Buying a home is an exciting prospect, but it's essential to know that there are costs beyond the price of the house itself. These costs can add up quickly and may impact what you can ultimately afford. But you might be able to negotiate with the seller to pay some of these costs upfront. This is called seller concessions. In this way, you can save money and make your home-buying experience more affordable.

 

What are seller concessions?

When you buy a home, there are a lot of costs involved beyond just the price of the house itself. These costs are called closing costs, and they include things like fees for the lender, the title company, and other expenses. Sometimes, the home seller will agree to help pay for some of these costs, which is called a seller concession. 

When a seller agrees to make concessions, they agree to use some of the money they get from selling their home to help you pay for your closing costs. This can be helpful because it means you won't have to come up with as much money upfront. Instead, the costs will be added to your mortgage, which means you'll pay them off over time.

 

Who benefits from seller concessions?

Seller concessions can benefit both the buyer and the seller when buying a home. For sellers, offering concessions can make their home more appealing to potential buyers, especially in a buyer's market.

On the other hand, buyers who don't have enough cash to cover all their closing costs can benefit from seller concessions. This is especially helpful for first-time home buyers who may not be aware of all the costs involved in purchasing a home. Seller concessions can offset some of these costs and make the home more affordable.

 

Closing costs covered by seller concessions

• Property taxes - if you're buying a home mid-year, you may need to pre-pay property taxes through the end of the year at closing.
• Title insurance - this insurance policy protects you and your lender if someone challenges your ownership of the home.
• Loan origination fees - these fees cover your lender’s charges for processing your loan application.
• Inspection fees - these fees cover the cost of inspections required before the lender approves your loan.
• Recording fees - cover the cost of recording the sale of the home with your local government.
• Appraisal fee - is the cost of getting an expert opinion on the value of the home you're buying.
• Attorney’s fees - if you're in a state where an attorney needs to review the closing documents, you'll need to pay for their services.
• Mortgage points - sometimes, you can pay extra upfront to reduce the amount of interest you'll pay over the life of your loan.

 

Advantages and disadvantages of seller concessions

Whether you're a first-time homebuyer or a seasoned pro, you may have heard about seller concessions. It's important to understand the advantages and disadvantages of these concessions before you decide if they're right for you.

 

Advantages

The good news is that seller concessions can help make buying a home more affordable. If you're a buyer, you'll typically have to pay thousands of dollars in closing costs and down payments. With seller concessions, you can reduce these costs and make it easier to afford your new home.

Seller concessions can also benefit the seller in certain situations. For example, if they're eager to sell their home quickly, they may be willing to cover part of the buyer's closing costs to speed up the process.

 

Disadvantages

However, there are some downsides to asking for seller concessions. In a competitive market, a seller may not be interested in offers that include concession requests. In this case, it might be better to put in a lower offer and cover the closing costs yourself. This way, you'll have a better chance of getting your offer accepted and closing the deal on your dream home.

 

How to negotiate seller concessions

Negotiating concessions with the seller requires some knowledge about the current housing market and a bit of negotiation skills. Here are some tips to help you get started:

Understand the Market

Before you start negotiating, it is essential to understand whether you are in a buyer's market or a seller's market. This will significantly impact your ability to negotiate successfully. In a buyer's market, sellers are more likely to offer concessions, especially if their home has been on the market for a while.

Limit Demands

If you decide to ask for concessions, it is essential to keep your other demands to a minimum. Sellers prefer the simplest offer, so if you request too many things, they may pass on your offer. If you need repairs, consider offering a lower price and covering the closing costs yourself.

Hire A Real Estate Agent

If you are unsure about how to negotiate concessions, it is always a good idea to work with a real estate agent. They can help you understand the local market and provide you with examples of recent seller concessions. If you are in a seller's market, they can help you decide whether to ask for closing costs or reduce your offer.

 

Limits on seller concessions

Generally, there are limits to how much the seller can pay, and these limits can vary depending on the loan you're getting. Here are some common seller concession limits for different types of loans:

 

Conventional Loans

The limit for conventional loans depends on the amount of down payment you make. If you have less than 10% down, the seller can contribute up to 3% of the purchase price. In the case of down payments between 10% and 25%, the seller may contribute up to 6%. In the case of down payments over 25%, the seller may contribute up to 9% of the purchase price. A seller can, however, only contribute up to 2% towards a down payment on an investment property, regardless of your down payment.

 

FHA Loans

If you're planning to buy a home with a Federal Housing Administration (FHA) loan, you should know that the seller is allowed to contribute up to 6% of the purchase price. This means that the seller can help you pay for things like closing costs, appraisal fees, and other expenses related to your home purchase.

 

USDA Loans

If you're considering applying for a loan from the U.S. Department of Agriculture (USDA), you should know that the seller may be able to contribute up to 6% of the loan amount. Unlike other types of loans, this concession isn't based on the value of the home or the appraisal.

 

VA Loans

When it comes to Department of Veterans Affairs (VA) loans, it's important to know that sellers can contribute up to 4% of the purchase price. These contributions can include payments towards a buyer's debts, judgments, and even VA funding fees.

 

Summary

Seller concessions refer to the closing costs that the seller agrees to cover. This can be a great help to buyers in making a home more affordable, and it can also facilitate the closing of the deal for the seller.

To determine whether you have a good chance of requesting concessions from the seller, consult your real estate agent. If the market conditions are favorable, you may be able to negotiate with the seller to cover some or all of your closing costs, but be mindful of the limits associated with your specific loan.