What Is A Sellers Concession?

The market can be a tough place to sell for a homeowner when there are not enough buyers and a large inventory of homes. In a buyer’s market, how can you make buyers choose your home over other similar homes? Many sellers choose to offer incentives such as seller concessions. This article describes what seller concessions are and their uses.

What Is A Seller Concession?

In a broad sense, a seller concession is any incentive made between the seller and buyer as an added benefit to purchasing the home. This could be a range of things such as lowering the price down, giving a credit towards a certain repair or upgrade, or adding appliances. There are strict rules, however, preventing the concession from being a check or otherwise direct cash to the buyer.

Probably the two most common concessions are for repair and closing credits. Neither of these concessions will affect the price of the home directly. They will come directly from the seller to the buyer. Because of this there are laws that govern how concessions are dealt with during the final transaction of the home.

How do concessions affect buyers and sellers?

It might seem odd for you to be paying a buyer to buy your house but sellers concessions have their advantage to both parties. If you are a seller concessions will give you a great method to help entice a buyer to purchase your home over other similar home and will help you sell a house fast. If your home needs repair and you are not able to do it yourself you can attract buyers by giving them a repair credit to help them make the needed repair. When upfront money is hard to come by, which it is in most cases, if you offer to pay part, or all, of the closing cost it can go a long way to helping you sell your house. In these ways a seller concession, which is also called a seller contribution, can go a long way in helping you to market your home for sale.

For the home buyer, having the seller pay for closing costs means that they do not need to account for another few thousand dollars in cash to contribute to the transaction. This can be a great boon since all home buyers will feel cash strapped in the coming months after the sale and any saved dollar helps.

What do you have to watch out for when giving a concession?

As mentioned earlier there are a few things that will be required by the lender in regards to seller contributions. Lenders want to avoid giving someone money that is going to get all sorts of concessions, which can look like a money making scheme sometimes, so they have limits on what they will allow. This will usually range from 2-9% of the appraised value of the home and no part of the money can go to anything other then the closing. All of the concession money can be used and usually the only time a credit can be issued is during the closing.

To give you an idea, consider government loans such as Fannie Mae and Freddie Mac. If your down payment is less than 10 percent of the appraised value, then the seller can only fund 3 percent of the appraised value in closing costs. For down payments that are greater than 10 percent, the seller concessions can rise to 6 percent. VA loans remain at 4 percent of the appraised value. Even if you are not using a governmental loan program, these guidelines are still the norm for private lenders.

If you want to use a real estate agent in order to help you sell your home you will want to discuss these options with them as part of the overall marketing strategy. If you are going to sell your home privately then you will want to do the research to find out what type of concessions to offer to help best incentive the sale of the home.

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