet calculator or consult with your real estate agent or attorney to estimate your closing costs and net profit.
Know your alternatives
If you are not comfortable with offering concessions, you can explore other ways to make your home more attractive to buyers. For example, you can make minor repairs or upgrades, stage your home professionally, offer flexible showing times, or market your home aggressively.
"El Chapo"
Dale A
Director of Marketing and Operations