Today’s blog post topic is: The Strategic Use of Seller Concessions
The journey to homeownership is paved with various expenses that can accumulate quickly. Astute homebuyers recognize this and often negotiate with home sellers for concessions to mitigate these costs.
Particularly, closing costs can be daunting—they’re an expense many buyers neglect to factor in while pooling funds for their initial down payment. To prevent a deal from disintegrating at the eleventh hour, sellers may agree to absorb some or all of the customary fees associated with concluding a home sale.
Diverse Seller Concessions
The administrative process of home sales involves a significant amount of documentation. Occasionally, sellers may find it more economical to handle these tasks themselves rather than passing the cost onto the buyer, fostering a sense of goodwill in the transaction.
Seller concessions can extend to various enhancements in the home that are low in cost but high in impact, accelerating the sale at a favorable price. Examples might include upgrading to modern appliances or replacing dated carpet with chic hardwood flooring.
Limits on Concessions
While concessions can make a home purchase more attractive, there are caps based on the buyer’s mortgage type. Conventional loans permit seller concessions ranging from 2% to 9%, whereas VA loans cap concessions at 4%. Both FHA and USDA loans allow seller concessions up to 6%.
These concessions are typically rolled into the mortgage, sparing the buyer from immediate cash outlays. Strategically, certain concessions can increase a home’s value, which simplifies the appraisal and sale process.
Understanding Settlement Costs
Buyers who are strapped for cash and underestimated their closing needs may have settlement costs covered by the seller. However, sellers can’t contribute to down payments and aren’t permitted to cover mortgage application or credit check fees.
Calculating the Impact
Upon reaching the pre-approval stage for a mortgage, buyers will be aware of their lender, borrowing limit, and expected closing costs. It’s common for realtors to request seller concessions as a percentage of these costs.
But it’s crucial to consider the actual costs versus requested concessions, particularly in areas with lower taxes and modest housing prices. Overestimating concessions could mean a larger portion of the mortgage goes to the seller, which may not be financially beneficial in the long run.
Making an Informed Decision
Seller concessions can be instrumental in facilitating a home sale, but they’re far from being a windfall. Buyers should be well-informed about the necessary legal titles, fees, and documentation and should base their negotiations on real closing cost figures.
For personalized assistance, reach out to our seasoned professional, Laura Sinclair. With extensive knowledge in seller concessions, Laura offers guidance that is insightful and pressure-free, ensuring you make the most informed decisions. For any inquiries, Laura is readily available to provide the answers you need.