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What are seller's concessions?
When you purchase a home, make sure to talk to your mortgage industry professional about the possibility of seller's concessions. Simply put, these concessions are a set dollar amount or percentage of the purchase price that a seller agrees to contribute to you, the buyer, towards your closing costs. This can help to either lower the amount of money you are required to bring to the closing table, or help you bring none at all. These contributions are financed over the life of the loan with the purchase price, so make sure to ask your loan officer if concessions would be a good decision for your situation and if they are allowed with the loan program you are using.
More generally speaking a seller concession can be any negotiation where the seller gives something up to the buyer. For Example if there is some problem or updates that are needed in the house; often a seller will offer the buyer a concession of a lower sales price leaving the repairs or updates to the buyer to do later and pay for on their own. This would be an alternative to the seller having the repairs or updated done before closing, paying for them and selling the home at full price.
In a buyers market, seller concessions are common. Make sure your real estate agent has experience negotiating these terms.
With 100 percent financing becoming more and more popular these days so are seller concessions. With the combination of a seller concession and a 100 percent financing loan, also referred to as a no money down loan it is becoming increasingly common for a home-buyer, even a first time home-buyer, to buy a home with no money down and no money out of their pocket at all. Buying a home with no money out of pocket can help a buyer to save their own money for all of the costs that are associated with buying a home. When you buy a home normally, there will be a lot of odds and ends that will need to be purchased to make the house feel more "homely". Some examples of these odds and ends might be window treatments, appliances, repair work, etc... Buying a home with no money down and utilizing a seller concession can allow you to have money for the previous mentioned items.
Seller-paid concessions, when used properly, can mean the difference between closing a home sale and losing one. A concession is anything of value added to the transaction by the seller, builder, developer, salesperson or any interested party. A concession may also include any closing costs that would normally be paid by the buyer or cash given to the buyer to lower non-housing debts. Funds received from a relative to assist with a home purchase, or cash contributed from an employer as part of a corporate transfer are not considered seller concessions.
In most places across the country a buyer's market is occurring, so seller's concessions will come from the existing price of the home. There are a few places that still have a seller's market in place. For these places, your Realtor will be able to guide you in offering a ramp up on the price so any concessions asked for will not hurt the seller and make your offer more powerful.
The particular seller concession allowed in a real estate transaction may vary. Generally, the allowable amount is typically between 3% and 9% of the purchase price. In some cases, the seller concession may cover the total closing cost amount.
It is important to make sure your Real Estate Professional is aware of your desire for a seller concession in your offer to purchase a property. Your Real Estate Professional can then make the sellers concession part of your sales contract. Your mortgage professional can include your desire for seller concessions in their pre-approval letter as well. Ask for a Good Faith Estimate for the specific property you are making an offer on to ensure you will have the needed cash to close the transaction.
The final contracted price of a home generally cannot exceed the listing price and include a seller concession. Be sure in your negotiations that you do not exceed the listing price when using a seller concession.
Seller concessions are a transaction where the seller provides money to the buyer at closing in a real estate purchase. Seller concessions are more common in a buyers market and are negotiated through the buyers broker.
Make sure you don't leave any concessions unused... or else the remainder will be credited back to the seller. Seller concessions can not be paid in cash to the buyer, so if you are leaving money on the table apply it to future home owner's insurance, property taxes, or HOA dues. The remaining seller's concession can also be used to buy down your interest rate, lowering your payment and saving thousands over the life of the loan.
Your mortgage broker should be able to give you a very accurate closing cost quote so you can request the correct amount of seller concessions for your transaction.
Seller concessions are advantageous to both the seller and buyer: The new buyers upfront investment to purchase the house are lower and certain closing costs are tax deductible; The home seller can have their house sold much faster, enjoy the equity from the transaction, and also close on the next home purchase much sooner.
Seller concessions can make the difference between just wanting a home and actually getting one. Many first time home buyers need assistance in purchasing their first home and rely heavily on Seller concessions to make the deal.
» DISCLAIMER: The information contained in this article on 'What are seller's concessions?' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.
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