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What Exactly Are Seller Concessions?

When you’re in the market to buy a home, the costs of everything can overwhelm you. Everyone knows that need to save up five to 10 percent for a down payment on a home, but many don’t realize that they need a substantial amount to cover closing costs. And with car loans, student loans and a family to support, where does one find the extra cash for closing fees? The simple answer is to just ask the seller to pay these fees for you. It’s that easy. Why would a seller be willing to do this for you? Often, sellers believe that they might not be able to find another qualified buyer. Seller’s concessions are just a generous gift.  So, what exactly are seller concessions?

What Exactly Are Seller Concessions?

Seller’s concessions are an amount of monies paid toward the buyer’s closing fees. It can also be monies for a garage that needs repair or for a replacement of worn carpets. Seller’s concessions are a legal way to roll the closing costs into your loan. At times, the seller will counter an offer with a seller concession to reach a deal. It sometimes may drive the contract amount over the sales price, but as long as the house will appraise, it’s okay.

The amount a seller can contribute varies on the loan product. Typically, a conventional loan allows up to nine percent in seller concessions. USDA loans permit for six percent in seller concessions, and VA loans permit for four percent in seller concessions. It’s good news for buyers who happen to be cash poor. If seller concessions were not permitted, it would just have an adverse effect on the whole real estate market.

What Fees Can Seller’s Pay?

Sellers are allowed to pay any of the home’s settlement costs. The only thing prohibited is contributing monies for a down payment. But, if you want a seller to pay for you, you’ve got to get it in writing. A Good Faith Estimate comes in handy here. Once you’ve got a pre-approval, you know what program you’ll be using and an approximate cost of closing fees. Many realtors ask the seller to pay up to six percent in closing costs and other fees. At the same time, it’s always smart to get the actual price of closing costs paid by the seller. This way, you don’t lose out on any monies.

For example, the average cost of a home in the Midwestern U.S. is around $200,000. If you only ask for four percent, you’ll get about $7,800 from the seller. But, if you ask for six percent, you’ll get around $11,000. Why give the seller that extra cash when you can keep it in your own pocket? The difference is a hefty chunk.

Why Seller’s Concessions Work for Buyers

You can’t ask the seller to actually pay for your closing costs. That’s known as inducement, and it’s illegal in most states. Seller’s concessions are a legal gift. And with a Good Faith Estimate, you can come close to the actual closing costs. If you’re seeking to purchase a home, make sure you use a good realtor who is experienced in negotiating seller’s concessions. An experienced realtor knows how to save their buyers money that can be better used elsewhere.

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About The Author
Gus Testa

Gus Testa, Top Realtor with On Point Carolinas Realty, LLC, has been in real estate sales and management since 1977. In 1993, after leaving family, friends and his owned real estate franchise firm behind, he and his wife Beth made the decision to “head South” with their 2 sons. Since that time there has been no looking back. Gus immediately began working for a local and well respected new home builder, building beautiful neighborhoods in and around the Charlotte area. In his first year of new home sales he was awarded “Rookie of the Year” for the highest volume of sales for the company. Then in 2002, it was time to move on and Gus joined major developer Crescent Resources as one of their Residential Sales Associates. From 2002 through 2012, Gus along with his business partner Kim McBee, continually sold several million dollars in volume and became very familiar with the movers and shakers in the Real Estate industry in and around the Lake Norman area, the Charlotte area and the Northern most portions of South Carolina. In 2013 Gus and Kim partnered with a local developer to open On Point Carolinas Realty, LLC; a full service real estate company, listing and selling new and re-sale homes and home sites. Gus holds licenses in both North and South Carolina.

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