The Role of Buyers Concessions | Seller Tips for Success

Dated: March 27 2024

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What are buyer concessions?

Buyer concessions are agreements in real estate where the seller covers some of the buyer's closing costs or other expenses associated with purchasing the property.

A common practice in Pennsylvania and especially Philadelphia were the transfer taxes are much higher than in other areas. This allows the buyers to finance part of their closing costs vs bringing cash to the table.

Many sellers have asked me in the past "why should I pay for their closing costs" when negotiating a "sellers assist." With a "seller assist" you are helping them wrap part of the closing costs into their loan.

It lowers the net price to the seller and we look closely at what that means in terms of net proceeds and expenses during negotiations.

Common typs of concessions include:

  • Seller credits to the buyer to satisfy buyers contractual agreement with buyers broker.
  • An amount credited to the buyer at closing to cover part or all of the buyers closing costs (points, rate buy down, etc.)
  • An amount credited to the buyer to cover replacement of flooring, appliances, roof, etc. Often used during negotiations on the home inspection contingency.
  • An amount credited at closing to cover a service such as a home warranty.

How does offering a buyer concession benefit the seller?

  • Enhances attractiveness to a broader range of buyers. For instance first time homebuyers often count on seller concessions.
  • Potentially quicker sale by appealing to buyers' financial considerations.
  • Stand out in competition by addressing buyers' needs upfront.

Loan limits for buyer concessions (sellers assist)

An important factor in negotiations is understanding the type of loan the buyer is using and what the sellers assist limits are.

Driven by the NAR settlement changes proposed for July 2024, Freddie Mac/Fannie Mae/HUD are having institutional discussions regarding changing loan guidelines.

As it stands today, loan limits for credits to borrowers;

  • Convential loans using less than 10% down are limited to a 3%
  • Convention loans using greater than 10% down up to 6% 
  • FHA; up to 6% not to exceed closing costs

When reviewing an offer to present to my seller clients, one of the first things I do is call the lender to find out what their seller assist limits are as well as to get a sense of what financial needs the buyers may have.

This also gives me a chance to learn more about the lender before presenting the offer to my sellers.

Fannie Mae / Freddie Mac Updated Guidelines

“Buyer agent fees have historically been fees customarily paid by the property seller or property seller’s real estate agent, and, as such, they are currently excluded from these financing concession limits,” according to the statement from Freddie Mac." Read more

"What if I don't want to offer buyer credits?"

With all stages of negotiations, its important to review pros and cons. Its always the sellers choice what to offer and what to accept.

As your real estate advisor I'll detail the potential impact on your offer, risks and rewards and how that might impact your bottom line and net results.

Make an informed decision before saying yes or no to buyer credits. Concessions can be a powerful tool in the right circumstances.

Currently, 50% of recent sales had a buyer concession. Lack of buyer concessions may lead to;

  • Lower sales price and more days on market (lower net results)
    • Buyer offers may be lower to offset closing costs such as; buyer broker fees, replacement / repair costs, etc.
    • Fewer buyers may be willing to make acceptable offers resulting in more days on the market.
    • Buyers may see seller as "non-negotiable" and not even book a showing.
  • Limited pool of buyers
    • FHA and VA buyers may be impacted by concessions and credits from the sellers to offset paying for buyer representation.
    • Relocation buyers may be impacted by how buyers representation will be provided and compensated.

Why you need an experienced, skilled real estate agent

Evaluating offers includes careful review of terms, not just the price. Depending on the lender, type of loan and sesitivies of the buyer we need to analyze what options exist for sellers assist or buyers concession before accepting or countering an offer.

For instance, if the initial offer terms max out on the allowed concessions and they have a home inspection contingency, our options to resolve the home inspeciton negotiations just became limited.

Savvy negotiations to protect my sellers' bottom line and keep the buyers on track is part of my service model from years of experience and training.

Negotiating the Home Inspection Contingency

Without a concession your choices as a seller become to either fix the problem, reduce the price or say no. Often a buyers concession is the most attractive tool for sellers vs out of pocket repair expenses.

Lowering the price to resolve repair requests is not a good "win" for buyers as it doesn't resolve the repairs or provide them with funds necessary to address their concern. Unless its a cash offer, all it does is lower their monthly mortgage payment a small amount.

All of these factors go into the details of how to present your home, what concessions you may want to offer initially as well as what tools you want to have available to navigate a successful closing.

More Tips for Sellers

Susanna Kunkel, Realtor
eXp Realty, LLC

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Susanna Kunkel

Susanna provides executive level service to all her clients based on her years in corporate CEO offices. Creative marketing, global networking and local expertise. Her unique mix of business savvy and....

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