In most real estate transactions, the seller’s primary goal is to receive the highest purchase price possible for their home. Other motivating factors could include speed, in which a smooth process is more important than the final profit margin.
However, sellers who have put years of maintenance work and mortgage payments into their homes can benefit from their investments if they strike a good deal. If the seller agrees to certain concessions, they may have a faster real estate transaction.
The motivation to sell can be very strong. The buyer may hesitate to accept a real estate deal for various reasons. For example, the real estate may need several expensive repairs. It may not mean the minimum requirements necessary for approval for USDA loans. In these scenarios, seller concessions could seal the deal.
What are Seller Concessions?
Seller concessions are tools that a homeowner can use to get a deal over the line. They typically involve closing costs the home seller agrees to pay on behalf of the buyer to lower their upfront costs. Seller concessions cover repair costs for the buyer and can be used as a negotiation tactic to finalize a real estate sale.
Seller concessions often work well for motivated homeowners because the real estate sale’s profits usually cover the cost. For example, FHA loans typically require that a home pass an inspection. Some conventional loans do as well. A seller may agree to make repairs so the home passes inspection for the loan type, but they can also increase the asking price to compensate for the repair cost.
Why Do Sellers Offer Concessions?
There are many reasons why a seller may offer concessions to offset the buyer’s costs. In a competitive buyer’s market with high inventory, seller concessions can make the property more attractive. If you hope to sell the house quickly to relieve the financial burden, seller concessions can speed up the closing process.
Sellers will enjoy various tax deductions to help cover costs. Buyers have less negotiating power once the house is upgraded, ensuring sellers make more money. The seller may be able to use the extra funds to cover other expenses, such as another home purchase or home inspection fees on their next house.
Buyers benefit because they save money. If a buyer has made an offer on your home, they may request seller concessions before heading to the closing table, such as prorated property taxes or help with other closing costs, reducing upfront expenses. This means buyers can afford the property of their dreams.
Types of Seller Concessions
Most seller concessions occur when the seller pays for certain costs the buyer normally covers. However, there are several ways that a seller can incentivize their home to a potential buyer, even in a competitive local housing market. Here are some tips to motivate buyers when you want to sell your home.
Closing Costs Assistance
One of the biggest barriers to homeownership is the upfront costs of buying a home. The buyer will have to secure enough money for a down payment and numerous closing costs on top of the monthly expenses involved in a home.
You can offer to cover some of the buyer’s closing costs to minimize the barriers to the deal, such as loan origination fees, discount points, appraisal fees, attorney fees, title insurance, escrow fees, and prepaid property taxes. This can help sellers close deals faster.
Repairs and Credits
Seller concessions may involve specific repairs or credits. If you want the sale to happen quickly and don’t want to invest in repair work, you can offer to pay the buyer a lump sum for the necessary repairs later. You could also give the buyer credits for other closing costs.
Other Concessions
Though the seller concessions already mentioned are the most common, there are some other strategies you can use to motivate the buyer. You can purchase a home warranty to protect various appliances and systems in the home so the buyer won’t have to pay those costs if they break down.
If the buyer has to pay significant moving expenses on top of the home purchase, offering to cover those fees could be enough incentive to finalize the sale. You can leave behind personal property, such as furniture or appliances, to include in the purchase price. Rather than a price reduction on the house, these concessions will give the buyer more bang for their buck.
Negotiating Seller Concessions
Seller concessions must be negotiated between the buyer and seller. It may be difficult for a buyer to find leverage in a seller’s market with low inventory, but it is still worth considering if you can find a motivated seller. Here are some considerations when negotiating as a buyer or seller.
Buyer’s Perspective
From the buyer’s side, requesting seller concessions during a real estate transaction is normal. Perhaps you are strapped for cash after saving for a down payment and closing costs.
Start with a strong offer on the purchase price of the house. You can highlight property needs or the local market conditions as reasons for seller concessions. If the home inspection reveals repair needs, you can use this to negotiate for seller concessions effectively. Lastly, rely on the expertise and advice of a skilled real estate agent to help you pursue the maximum seller concessions.
Seller’s Perspective
From the seller’s side of the deal, it is important to understand when and how to offer seller concessions strategically. First, the market conditions must be assessed to determine if it is a seller’s or buyer’s market. Weigh the costs and benefits of specific concessions. You can set seller concession limits to set a boundary for the negotiation stage.
Finally, be a good listener when communicating with the buyer, as this can help you identify their needs and choose seller concessions that will motivate them. If you have an offer declined, ask them why so you can head back to the negotiating table. That is how you make seller concessions work for you.
Loan Limits on Concessions
The loan type will impact the seller concession limits. For example, conventional loans have limits on these concessions that depend on the down payment size.
A higher down payment, such as 25% or more, will allow a higher cap on concessions, potentially 9%. FHA loans limit seller contributions to 6% of the home’s sale price. VA loans may allow up to 4%. Jumbo loans are the most restrictive, with 2 to 3% concession limits.
Impact on Appraisal
A seller concession could be seen as artificially inflating a sale price to compensate for a property defect. As a result, a professional appraiser may deem the home’s value lower than it should be if the seller’s concessions are too high.
Taxes
Although the tax implications of seller concessions are typically minimal, they are worth mentioning. The IRS considers these concessions sales expenses, so sellers can deduct them from their taxes.
For buyers, the only significant tax implication is mortgage discount points paid by the seller, which may affect deductions for paying mortgage interest. It is best to consult a tax professional for clarity in either case.
Reduce the Need for Concessions With Cash Home Buyers
If you want to avoid concessions when selling your home, A-List Properties will buy it for cash. Our team is not concerned with minor home repairs or closing costs; we do not face lender restrictions on concessions.
If you want a fast sale with a fair cash offer and no seller concessions, call us today at 972-526-7042 or complete the online form for more information.
Zach Shelley
Zach Shelley is a seasoned real estate investor with a diverse network spanning across the nation. As the founder of his own real estate venture, Zach is committed to offering innovative solutions to homeowners facing various real estate challenges.. Through his dedication and strategic approach, Zach continues to make a significant impact in the real estate industry, providing homeowners with alternative pathways to navigate their property transactions.
