What Are Seller Concessions? Here’s Why They’re a ‘Win-Win for Both Sides’
In a real estate transaction, both the buyer and the seller are looking to maximize their bottom line. This means navigating the highs and lows of the real estate market and strategizing ways to improve the terms of the deal on the table.
One type of incentive that buyers—and sellers—can use is called seller concessions.
Seller concessions occur when a seller agrees to cover the cost of things the buyer usually pays for, such as closing costs, title searches, property appraisals, and other fees. Sellers can also offer to pay for repairs should the home inspection reveal that they’re necessary.
Seller concessions “all have the same goal: to sweeten the deal for a prospective buyer who is on the fence about committing to a purchase,” says Martin Orefice, CEO of Rent to Own Labs in Orlando, FL.
Read on for a primer on seller concessions, how they work, and how both buyers and sellers can use them to their advantage under current market conditions.
How do seller concessions work?
Seller concessions can be introduced at any point in the homebuying process.
“Seller concessions typically surface during negotiations, but they can also be advertised directly on the listing before the property even goes under contract,” says Doug Greene of Signature Properties Philly.
In many cases, seller concessions don’t even involve an actual exchange of money. Instead, the amount that the seller will contribute to closing costs or other transaction expenses will be adjusted before closing day.
“These seller concessions are usually submitted in writing either upfront in the purchase and sale agreement, or as a negotiated addendum to the real estate contract midtransaction, but prior to closing,” says Baron Christopher Hanson, principal of RedBaronUSA, based in South Carolina and South Florida.
Meghan Maloof Berdellans, a broker associate at Interealty Exchange in Miami, shares the following example:
“During the inspection period, if there are $10,000 worth of repairs needed from the inspection report, the buyer can request concessions for those repairs. Let’s say the seller agrees to $5,000 in concessions of that $10,000 needed in repairs. An addendum would then be executed saying, ‘Seller agrees to credit $5,000 at closing to buyer.’ Upon closing, the balance statement will reflect that credit of $5,000 to the buyer.”
How can buyers and sellers use concessions to their advantage?
High mortgage interest rates have deterred many would-be homebuyers, and it’s safe to say that we’re no longer in a firm seller’s market.
“In a real estate market like this one, buyers have a real advantage,” Orefice says. “Home prices are high even as the market slows down dramatically, meaning that buyers who show interest, but reluctance, can be in a great position to demand concessions from the seller.”
And while seller concessions do tend to benefit buyers financially, they’re a boon for sellers, too.
“Sellers can use concessions to convince buyers to go ahead with a deal despite a high-price, high-interest environment,” says Orefice.
Mason Whitehead, the branch manager for Churchill Mortgage in Dallas, says he’s seeing seller concessions come into play.
“Right now, for a seller to move the home faster, we’re seeing them and their agent offer concessions upfront,” Whitehead says. “We are also seeing sellers doing more repairs and fixing things that they would not have had to fix during the buying frenzy over the last two years.”
In the end, leveraging concessions gets everyone where they need to be.
“It’s a win-win for both sides,” says Lucas Machado, owner of House Heroes in Miami. “The buyer pays less than they would have otherwise, and the seller increases demand for their home and speeds up the sale process.”