Seller Concessions
Seller concessions are specific closing costs that a home seller agrees to pay on behalf of the buyer as part of the negotiated purchase agreement. These contributions are a common negotiating tool used to make a transaction more financially attractive and feasible for a buyer, particularly one who may have sufficient funds for a down payment, but is challenged by the additional cash required for closing.
Purpose and Strategic Use
The primary purpose of seller concessions is to alleviate the buyer’s upfront financial burden. By covering a portion of the buyer’s closing costs, the seller can help facilitate a sale that might otherwise be out of reach. For the seller, offering a concession can be a powerful strategy to attract more potential buyers, secure a faster sale, or even justify a higher purchase price. In a buyer’s market, concessions are often a standard feature of negotiations.
The total amount of concessions a seller can offer is typically limited by the lender, and varies based on the loan type and size of the buyer’s down payment. These limits are in place to ensure that the concessions do not artificially inflate the value of the property.
Common Examples of Concessions
A seller can agree to cover various buyer’s expenses. Common examples include:
- Loan Origination Fees: Charges from the lender for processing and underwriting the loan.
- Appraisal and Inspection Fees: The costs associated with valuing the property and assessing its condition.
- Title Insurance Premiums: The fee for the policy that protects the lender and buyer from future title disputes.
- Property Taxes: Prepayment of a portion of the property taxes due at closing.
- Mortgage Points: Fees paid to the lender to “buy down” the interest rate.
Impact on the Transaction
Seller concessions are a mutually beneficial tool when used effectively. For the buyer, they directly reduce the amount of cash needed to close, making homeownership more accessible. For the seller, offering a few thousand dollars in concessions may be preferable to reduce the list price by a larger amount or have the home linger on the market.
It is essential that any agreement regarding seller concessions is clearly documented in the purchase contract. The final amount is reconciled on the Closing Disclosure, where the funds are shown as a credit to the buyer, reducing their total cash-to-close obligation. This practice allows both parties to achieve their respective goals, culminating in a successful and financially manageable transaction.
