If you’ve found the home you want and successfully negotiated with the seller, congratulations! You’ll soon become a homeowner.
With closing day approaching, it’s important for buyers to understand what part of the expenses, if any, sellers are responsible for paying. We’re talking about seller concessions, which are the closing costs the seller agrees to pay.
Why Would a Seller Make Concessions?
There’s more than one reason why a seller would agree to concessions during the purchasing process.
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They want to sell their home fast.
A seller who is highly motivated to sell their home may agree to concessions to help it move faster. Perhaps they are having trouble meeting the monthly mortgage payment, are getting divorced, or need to move out of state for their jobs. Certain life events make it attractive, and even necessary, to sell a home fast.
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Their house isn’t in good shape or is outdated.
If a property needs lots of updates and renovations, it may not get much buyer attention. Sellers can make concessions to sweeten the pot and get more potential buyers through the door.
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It’s a buyer’s market.
If the real estate market favors buyers, a seller may need to sharpen their pencils to get an offer on their property. Making concessions helps sellers be more competitive.
What Are Seller Concessions?
The concessions a seller can agree to vary widely. Some sellers will offer a single concession, while others may offer two, three, or more. The most common concessions we see sellers making are:
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Property taxes
Sellers may offer to pay the property taxes through the end of the year. This may help homebuyers who need several months to financially recover from paying the down payment and moving expenses.
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Title insurance
If someone makes a claim on your home’s title, you may have to defend it. In this situation, title insurance foots the bill. Sellers may offer to pay for title insurance during closing as part of the buyer/seller negotiation.
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Origination fees
Lenders charge this fee for processing the loan and getting it ready for closing. A seller may agree to pay all or some of these costs. Sellers frequently offer to split this fee with the buyer.
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Other fees
Since there are many fees that go into closing costs, sellers may offer to cover some of them as they’re negotiating with potential buyers. The home inspection fee, appraisal fees, recording fees and attorney’s fees can all be seller concessions.
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Mortgage points
Buyers can choose to pay discount points to secure a lower interest rate on their loan. Motivated sellers may offer to cover the fee for these points to make the purchase more attractive and cost-effective for the buyer.
Should You Ask for Seller Concessions?
Just like with every part of the home negotiating process, you should consider the pros and cons before pushing for seller concessions.
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Pros
There are certain situations where asking for seller concessions makes good sense. If you’re stretching your budget to afford the house they’re selling, a concession (or three) may be the difference in being able to afford it or having the deal fall through.
And if the property isn’t in prime condition or in a hot location, or if it’s a buyer’s market, asking for seller concessions helps you save money with little risk of losing out on the property.
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Cons
Think about the circumstances of your deal before you ask for seller concessions. Too many requests can cause a seller to look for other buyers with fewer demands. In a hot seller’s market, sellers may automatically decline offers that have seller concessions attached.
And if you are in love with the property and don’t want to lose it, it may be better to skip asking for seller concessions.
Smart homebuyers carefully thing about and plan for every part of the homebuying journey. Before you decide whether to ask for seller concessions, think about the market, the home itself, and your personal financial situation. Your real estate agent can also give you good advice on how to proceed.
