Tighter housing markets caused a seller’s market last year, with many sellers able to receive close-to-asking price for their homes. But we’re now in a market where new home sales fell to a three-year low and inventory has surged.
Sellers that are trying to compete with higher inventory levels will need to be able to compete with other sellers.
One way of doing this is by offering seller concessions rather than lowering the price of the property. Home sales remain strong in many markets, but in others, increased inventory may require concessions to “sweeten the deal.”
Seller concessions offer, oftentimes, contributions to the costs of purchasing the home. For example, the closing costs, loan processing fees, title insurance and other costs may be holding many would-be homeowners from buying a home.
The seller may offer to pay part or all of these costs.
And when they do, it will be an added benefit for the buyer. The buyer may have $1,200 or their $2,400 in closing costs covered. It’s an advantage to the buyer who now doesn’t have to come up with more money to close on their home.
Concession Limits to Understand
There are limits to the amount of concessions that can be paid by the seller. Concessions vary from state-to-state, but the total amount of the concession will often fall between 2% and 9% of the home’s appraised value.
The type of mortgage that the buyer obtains will also dictate how much in concessions that you can offer.
Mortgage brokers will be able to tell the seller what limit in concessions that they can offer. Some brokers may even offer seller commission rebates, and this is a rebate from the broker to get the deal done.
This would alleviate some of the financial burden that the seller has made to make the sale.
As a seller, you may be able to offer:
• Closing cost assistance
• Payment of condo fees
• Down payment assistance
• Interest rate buy downs
• Loan origination fee
Sellers may also offer personal property as a seller concession, and if a buyer is concerned about a concession, they should discuss the matter with their loan provider.
Disadvantages When Offering Concessions
As a seller, there is a disadvantage when offering concessions. More money comes out of the seller’s pocket, and this means that the house price may have to be raised, or the seller may have to suffer from a slightly lower profit off of the sale of the home.
Buyers should not rely fully on the concessions, and it’s advised that the buyer ensure that they have enough money to purchase the home from the start.
As a buyer, you should talk to the mortgage broker or a qualified real estate agent to see if any seller concessions are available. Concessions will allow the seller to sell a home faster, or at the very least, offer a slight advantage compared to other sellers in the market.
When a home is having difficulty selling, concessions can often speed up the sales process.