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Buying a home can be an expensive process. Enter seller concessions: These are costs associated with purchasing a home that a seller agrees to pay for the buyer. Rather than a buyer paying for these out-of-pocket expenses themselves, the seller agrees to cover the cost, allowing homeowners to sell their home quicker while helping to ease the financial burden on buyers.
How Do Concessions Benefit Sellers?
Buyers receive a clear benefit from concessions—they can save money when purchasing their new home. However, sellers can also benefit from offering concessions. In a buyers’ market, concessions may help attract more potential buyers, increasing the odds of a sale. In a high-price/high-interest market, concessions can make a property more appealing by presenting it as a more affordable option than the competition. A motivated seller can offer concessions to reduce the amount of time their property will likely remain on the market.
Types of Seller Concessions
Out-of-pocket expenses: Commonly known as closing costs, these include appraisal fees, mortgage origination fees, property taxes, title fees, discount points, processing fees, inspection fees, insurance, attorney fees, and HOA fees.
Buydowns: A less common concession, in which sellers temporarily lower the interest rate on the buyer’s behalf to make the property more attractive in a competitive market.
Repairs: Sellers may offer concessions to cover the costs of any necessary repairs the property requires before closing.
Contribution Guidelines
It is important for sellers to be aware of the limitations on the concessions they can offer. The concession amount should never exceed the buyer’s closing costs. Additionally, different types of loans have varying guidelines for seller contributions.
Conventional loans: The concession amount will depend on the down payment size.
Investment properties: Concessions are capped at 2%.
Federal Housing Administration (FHA) and U.S. Department of Agriculture (USDA) loans: Seller concessions are capped at 6%, regardless of the down payment size.
Veterans Affairs (VA) loans: Seller concessions are capped at up to 4% of the loan amount and can include regular closing costs, prepaids, consumer debt, and funding fees.
Seller concessions play a crucial role in real estate transactions, but navigating them can be tricky. That’s why it’s important for sellers to seek expert advice from a real estate professional who can help them make informed decisions.
