The Benefits and Disadvantages of Seller Concessions

by Carolyn Andrews 10/24/2021

Image by Sephelonor from Pixabay

Buying a home is a complicated transaction with many expenses. Part of the transaction involves closing costs, which vary in amount depending on the situation. One way to reduce the closing costs for the buyer is to ask for a seller concession so that the seller pays a portion of the closing costs instead. Even though this results in the seller spending more money on the transaction, there are some key reasons seller concessions can benefit both parties.

Types of Seller Concessions

A lot of individual expenses add up to make the final closing cost on a home purchase. Some concession requests or offers will pay for one or more specific costs, while others will be a percentage of the overall amount. Some of the individual expenses commonly involved in seller concessions are repairs, property tax, loan fees and homeowners’ insurance fees. The buyer can include a concession request in their offer or the seller can introduce them to help negotiate. It’s important to note that there are limits on seller concessions determined by the type of loan the buyer has.

Concession Benefits

Concessions have an obvious benefit for the buyer. A concession can mean less money required upfront when making a purchase. Closing costs typically combine to equal about 2 to 5% of the total purchase price, so anything that can reduce the amount is a bonus for the buyer.

Concessions can actually benefit the seller in certain situations as well. The biggest advantage is that they can speed up a transaction and entice buyers to purchase sooner. If a seller is having trouble closing the deal on their old home too long after moving into their new one, the result can be extremely costly. A concession can speed up the process to help avoid the risk of double mortgage payments. Concessions can also help a seller negotiate with a buyer who won’t budge on a low offer or to gain an edge in a competitive seller’s market. Discuss your options with a real estate agent or other professional to determine the best strategy.

Concession Disadvantages

As a buyer, requesting seller concessions in a competitive buyer’s market means you risk your offer being rejected. If there are multiple offers on a home, the seller is more likely to agree with a buyer who will put up more cash up front rather than ask for a concession. Concessions can cause issues for the buyer in the long-term, as well. Seller concessions get added in to your mortgage total which can increase your monthly payments. This also means you will pay more interest over the term of the loan. It’s important to weigh the long-term effects before making the request.

Concessions can help you both as a buyer and seller, but those benefits will always depend on your individual situation. Always consult a financial advisor to help you decide if requesting or offering seller concessions as part of your home transaction is right for you.

About the Author

Carolyn Andrews

Carolyn Andrews has over 30 years licensed Brokerage experience in both California and Colorado. Born in England, Carolyn moved to California in 1980, then relocated to Denver, Colorado in 1991. Carolyn has also received recognition for Top Sales at RE/MAX Alliance Aurora in 2007-2008 and is a member of the RE/MAX Hall of Fame & Chairman’s Club, as well as a recipient of the ReMax Lifetime Achievement Award. Carolyn has sold over 2000 homes personally in her career. Carolyn has been actively involved in many aspects of the Real Estate business including investment property, luxury homes, mountain resort property, skiin/ski out, REO/default management, loss mitigation, valuations, and disposition. She has been a speaker and panelist at several conferences and has been consulted on many occasions by various organizations in the REO/financial industries for her expertise and served on many boards. She has attended numerous ongoing classes to stay abreast of changes in the ever-evolving Real Estate industry. She is the prior State Director for Colorado for VAREP(Veterans Association of Real Estate Professionals). She is a member of 3 boards of Realtors including Metro Denver, Colorado Springs and Summit County mountain areas. She heads up The Andrews Group and is or has been an active member of NAR, CAR,REOMAC, CIPS, CRS, AREAA, NAPW, NAHREP, and is an original member of the ELITEReal Estate network. She was ranked #1 for most homes sold in Denver 2007 by Denver Board of Realtors, #2 for 2008, and #2 for 2009, #5 in 2010 and #4 in 2011 and has been consistently in the top 10 ever since. Carolyn Andrews has been a top rated Endorsed Local Provider for the Dave Ramsey Organization and also a Top Producing agent for 2018 for the Homelight Company.