What Are Seller Concessions?

What Are Seller Concessions?

Seller Concessions also referred to as a seller contribution, is when a buyer asks the seller for a financial contribution towards their closing costs, escrows, and/or pre-paids. Not all sellers will give a contribution and some lenders/loan programs may have restrictions on seller concessions, which may include not allowing them.

Now there are a few things both buyers and sellers need to be aware of when it comes to seller concessions.

1.  The buyer is basically financing their closing costs with a seller contribution. If a buyer offers a seller $300,000 but asks for a $10,000 seller concession that essentially means they are offering the seller $290,000, but both parties still need to pay closing costs based on the purchase price of $300,000, which is a minimal cost for the seller and buyer on that $10,000.

2.  Be prepared if the home does not appraise. It’s not uncommon for appraisals to come in low these days and if seller concessions are part of the contract they’re usually the first item a buyer and seller discuss. Let’s use the purchase price of $300,000 and say the home only appraises for $290,000, which means the buyer’s lender will only lend $290,000. Based on the home appraising below contract price there are a few possible outcomes:

• The buyer can remove the $10,000 seller concession and pay their own closing costs.
• The buyer and seller can renegotiate the $10,000 seller concession, maybe the buyer will come up with $5,000, and the seller with come up with $5,000.
• The seller can reduce the purchase price to $290,000 and still contribute $10,000 towards the buyers closing costs, which the seller is now netting $280,000.

3.  The buyer should only ask for the amount they need. If the buyer asks for $10,000 in seller concessions and they only use $8,000 the seller will pocket that additional $2,000. So the buyer will be financing an extra $2,000. This is why it is very important for buyers to know what their estimated closing costs will be. Buyers can obtain this information from their loan officer.

What Are Seller Concessions?