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Understanding Seller Concessions: Tips for Buyers and Sellers

Understanding Seller Concessions: Tips for Buyers and Sellers
Photo: Caroline Turner Interiors

Throughout every real estate transaction, buyers and sellers continuously explore strategies to negotiate deals that align with their interests.

One such tactic is leveraging seller concessions, which aids both buyers in minimizing their out-of-pocket expenses and sellers in expediting the process of selling their homes. Whichever side of the deal you’re on, this guide can help you better understand the ins and outs of this real estate factor and why it may be just the thing you need.

Family asking to realtor

What are seller concessions

With this financial arrangement, the seller agrees to cover some of the buyer’s costs beyond the property’s sale price to encourage a deal. These concessions can include home repair expenses and closing costs such as the title search, title insurance policy, lender fees, loan origination fees, or prepaid property taxes.

Reasons to offer them

A seller’s decision to offer concessions can stem from various factors. Regardless of the specific motivation, this choice is often a strategic maneuver aimed at optimizing the outcome of the real estate transaction.

The market favors buyers
In a buyer’s market, where there is a surplus of properties and limited demand, the buyer often holds more negotiating leverage. Sellers facing increased competition may be less selective when accepting offers, allowing buyers to request concessions as part of their offer conditions.

A house has spent extended time on the market
In certain local markets, if a home remains unsold for an extended period—beyond a few weeks—it can raise concerns from prospective buyers. Whether due to being overpriced, needing repairs, or being situated in a less desirable area, these sellers are typically more motivated to sell and, thus, open to making concessions to attract buyers.

The owner is selling during the offseason
Even in a seller’s market, different times of the year witness varying buyer activity levels. If a seller needs to move during a less busy season, they may receive fewer potential buyers. To counteract this, they may be more willing to offer concessions to make their property more appealing.

There’s urgency for a swift sale
This strategy is particularly beneficial for sellers who need to relocate quickly, such as for employment or personal reasons. By expediting the sales process, they can alleviate the financial strain of carrying two mortgages and avoid potential disruptions to their moving plans.

Man signing contract

Buyer benefits

Beyond the overall out-of-pocket expenses, aside from the initial down payment required to complete the transaction, seller concessions offer a valuable financial lifeline for homebuyers, particularly first-time homebuyers with limited cash reserves. In addition, when some of these costs are shouldered by the seller, it can boost the buyer’s purchasing power.

Seller benefits

A key benefit for a seller is that concessions can make their property more attractive in a competitive market. In a buyer’s market, when the seller provides financial assistance to a buyer, it can help elevate the interest in their property and make it appeal to a broader range of potential buyers. Moreover, it can become a negotiation tactic that can often tip the scales in the seller’s favor.

Limitations

Lenders impose various restrictions on how much a seller can provide for concessions. For example, conforming loans (loans that are subject to an annual adjustment and cannot surpass a specified dollar limit) for noninvestment properties, are capped at a specific percentage of the home’s purchase price depending on the down payment. Less than 10 percent will allow up to 3 percent, between 10 and 25 percent is up to 6 percent, and anything above that, as high as 9 percent. In contrast, government-backed loans such as those from the Federal Housing Administration, the US Department of Veterans Affairs, and the US Department of Agriculture are much less flexible, limiting concessions to between 4 and 6 percent regardless of down payment.

While seller concessions can be a huge benefit to both buyers and sellers, it can also be challenging to assess whether it’s worthwhile to request or provide them. Consult with a seasoned real estate agent who is well-versed in your local market and can help you navigate this process.

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Kimmer Plunk

Based in Memphis and serving clients in West Tennessee and Northwest Mississippi. Serving others is a reward of its own and part of what makes me happy, and I've been doing that for 30 years through various activities including Girl Scouts, PTO, various board positions, unhoused ministry, and professional, award-winning teaching. I treat others the way that I want to be treated including being readily available, listening to your desires, answering your questions thoroughly, and walking you through the home purchase process. My ultimate goal is to see that you find the home of your dreams and experience the least amount of stress during the process.

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