Are you considering selling a home? If so, you may have encountered “seller concessions,” but what exactly are they? Seller concessions can be both an essential part of the deal and a great benefit to buyers when closing on their new property. 

This blog post will cover how seller concessions work and what they mean for you as someone looking to buy or sell real estate. We’ll also discuss the pros and cons of offering these incentives during the process. 

By the end of this article, you should understand how sellers can use seller concessions in your favor!

Closing Costs When Buying A House

When you buy a house, plenty of closing costs must be paid before the deal is finalized. These include appraisal fees, title insurance, attorney costs, and more. 

Depending on the area you live in and the sales price of your home, these extra costs can add up quickly and become quite expensive.  

Seller Concessions: What Are They? 

Seller concessions are incentives offered to buyers by sellers to help them pay for closing costs or other expenses associated with the purchase of a home. These incentives can come in many forms, such as covering part of the buyer’s closing costs, providing a cash credit toward closing costs, or paying off the buyer’s loan points. 

The Importance Of Seller Concessions

When buying or selling a home, it’s important to remember that both the buyer and seller have something to offer and lose. No matter how great of a deal a seller thinks they’re getting, there’s always room for negotiation. 

And no matter how motivated the buyer is, they should be bold and ask for seller concessions. When the seller agrees to bestow particular benefits or discounts upon the buyer, this is a seller concession.

It could include anything from covering closing costs to waiving certain contingencies. Sometimes, the seller may even reduce the home’s purchase price.

There are a few reasons why seller concessions might be appealing to buyers.

• They can help reduce your overall costs associated with buying a home. 
• They can also help speed up the process by eliminating some hurdles that need to be cleared before you can finalize the sale. 
• And finally, they can make you more competitive against other buyers in a bidding war.

Of course, there are also some reasons why sellers might be willing to offer concessions. For one, it can help them sell their home faster. 

It can also help them get a higher price for their home since buyers will be more likely to compete against each other if they know some nice perks on the table. So whether buying or selling a home, it’s important to remember that both parties have something valuable to offer. 

If you can negotiate seller concessions, it saves you money and makes the process smoother.

What Fees Can Sellers Cover with Seller Concessions?

Property taxes

Owners must pay these fees on land and buildings to local governments. These taxes can differ widely depending on the region, but they typically include a base rate plus an amount based on the property’s estimated value.

Attorney fees

Attorney fees, also known as legal fees, refer to the cost of hiring a lawyer or other legal professional to handle a legal matter.

Appraisal fees

Appraisal fees refer to the cost of having a real estate appraiser evaluate the seller’s market value of a property. The appraiser will then give an official report to the lender or buyer, which will be used to determine how much the home is worth. 

Origination fee

An origination fee is a one-time fee charged by lenders when they create a loan. This fee covers the cost of processing and underwriting the mortgage, typically calculated as a percentage of the loan amount. 

Title insurance

By obtaining title insurance, potential homeowners can safeguard themselves against any unforeseen legal arguments they may face concerning the ownership of their property. It also helps lenders ensure that they are protected against fraud, forgery, and other potential issues.

Discount points

Discount points are a one-time fee paid by the buyer to the lender that can reduce the interest rate on their loan. Typically, a “point” constitutes 1% of the loan amount. As such, many customers opt to pay multiple points upon closing to secure lower interest rates on their loans.

Fees for pulling credit

Credit reports are documents that lenders use to assess a borrower’s creditworthiness. They will typically review the borrower’s payment history and debt-to-income ratio. 

Processing fees

Processing fees refer to the cost of filing, preparing, and submitting all documents related to the loan. It includes credit reports, appraisals, and title insurance policies. 

Inspection fees

A home inspection examines a property’s condition by a licensed professional inspector. The inspector will look for any potential structural or safety issues. 

Insurance premiums

Insurance premiums refer to the cost of homeowner’s insurance. This type of insurance protects homeowners from certain risks, such as damage caused by fires or severe weather. 

HOA fees

Homeowners’ association (HOA) fees are dues paid to a homeowners’ association or other organization that maintains the community and its amenities.

These are some of the most common fees that sellers can cover with seller concessions, but there may be other fees depending on the situation. Talk to your real estate agent or attorney to determine what concessions you can negotiate. 

Defining The Pros And Cons Of Sellers Concessions

The Pros

• Save money when purchasing a home. 
• Allow sellers to contribute to buyer closing costs and other expenses associated with purchasing their homes, such as prepaid taxes and insurance, financing points, and discount points.
• Help buyers reduce the money they need to bring to the closing table. 
• It can also speed up the negotiation process by reducing the time it takes to reach an agreement on various items related to closing costs. 

Sellers’ concessions may give buyers more money for a down payment or repairs or improvements in their new home, which can ultimately improve their overall housing experience.

The Cons

Sellers’ Concessions can be significant for buyers to get the house they want without paying the total price. However, there are limits on seller concessions that should also be considered cautiously, as disadvantages may come along with the concessions. 

• Buyers must pay a higher interest rate or accept lower loan amounts on their transactions to have the money needed to cover the concession costs. 
• Sellers’ Concessions can also mean extra fees buyers pay out of pocket, thus reducing their overall budget. 
• It can result in a lower property value due to sellers reducing the price too much to compete in their local buyer’s market. 

Buyers should weigh out all of these potential drawbacks before agreeing on Sellers’ Concessions when discussing the terms of the sale with their realtor or lender.

Who Benefits From Seller Concessions?

There are a few groups of people who benefit from seller concessions. These are the following:

The Buyers Of The Home

By getting a lower price on the home, they can save and use that money for other things, like furnishing their new home or investing in other areas of their life. 

The Sellers Of The Home

By offering a concession, they may be able to sell their home faster or for more money than they would have otherwise. 

The Lenders

Getting a higher sale price for a home means the lender will get more money back on their investment, which can help improve the housing market’s stability.

How Can They Help You During The Home-Buying Process?

Mortgage lenders can provide a lot of assistance when buying a home. First, they can help you get pre-approved for a mortgage, which will give you an idea of how much home you can afford. 

They can also help you find the best mortgage rates and loan terms. During the home-buying process, mortgage lenders can guide the types of mortgages available and help you submit your loan application. 

Seller concession can make changes in Mortgage insurance, another area where seller concessions can make a difference. By offering to pay part of the cost of mortgage insurance, sellers can reduce the amount buyers have to pay for this vital coverage.

Once your loan is approved, they can help you coordinate the closing process.

All Things Considered

Asking for Seller concessions can be a great way to sweeten the deal when negotiating the sale of real estate. While they can bring valuable savings or make a home better suited to buyers’ needs, it’s essential to factor in the cost of seller concessions when evaluating an offer. 

Sellers need to remember that conceding too much may not meet their desired revenue goals, while succumbing to too little may mean missing out on potential sales. Balanced and fair negotiation is key and should leave both parties satisfied with the outcome.

FAQs

Does a conventional loan need to have such seller concessions?

Seller concessions are only sometimes necessary but can help approve a loan. Conventional loans do not require seller concessions, but they can help speed up the process and make it more likely for your loan to be approved.

Does the seller pay the same as the buyer in seller concessions?

The answer to this question depends on the deal being made. Generally speaking, the seller pays typically a more significant percentage of the concessions than the buyer.

What are the seller concession limits?

The limits on seller concessions vary from one mortgage loan to another. Generally, the limit is between 3% and 6% of the home’s sales price.

However, some lenders may impose lower or higher maximums depending on the situation.