What is a seller concession?
A seller concession is an agreement between buyer and seller for the seller to pay some or all of the buyers closing costs, up to the percentage allowed by the lender. If the buyer is getting a VA loan, there are certain closing costs that the Seller must pay, and the addendum we all sign to the contract will spell those out.
Now – there are two ways to look at a Seller Concession. One is as we described above, it’s what the Seller contributes to the Buyer’s “Aquisition Cost.” The other (not so good) reference is what an Underwriter might say, if you don’t write the Contract Correctly.
Who benefits from a concession?
Both Buyer & Seller can benefit! A buyer may ask for a concession in order to afford both making a down payment and paying the closing costs, or in order to reserve some money for savings or repairs to the home. Many of the Banks who are selling their foreclosed properties will not pay for ANY of the repairs – and as a San Antonio Seller, we may be able to use that to your benefit when marketing your home.
A seller may wish to offer a concession in order to make their listing stand out. Often, reducing the price does not have the effect as a seller offering to pay some closing costs will. Seller concessions are more effective on lower price-point homes, which may attract 1st time home buyers with little savings.
A Seller might also wish to offer a bonus to the Selling Agent.
How much can a seller pay?
Seller concessions are limited by the type of loan program the buyer is applying for… and sometimes the lender they are applying for a mortgage from. As a rule of thumb here in San Antonio, the following guidelines generally apply:
•FHA- up to 6% of the sales price
•VA- up to 6% of the sales price
•Conventional- (Fannie / Freddie Guidelines)
LTV >90% Seller concession = up to 3% of selling price
LTV >75.01 <89.99 Seller concession = up to 6% of selling price
LTV <75.00 Seller concession = up to 9% of selling price
How is a seller concession written in a purchase contract?
When writing a contract that includes a seller concession, most lenders want to see the following language clearly written on the contract: “Seller agrees to pay $X,XXX towards buyers closing costs, discount points / or pre-paids.”
We are very familiar with how this works, and would be glad to discuss how a Seller Concession might help your home sell faster, and calculate out your net proceeds after the sale.
If you are considering a sale of your home, you might also be interested in our Seller FAQ’s.