What to Know About a Seller Concession
Many terms get bantered around in real estate that either a buyer or seller may not know the meaning of. One such term is seller's concessions. It is not uncommon at all for a client to ask what are seller concessions. Seller concessions are monies that a homeowner agrees to credit to a buyer in a real estate transaction.
Charges that a buyer pays in a transaction can be hefty. For example, there are substantial closing costs a buyer will pay when purchasing a home and getting a mortgage. However, with a seller's concession, the homeowner agrees to pay a portion of those charges.
You could look at the payment of the closing costs as a seller assist to the buyer's benefit. The sale is being structured to accommodate the buyer's financial situation.
For example, when a buyer is hunting for a home and settles on one, they can structure their offer such that the seller pays a portion of their closing costs. So, if a home is listed at $500,000, a buyer could potentially write their offer for $510,000 and ask the seller to pay $10,000 of their closing costs.
In essence, the seller is getting their asking price while also helping out the buyer. The buyer does not have to take the cash out of their pocket to pay the closing costs.
The request for seller's concessions should always be looked at from a bottom-line standpoint. For example, if a home is listed at $400,000 and a buyer offers $395,000 with a $5000 seller's concession, it is the same thing if another buyer offered $390,000. Depending on the real estate market at the time, this may or may not be a great offer. The point is to always look at the net result of the request.
By coming to an agreement with a buyer you will be able to get to the closing quicker.
The Concept of Closing Cost Credits
During negotiation between a buyer and seller, there will be a list price the seller wants and an offer price the buyer puts forward. There will be numerous expenses a buyer has to prepare for during the course of the purchase.
In the back of any buyer's mind, they should consider title insurance fees, property taxes, home appraisal fees, attorney fees, mortgage discount fees, and other costs associated with getting a loan.
When a buyer does not have substantial down payment funds or a significant amount of money in reserve, asking for seller concessions can be a godsend. The seller can pay a portion of these closing cost expenses a buyer would normally be responsible for.
Having the seller pay closing costs saves the buyer from thoroughly cleaning themselves out while helping the house seller achieve their goal of getting the house sold.
Advantages of Closing Credits For Buyers
Seller concessions allow potential home buyers to close a deal while paying lower costs generated from their loan. It takes the pressure of the borrower in the form of still having ample funds in their bank account for other things.
Maybe there are some improvements needed to the home that the buyer has to plan for? If the seller provides a concession toward the buyer's closing costs, they will still have funding available to make the necessary home improvements they desire.
Advantages of Closing Cost Credits to Sellers
Closing credits ease sellers from dealing with house imperfections. For example, when the buyer does their home inspection, and some problems need addressing, sellers often don't want to be involved with the repairs. Instead, they would rather have the buyer address the issues.
The buyer, however, wants to make sure these problems are addressed. The way both buyer and seller can be happy is by the seller providing a concession. Sometimes this concession can be in the form of a price reduction. When the buyer really needs the funds, a seller's concession or credit is in order.
The advantage of offering credits applies to both parties. The seller can close a deal when they offer closing credits. The buyer is more likely to take the offer and continue forward with the purchase. It is a brilliant concept that leaves both parties with a win-win situation.
It should be noted that there are caps by mortgage companies on how much closing costs a seller can cover for a buyer. This will be dependant on the type of mortgage being used. It will be advisable to speak with your lender upfront about this.
Selling Concessions Estimated
The selling concessions depend on the negotiations made by the buyer and their agent. Sometimes a buyer does not ask for seller concessions upfront during the negotiations of the offer but then finds out later they may need some assistance. The home inspection, as previously mentioned, is the perfect example.
The amount a buyer asks a seller for concessions should never be open-ended. Instead, there should be an exact amount requested so a seller knows their bottom line.
Disadvantages to Home Buyers
In hot real estate markets where homes are flying off the market, it is challenging to ask a seller for any selling concession. In fact, currently, real estate markets around the country are being shaped by constant bidding wars. As a result, it is nearly impossible for buyers to get anything from a seller.
Sellers are in the driver's seat, and they know it. Buyers who ask for concessions in their offer are usually dismissed out of hand. But, for buyers who need that seller's assistance, it can put them in a precarious situation.
If you are a buyer with a tight budget, you may lose this offer since there will always be another buyer with a more appealing offer to the seller.
Tax Effect of Closing Credits
For home sellers, it is important to remember that a seller concession will reduce the net gain achieved from the sale. With a lower net gain, there will be a smaller amount of taxes paid. Sellers need to remember this come tax time.
So if you are selling and provide a contribution to a buyer, you are, in essence, getting a tax benefit.
Final Thoughts
Seller concessions or closing cost credits can be a great tool in a real estate transaction to bridge the gap for a buyer in their finances. For a seller, assisting can often be the difference between selling their home and not, especially when the real estate market favors buyers.
Sellers should always look at assisting a buyer as a numbers game. If you can net the amount of money out of your sale by providing a seller concession, then do it! You will be that much closer to moving on with your life.
Hopefully, you have found this review selling concessions to be useful.
Other Helpful Real Estate Resources
Use the following articles as additional guidance for making the best decisions when selling a home.
What charities will take furniture donations – when selling a home you may realize that you've got a lot of clutter. Maybe you have excess furniture that is no longer useful? One of the best ways of making your home look its best is to donate to those in need. Charitable organizations will come to your home and take away what you don't want.
Renting self-storage space – the other option for making your home stand out from the competition, especially when you have a lot of "stuff" is to rent a storage unit. By doing so home buyers will be able to have a clearer picture of exactly what your property offers. See some of the things you should know about renting storage space.
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