What is a seller concession in real estate?

What is a Seller Concession?

A seller concession is where the property seller agrees to pay a part of the buyer's closing costs, aiding buyers with less liquid assets while potentially making the property more attractive and negotiating a higher sale price. These concessions can cover various costs like title insurance and inspection fees, but are often limited by a percentage of the sale price and vary by loan type. While they don't reduce the sale price, they offset the buyer's closing costs, offering benefits and flexibility in real estate transactions, but require clear understanding and agreement between the buyer and seller.

Seller Concessions (not to be confused with rent concessions) can be beneficial for both parties in different ways:

1. For the Buyer: It reduces the amount of cash they need to bring to the closing table. This can be particularly helpful for buyers who may not have a lot of liquid assets but can afford the monthly mortgage payments.
2. For the Seller: Offering a concession can make their property more attractive to potential buyers, especially in a competitive market or if the property has been on the market for a while. It can also help in negotiating a higher sale price since the buyer knows they will have lower out-of-pocket expenses at closing.
3. Types of Concessions: Concessions can cover a variety of costs, including title insurance, inspection fees, property taxes, and attorney fees. The specific terms of what the concession covers are typically negotiated between the buyer and seller.
4. Limitations: There are usually limits to how much a seller can contribute in concessions, often determined as a percentage of the sale price. These limits can vary depending on the type of loan the buyer is using.
5. Impact on Sale Price: It's important to note that seller concessions do not reduce the sale price of the home; rather, they are used to offset the buyer's closing costs. The sale price agreed upon in the purchase agreement remains the same.

Seller concessions can be a useful tool in real estate transactions, offering flexibility and potential benefits to both buyers and sellers. However, it's important for both parties to understand the implications and agree on the terms within the context of their specific situation.