The U.S. real estate market has been so hot over the past few years that many buyers may not have heard of seller concessions. With interest rates and inflation rising, the market has slowed down over the past couple of months, meaning there may be more motivated sellers willing to make concessions. Here’s what they are and how they might affect your next home sale or purchase.
Seller Concessions Defined
Seller concessions are when the home seller agrees to pay fees for the buyer to help make the sale happen.
Common Seller Concessions
There are several items sellers can offer to pay for to make the deal sweeter for the buyer.
These might include paying for property taxes through the end of the year along with other items listed below:
- Title insurance
- Home inspection fees
- Appraisal fees
- Recording fees
- Loan origination fees
- Mortgage points
Sellers can also offer concessions in the form of home repairs or improvements before the sale is final.
Negotiating Sellers Fees
All negotiations of seller concessions will be done through your real estate agent. It can take some time to go back and forth between the two parties, but with a trustworthy agent, you should be able to get a deal that you can live with. If you are the buyer, it is important to prioritize your biggest requests, maybe that is money back for closing costs, or maybe it's helping pay for repairs. Make sure you know your market and that you do not get so greedy asking for concessions that the seller backs out of the contract.
There are also some rules associated with seller concessions. For example, if you put down less than 10% for a down payment on a conventional loan, seller concessions are capped at 3% of the loan price. However, if your down payment is greater than 25%, the cap grows to 9%. FHA and USDA loans have a 6% cap on seller concessions, and VA loans allow up to 4%.
Benefits to Buyers
Buyers may be more inclined to go through with a sale if they can feel like they are getting a discount. Or if issues have cropped up during the home inspections, buyers may be more willing to stick it out if the seller offers to pay for repairs.
Benefits to Sellers
There are many reasons sellers might need to sell their home fast. Maybe they took a new job in a different city or state, maybe you cannot afford your current mortgage anymore and are trying to get out before you default, maybe you have already put an offer on another home and you need the equity from the old home to pay for the new one. In all these cases seller concessions can help the sale go quickly and smoothly.
Whether you are a buyer or a seller, understanding what seller concessions are and how they work can be helpful in making the most financially and time-wise from your purchase or sale.
These materials are not from HUD or FHA and were not approved by HUD or a government agency.