The dance between home buyer and seller is a tricky one. Although it might seem like a match made in heaven – one person wants to buy a house, the other has a house to sell – there are a lot of factors that go into whether a sale will be successful or not.
One such factor is the seller concession. If you’re looking for a home, seller concessions can be a way to lighten the load of all the loan costs you’ll have to deal with as a buyer. However, approach with caution, as not all sellers are amenable to concessions, and asking for them could sour your deal.
What are seller concessions, and how can you make them work for you? Let’s take a look.
How Do Seller Concessions Work?
Seller concessions are parts of your closing costs that instead of paying yourself, you negotiate to have the seller pay. This takes some of the financial burdens off you, the buyer, making the deal more attractive and possibly affordable. Buyers might ask for concessions if they feel the house is overpriced, or if they think they’ll have trouble covering their closing costs. Later on in the process, after they’ve submitted their offer, they might ask for concessions if a home inspector finds issues that are going to cost money to fix. Buying a home is a transaction where you’re able to negotiate to try to get the best deal. Asking for seller concessions is a part of that negotiation process.
What Can a Seller Pay For?
Your closing costs will vary depending on your situation, but generally, you should expect to pay between 2% – 5% of the home’s value in closing costs. Add that to your down payment, and that’s a hefty chunk of change. Because there are so many costs associated with buying a home, the seller might be willing to cover some of the fees associated with the processing and securing of your loan. This also may make it so you can apply more funds to your down payment improving your loan situation. Some of these fees include:
There are limits to the amount a seller can contribute. These limits will depend on a few different factors, including the type of loan you’re getting, how much you’re putting down and whether you’re purchasing a primary residence, second home or investment property.
For example, on a conventional loan for a primary residence where you’re putting 10% down, the maximum contribution amount is 6% of the sale price.
If you plan on asking for seller concessions, be sure to check with your Utah mortgage lender and find out the maximum contribution amount you can receive.
Why Would a Seller Help You Pay?
There are a few scenarios where agreeing to concessions might make financial sense for a seller.
Maybe they want to complete the sale quickly because they’re also purchasing a house and don’t want the overlap of having two mortgages. Or, perhaps the house has been on the market for a while and they aren’t getting any good offers. Whatever the reason, if the seller is eager to get rid of the house, they might be more open to helping you out with your closing costs.
Are There Any Cons?
Sounds great, right? Get the seller to take care of some of your out-of-pocket costs, save yourself some cash and sail smoothly into your new home.
Not so fast. Be sure to take a holistic look at your costs and take into account what the housing market is like in your area.
Are you in a buyer’s market or a seller’s market? In a buyer’s market where sellers have trouble selling houses due to high inventory or low demand, the buyer has all the power because a seller is more inclined to accept an offer if they aren’t sure they’ll get a better one.
However, in a seller’s market with high demand or low inventory, the seller holds all the cards. If you’re in a seller’s market, you could risk having your offer declined if you try to attach any concessions to it, because they might have other, cleaner offers.
Additionally, while a seller concession can lower your upfront costs, if you’re using it to offset a higher purchase price, you’re essentially rolling your costs into your loan.
It can be tricky to determine whether or not it’s worth it to ask for seller concessions, so it’s helpful to work with an experienced real estate agent and a Utah mortgage broker that knows the local markets and can help get you the best deal.
Ready to start the home buying process? Get started with us online, or call (801) 272-0600 to speak with one of our licensed mortgage loan officers.