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  • Writer's pictureKira Witherwax

What Are Seller Concessions?

And more importantly how do they affect you? Seller concessions are a way for the buyer to

borrow extra funds to cover some of their costs associated with closing. These funds go

towards their cash to close (which can include down payment, funding their escrow, lender or attorney fees, etc.). This is a tool that helps buyers and is fairly common.

We haven’t seen it much over the last few years, but as the market starts to balance it is becoming more widely used again.

Don't Let The Name Fool You

The name seller concessions is very misleading. It makes it sound like the seller is conceding

money to the buyer. The reality is the seller will only receive the net amount (after concessions) so this is what both parties should view as the offer. The seller isn’t truly giving the buyer anything. Just allowing them to borrow more for their own expenses.

A Deeper Dive

For round numbers, if a buyer makes an offer of $200,000 with 6% seller concessions, $12,000 of that will go back to the borrower at closing towards their costs. Which is great for the buyer, but that means the seller will view the offer as $188,000 because that’s all they receive. So even though it is called seller concessions, it is just money a buyer is borrowing and getting to use towards their costs.

So, if you as a buyer are in competition, or just want to make a stronger offer, you could offer $212,000 with $12,000 in concessions so the seller will get $200,000. I always recommend that a buyer decide what they feel is a fair offer for the house first and then

add the concessions on top of it. Meaning, first decide how much you want the seller to receive in your offer, then add on the additional you’ll need to borrow for your costs. It will depend on your loan type how much is the maximum you can get.

From a seller perspective, if we receive an offer with concessions, I recommend the same thing.

Look at the amount you’ll be getting not the full amount the buyer is borrowing. Then if you

want to counter the buyer’s offer, counter on the net to seller amount and then let the buyer

add on whatever they need for concessions. Is there any harm in accepting an offer with

concessions? If the net to seller is the same? Certainly, a borrower that has more cash on hand and doesn’t need concessions, at least appears, to be in a stronger financial position.

The other factor to consider is appraisal. The property will need to appraise for the full offer amount, including the concessions. If a buyer loves a property that is listed for $200,000 and wants to make an offer where the seller receives $200,000 so they offer $212,000 minus $12,000 in concessions, the property will likely need to appraise for the full $212,000. That is because the appraisal is done to protect the lender. But it also protects the buyer. Worst case if you default on your mortgage (or just want to sell your house someday), the bank wants to make sure it can be sold for enough to cover all the liability (debt) associated with it. And since the buyer borrowed funds to use towards their costs, that is part of that debt.

So In the End?

Overall, concessions can be a great tool to help buyers get into home ownership that maybe don’t have a ton of cash saved up. Definitely, talk to your lender and your mortgage professional about the options available to you with your loan type. They all have different requirements. When buying or selling a home you’re not alone, you have a team of professionals around you. Make sure to utilize them.

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