Seller Concessions: How Seller Payments Help Real Estate Deals Come to a Closing
What are Seller Concessions?
Typically, the Buyer is liable for all closing costs. Seller Concessions are closing costs that the Seller pays instead. This includes property taxes, title insurance, loan origination fees, inspection fees, recording fees, appraisal fees, and attorney’s fees.
A couple thousands of dollars in Seller Concessions could mean the world to a Buyer, who is likely making the biggest purchase of their life, because this reduces not only the overall purchase price of the home, but the portion that the Buyer must pay for up front.
Why would Seller make a Concession?
Like with any deal, it may be advantageous for a Seller to make certain Concessions in the transaction and to pay for some of the closing costs. For example, Seller would be more likely to concede if the house has been on the market for a long time or they have the need to sell quickly.
Seller Concessions are advantageous for a Buyer and therefore only show up in a Buyer's market. Seller Concessions are a negotiation tool for Sellers to incentivize Buyers.
How do I negotiate Seller Concessions?
There are no unique rules that govern negotiating Seller Concessions differently than any other negotiation. Seller is likely willing to concede if it is advantageous to them. Again, it may expedite the sell and Buyer may just win such Concessions at that point in the negotiation/sale when Seller is eager to wipe their hands of the property.
On the flip side, there are things that Buyer can do to better sell their Concessions pitch and make it sweeter for Seller. Keeping your negotiation simple is one of the best things Buyer can do. For example, instead of asking Seller to pay for the appraisal fee, half the inspection fees, and 25% of the title insurance, you could just offer Seller to pay for 2% of the purchase price. On the other hand, Buyer has the biggest leverage in this negotiation if through the course of escrow, defects, or other unanticipated expenses came up such as the property needing a new survey, this could be grounds for asking Seller to cover such costs.
Regardless, one of the biggest variables that determines Buyer’s success in negotiating Seller Concessions is the real estate market where the property is located. Obviously, if it is a Seller’s market, Seller has the better leverage. If Seller does have several offers, they will not be motivated to deal with a Buyer with so many terms. Conversely, if the property is being sold in a Buyer’s market, then Seller would have greater incentive to help Buyer with the purchase of their home.
Are their restrictions on Seller Concessions?
Yes. There are several restrictions on Seller Concessions. Generally, the Concessions are limited to a certain percentage of the total purchase price. This is so for several reasons, one being that it prevents the over-inflation of the housing market—and we all know we don’t need another real estate bubble. Another limitation is one provided for by the type of loan used to acquire the house. For example, the percentage the Concession is maxed out at changes depending on whether you have a conventional loan or an Federal Housing Administration loan. Similarly, the ceiling is also based on the ratio of your down payment and monthly installments.
Conclusion
Before you buy or sell your home, you should become familiar with all aspects of a residential real estate transaction. This includes Seller Concessions and which ones may be a point of possible negotiation during the sale. Seller Concessions make it easier for Buyer to buy the home, and Seller to sell. Naturally, to get the best deal, you should consult with real estate broker, or better yet, an experienced real estate attorney.
Whether you are buying or selling a home, GLO works with a wide variety of residential home Buyers and Sellers. GLO has counseled Buyers and Sellers through multiple home sales issues, including negotiating Seller Concessions. Whether you are a first-time home Buyer or seasoned Seller, GLO can help. Fill out an interest form today to see if GLO can help you.
GLO has prepared this blog to provide general information on legal issues that may be of interest. This blog does not provide legal advice for any specific situation and this does not create an attorney-client relationship between any reader and GLO or its attorneys. GLO engages clients only through specific fee arrangements and signed engagement letters. GLO does not guarantee any results.