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What Are Seller Concessions?

Seller concessions, also known as seller contributions or seller assist, are closing costs that the seller has agreed to pay. This is where the seller agrees to contribute a portion or a certain percentage of the total closing costs. These concessions are negotiated as part of the purchase agreement and are typically agreed upon during the offer and counteroffer process.

 

Seller concessions can take various forms, including:

Covering Closing Costs: The most common type of seller concession involves the seller agreeing to pay some or a portion of the buyer's closing costs. Closing costs can include fees for services such as title insurance, appraisal, home inspection, attorney fees, and loan origination fees.


Prepaid Expenses: Sellers may also agree to cover prepaid expenses such as property taxes, homeowners association (HOA) dues, or homeowners insurance premiums for a certain period.


Repairs or Improvements: In some cases, sellers may offer concessions to cover the cost of necessary repairs or improvements identified during the home inspection or appraisal process. This can include items such as repairing a roof, replacing appliances, or addressing structural issues.


Interest Rate Buydowns: Sellers can agree to buy down the buyer's interest rate by paying points upfront to lower the borrower's monthly mortgage payments for a specified period.

 

Who benefits from seller concessions? The answer is both buyers and sellers.


Pros:

Buyers: Seller concessions can help reduce the upfront costs associated with purchasing a home, making homeownership more affordable and accessible.  

Sellers: Offering concessions can make their property more attractive to potential buyers, especially in a competitive market or when buyers have limited funds for closing costs.


Cons:

Buyers: You could have your offer rejected. Asking for seller concessions is preferable in a buyer’s market. If there is a lot of competition for a particular home, your offer could be rejected in favor of another offer with fewer strings attached. Your home loan will also be higher. If you’re using seller concessions to offset your upfront costs so that you can borrow more, you’re essentially just rolling those costs into your loan. That means paying additional interest over a long period of time.

Sellers: Smaller profit on the sale. If you agree to any seller concessions, that expense will eat into the profits of your home sale.

 

Are there limits to seller concessions?

Yes, seller concessions vary by loan type, and the seller can’t pay all of your closing costs.


Conventional Loans: The limit for conventional loans depends on how much you put down on a home.

  • Less than 10% - the seller can contribute up to 3%

  • 10-25% - the seller can contribute up to 6%

  • More than 25% - the seller can contribute up to 9%

Investment properties – the limit of seller’s concessions is 2%.


FHA Loans: The seller can contribute up to 6% of the purchase price.


USDA Loans: The seller can contribute up to 6% of the buyer’s loan amount.


VA Loans: Department of Veterans Affairs rules dictate that the seller can contribute up to 4% of the purchase price.

 

It is important for both parties to understand seller concessions. For sellers, offering concessions reduces the net proceeds from the sale, while buyers should consider whether accepting concessions affects the overall cost of homeownership in the long run.


The best way to move forward is to work with your real estate agent to decide whether it would be a good idea to ask the seller for concessions. If you’re ready to find your new home and get started, get pre-approved with Polaris Home Funding!



Polaris Home Funding with home buyers explaining sellers concessions

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