The Low-Down on Seller Concessions

Buying

What Is A Seller Concession?  How Can Asking For One Can Help You Buy A Home?

There’s no getting around the fact that you need to pay a lot of money upfront in order to buy a home. However, fortunately for buyers who are short on funds, you may be able to get a little help at the closing table in the form of a seller concession.

To that end, below is an explanation what a seller concession is, how receiving one works in a real estate transaction, and the advantages and disadvantages of asking for one when you submit your offer. Keep reading to learn whether asking for a seller concession can can be an effective strategy in helping you lower the cost of buying a home.

What is a seller concession?

Put simply, a seller concession - sometimes also referred to as a “seller assist” - is a gift that the sellers give buyers in order to reduce the upfront cost of buying a home. For example, the sellers might agree to cover some portion of the buyers’ closing costs or to give the buyers a credit towards any repair work that needs to be done.

Keep in mind that offering a seller concession is voluntary. As the buyer, you are free to ask for a concession amount in your offer, but the seller does not have to accept.

How seller concessions work

As stated above, seller concessions work by reducing the amount that the buyers have to pay for the home upfront. However, be aware that they rarely end up amounting to free money. Typically, the sellers will make up for the concession by building it into the sale price, which gives you the chance to finance the cost.

It’s also important to note that there are also limits to how much the sellers can assist you. Each type of loan has its own set of rules regarding seller concessions. With an FHA loan, for instance, sellers usually cannot contribute more than 6% of the home’s sale price.

Advantages and disadvantages of receiving a seller concession

Advantage

You’ll be able to bring less money to the settlement table.

Disadvantages

Your offer may not be as competitive as offers without a seller assist
When you take interest into account, you may pay more for those costs over time

The bottom line

The decision of whether or not to ask for a seller concession is one that you should talk over with your real estate agent. If you don’t have enough money to put down, getting a seller concession can be a key part of becoming a homeowner. However, if you have the funds available, asking for an assist may not be worth the risk. Ultimately, you’ll have to look at your personal circumstances and local market trends before making the decision that feels right for you.

Article by Tara Mastroeni for Forbes Real Estate.  Read more here.