Triangle Area Real Estate News & Information

What is a Seller Concession?

A seller concession is an agreement between buyer and seller for the seller to pay some or all of the buyers closing costs, up to the percentage allowed by the lender. One example is if the buyer is getting a VA loan, there are certain closing costs that the Seller must pay, and the addendum that is signed as part of the contract will spell those out. Buyer's regardless of the type of mortgage they are getting may ask for closing cost assistance and it's not necessarily an indicator that they are "weak buyers". When asked for a concession initially Seller's should bear in mind that in reality it's no concession at all as they are simply adding this on to their bottom line sales price and in the end it's the buyer's money own money their crediting back. Buyer's too need to understand this and unless they truly need this assistance, there's really very little point in asking for them.  Another example would be once the property is under contract and the buyer's had their inspections, they may ask the seller for a closing cost concession in lieu of some or all of the repairs.

Who Benefits From A Seller's Concession?

Both Durham Buyers and Durham Sellers can benefit! A buyer may ask for a concession in order to afford both making a down payment and paying the closing costs, or in order to reserve some money for savings or repairs to the home.  NOTE: Most Banks who are selling foreclosed properties will not pay for ANY repairs, and Buyer's should generally accept that "AS-IS" means just that. Repair concessions also benefit both Buyer and Seller in my opinion. Generally speaking Sellers will seek to have any agreed upon repairs done as inexpensively as possible, while a buyer may prefer otherwise. For the seller this can create problems as the standard contracts we use specify the work be done to the Buyer's satisfaction and this term has no legal meaning according to the local North Carolina real estate attorneys I've spoken with. Negotiating for a dollar amount to be given as closing costs eliminates this issue and whenever it's possible makes for a much cleaner, simpler solution.

How Much Can A Seller Pay?

Seller concessions are limited by the type of loan program the buyer is applying for… and sometimes the lender they are applying for a mortgage from. As a rule of thumb the following guidelines generally apply:

• FHA- up to 6% of the sales price

• VA- up to 6% of the sales price

• Conventional- (Fannie / Freddie Guidelines) which generally limit contributions to between 2-3% of the amount being borrowed by the Buyer.

How Is A Seller Concession Written In A Purchase Contract?

When writing a contract that includes a seller concession, most lenders want to see the following language clearly written on the contract: “Seller agrees to pay $X,XXX towards buyers closing costs, discount points / or pre-paids.”

I am very familiar with how this works, and would be glad to discuss how a Seller Concession might help your home sell faster, and calculate out your net proceeds after the sale.

If you are considering a sale of your home, be sure to check out our other posts for sellers here.