Understanding Seller Concessions

The search for a dream home involves countless decisions—weighing location, price, and must-have features. When you finally locate the right property, the next phase relies heavily on effective negotiation.

A strategic tool often used during this stage is seller concessions. These occur when a seller agrees to cover specific transaction fees or closing costs on behalf of the buyer. For buyers, concessions ease the immediate financial burden; for sellers, they serve as a powerful incentive to attract serious offers.

Here is a guide to how seller concessions function, their key advantages, and how they can create a seamless path to homeownership.

What Are Seller Concessions?

Seller concessions are payments made by the seller to cover specific costs or fees on the buyer's behalf during the closing stage of the homebuying process. There are a variety of concessions that sellers offer. This includes covering a portion of a buyer's closing costs, paying for necessary repairs discovered during the home inspection or covering fees for the buyer's moving costs.

The types of seller concessions offered and their amounts depend on the seller's motivations. Factors such as a slow-selling market, excess housing inventory or an older home in need of repairs and upgrades can compel sellers to offer concessions. Additionally, sellers who need to sell quickly to move into a different home may offer concessions to speed up the sale.

It is important to remember that while concessions are a commonly used sales strategy, not every seller offers them.

Common Types of Seller Concessions

When shopping for a home, you might come across various types of seller concessions that can provide financial relief or enhance the overall deal. Here are some of the most common types of seller concessions that you may encounter:

Closing Cost Assistance

Sellers may agree to cover part or all of the buyer's closing costs, which can include fees for appraisal, title insurance, escrow, recording, attorney services and notarization. This arrangement helps lower the upfront costs the buyer must pay at closing. Depending on how much the seller is willing to cover in closing costs, the buyer's savings can be substantial.

Moving Expenses

Seller concessions to cover moving expenses are a popular option among many sellers. With this type of concession, the seller cannot provide the buyer with cash or pay their moving expenses directly. Instead, the seller reduces the buyer's closing costs based on the buyer's estimated moving costs, which typically require a written estimate from a moving company. The buyer then uses their own money to pay for movers and truck rentals.

Temporary Rate Buydowns

A temporary rate buydown is an appealing concession from the seller for buyers, as it lowers the buyer's financial responsibility in the initial years of the mortgage. This arrangement involves the seller designating funds to "buy down" the buyer's interest rate at closing. These funds can either be deposited in an escrow account or paid directly to the lender, resulting in a reduced monthly interest charge for the buyer. One of the most common temporary buydown options is the 2-1 buydown, which reduces the rate for the first two years.

Home Warranties

Sellers may offer a home warranty concession covering the repair or replacement of major home systems, such as heating, ventilation, and air conditioning (HVAC) units, as well as appliances, for a specified period. This concession can help alleviate worries about unexpected maintenance costs shortly after the purchase.

Repair Credits

Once the home inspection is complete, both the seller and the buyer review the findings in the report. If the inspection reveals issues that need to be addressed, such as plumbing problems, electrical concerns, roof leaks, or pest damage, the seller may offer a credit to cover the cost of the repairs. It’s important to note that a repair credit does not change the home's purchase price or provide cash in hand; instead, it reduces the amount of money required to close.

Seller Concession Limits

There are rules regarding seller concessions set by lenders and state law, which is why they need to be managed by a licensed real estate agent. First, there are concession limits based on the type of home loan the buyer chooses. For instance, a conventional loan allows seller concessions between 3% and 9% of the home's price, depending on the size of the down payment. Buyers who make a down payment of more than 25% are eligible for concessions of up to 9% of the sale price.

A Department of Veterans Affairs (VA) loan permits concessions of up to 4%. Meanwhile, both Federal Housing Administration (FHA) loans and United States Department of Agriculture (USDA) loans allow for concessions of up to 6%.

Seller concessions cannot be utilized for the down payment, mortgage insurance, paying off credit card debt or other debts, providing cash back to the buyer or any other transactions outside the official home purchase contract.

How To Negotiate Concessions

Requesting concessions during home purchase negotiations can feel daunting and overwhelming. It's natural to worry that asking for more may jeopardize the transaction or damage the relationship with the seller. That's why it's necessary to consult your real estate agent.

They understand the home's market value and local demand, and they can recommend a reasonable amount of seller concessions to request. Additionally, your real estate agent is skilled in negotiation and can suggest options to keep the deal moving forward so all parties benefit.

Additional Considerations

Seller concessions may be subject to taxes, so speak with your real estate agent or accountant before closing to ensure you are fully informed. Lastly, all seller concessions need to be outlined in the purchase contract to be legally binding. This indicates the amount, in dollars or as a percentage, that the seller will pay at closing. Your real estate agent will ensure they are included in the purchase contract.

If you are looking to purchase a home and need a reputable lending partner, Ameris Bank is with you. We offer a variety of home loan options, and our mortgage bankers will help you select the home loan that works with your budget, lifestyle and future goals.