Understanding Seller Concessions: Benefits & Disadvantages

by Marianna E Perez 05/09/2021


Image by Sephelonor from Pixabay

Buying a home is a complicated transaction with many expenses. Part of the transaction involves closing costs, which vary in amount depending on the situation. One way to reduce the closing costs for the buyer is to ask for a seller concession so that the seller pays a portion of the closing costs instead. Even though this results in the seller spending more money on the transaction, there are some key reasons seller concessions can benefit both parties.

Types of Seller Concessions

A lot of individual expenses add up to make the final closing cost on a home purchase. Some concession requests or offers will pay for one or more specific costs, while others will be a percentage of the overall amount. Some of the individual expenses commonly involved in seller concessions are repairs, property tax, loan fees and homeowners’ insurance fees. The buyer can include a concession request in their offer or the seller can introduce them to help negotiate. It’s important to note that there are limits on seller concessions determined by the type of loan the buyer has.

Concession Benefits

Concessions have an obvious benefit for the buyer. A concession can mean less money required upfront when making a purchase. Closing costs typically combine to equal about 2 to 5% of the total purchase price, so anything that can reduce the amount is a bonus for the buyer.

Concessions can actually benefit the seller in certain situations as well. The biggest advantage is that they can speed up a transaction and entice buyers to purchase sooner. If a seller is having trouble closing the deal on their old home too long after moving into their new one, the result can be extremely costly. A concession can speed up the process to help avoid the risk of double mortgage payments. Concessions can also help a seller negotiate with a buyer who won’t budge on a low offer or to gain an edge in a competitive seller’s market. Discuss your options with a real estate agent or other professional to determine the best strategy.

Concession Disadvantages

As a buyer, requesting seller concessions in a competitive buyer’s market means you risk your offer being rejected. If there are multiple offers on a home, the seller is more likely to agree with a buyer who will put up more cash up front rather than ask for a concession. Concessions can cause issues for the buyer in the long-term, as well. Seller concessions get added in to your mortgage total which can increase your monthly payments. This also means you will pay more interest over the term of the loan. It’s important to weigh the long-term effects before making the request.

Concessions can help you both as a buyer and seller, but those benefits will always depend on your individual situation. Always consult a financial advisor to help you decide if requesting or offering seller concessions as part of your home transaction is right for you.

About the Author
Author

Marianna E Perez

Marianna E. Perez is a Real Estate professional with over 20 years of experience. A lifelong resident of South Florida, she keeps her finger on the pulse of the latest trends and movements in the real estate market. She offers clients top-notch guidance from start to finish, ensuring the entire process is seamless, efficient and rewarding. Prior to entering real estate, Marianna was Senior Vice President of Commercial Real Estate Banking at City National Bank of Florida. She provided strategic leadership facilitating profitable and efficient origination of real estate loans. Marianna was a trusted advisor to clients and to the bank growing a real estate portfolio to over $300 million. She is firmly committed to the philosophy “not quantity, but quality,” which she practices in both her personal and professional life. Marianna is a graduate of FIU where she earned a bachelor’s degree in business management. She is a member of the Miami Association of Realtors, a lifetime board member of the BASF (Builders Association of South Florida), a member of CREW (Commercial Real Estate Women), and ICSC (International Council of Shopping Centers). She is also involved with the Women’s Leadership Council (United Way TNC). In addition, Marianna has received these special industry accolades: Housing Hall of Fame inductee 2017 Builders Association of South Florida, Associate of the Year 2017 Builders Association of South Florida, Florida’s Best Awards Chair 2016 and 2004 Builders Association of South Florida, Vice President 2008 Builders Association of South Florida, President’s Award 2008 and 2003