In buyer and seller negotiations in real estate, real estate agents work to identify the best solutions for their client throughout the transaction.
One strategy when navigating these complicated waters is seller concessions—payments made by a seller to offset certain costs or fees generally associated with buying a home. Knowing how to assess and understand seller concessions may be essential to successfully closing deals for your clients.
Let's break down the basics of home seller concessions so you can familiarize yourself with them and how they may benefit buyers in their transactions.
Seller concessions are a strategic arrangement in a real estate transaction where the seller covers certain costs or fees associated with purchasing a home. These concessions can make home ownership more accessible for buyers by reducing upfront expenses.
Seller concessions can take various forms, such as covering part of the buyer's closing costs or other expenses involved in the purchase.
Seller concessions are generally negotiated as part of the buyer's and seller's purchase agreement. The concession amount can be expressed as a percentage of the home's purchase price or a fixed dollar amount.
For example, suppose a buyer is interested in purchasing a home with a price tag of $300,000 and during negotiations. If the seller agrees to provide concessions of 3%, the seller then contributes $9,000 (3% of $300,000) toward the buyer's closing costs and other relevant expenses. This effectively lessens the financial burden on the buyer and facilitates the purchase.
Seller concessions can benefit the buyer and the seller. For buyers, they can help reduce the upfront costs associated with purchasing a home. This means buyers with limited cash reserves may be able to afford a more expensive home thanks to seller concessions.
For sellers, concessions can make their property more attractive to potential buyers by reducing the money the buyer needs to bring to the closing table. This may lead to a faster or more streamlined sale.
Seller concessions may cover a range of costs associated with buying a home. The specific fees that seller concessions cover will depend on the agreement between the buyer and the seller. Some of the most common costs or conventional seller concessions may include:
Let's review a few specific scenarios and strategies real estate professionals can employ to negotiate real estate deals. Whether you're a seasoned agent or just starting your career, these real-world examples will help you navigate seller concessions with confidence and finesse.
Closing Costs: In this scenario, the seller agrees to cover the buyer's closing costs, including expenses like appraisal fees, title insurance, and loan origination fees. This concession can make the home purchase more affordable for the buyer and facilitate a smoother transaction.
Price Reduction: A seller may reduce the property's listing price to accommodate necessary repairs or updates. For instance, if the home inspection reveals the need for a new roof, a seller offering concessions in the form of a price reduction could lower the real estate sale price to offset the anticipated repair cost, which might be attractive to buyers.
Home Warranty Inclusion: Sellers can sweeten the deal by including a home warranty as part of the sale. This could offer peace of mind to buyers, as they'll have coverage for potential repairs or replacements of major home systems and appliances during the initial home ownership period.
Depending on the market, seller concessions can be versatile and tailored to suit buyers' and sellers' needs and preferences in real estate transactions.
There are limits on how much a seller can concede to a buyer in a real estate transaction.
The settlement statement includes a section outlining the number and value of concessions allowed. The total value of concessions is typically limited to a percentage of the home's sale price, with maximum seller concessions set between 3%-6%, but this may vary. In some cases, a lower cap may be assigned.
Seller concession limits are not uniform—they depend on the buyer's mortgage loan. Here are some common types of loans and their associated seller concession limits:
Buyers and real estate agents must be aware of the specific limits associated with the chosen loan type, as exceeding these limits may impact the transaction's viability.
The world of real estate is a complex and ever-evolving landscape. As a real estate professional, your ability to adapt and use the tools at your disposal can make a difference in your clients' home ownership journeys.
Seller concessions, a powerful yet often underutilized tool, might be your ally in creating win-win situations for buyers and sellers alike. By mastering the art of seller concessions, you'll be better equipped to close deals and develop a sense of trust and confidence in your clients.
As you continue your career in the real estate world, the better educated you are, the more you can serve your clients and build lasting relationships. To expand your knowledge and expertise, consider NAR membership for access to resources that could help you reach your professional goals. Or further elevate your real estate expertise as a Seller Representative Specialist (SRS) by completing the SRS course and obtaining your SRS designation. Whichever approach you take, the important thing is to keep learning, keep growing, and keep succeeding in your role as a trusted real estate professional.
