It's been a seller's market for a little while now. It's likely that you've not worked with seller concessions in a long time, or at all if you're a new agent. Markets are shifting now as interest rates go up and a recession looms. Sellers are going to need to attract buyers, and concessions will help them do that. So, let's take a quick refresher on seller concessions.
What Are Seller Concessions?
Seller concessions are the portions of closing costs that the seller has agreed to pay in the home-buying process. Buyers can ask sellers to contribute to specific closing costs or pay a percentage of the total closing costs.
What Do Seller Concessions Cover?
Seller concessions can be applied in part or in full to the following closing costs,
Property tax
Title insurance
Loan origination fees
Inspection fees
Recording fees
Appraisal fee
Attorney's fees
Points (the discount points purchased upfront to lower interest rates
Who Benefits from Seller Concessions?
The obvious answer is the buyer benefits from seller concessions. The buyer sees a reduced cost for purchasing their home. Seller concessions can even help buyers who are credit-worthy to purchase a new home but having trouble raising enough to cover closing costs. However, seller concessions help the seller as well. They make a home more attractive to potential buyers and can help your home stand out in a seller-competitive market. As we tip closer to a recession, this is likely to become even more important, as potential buyers will be far more hesitant to make new home purchases during this time.
What Are Seller Concession Limits?
Limits on how much a seller can contribute to closing costs are based on the purchase price of the home, not the number of closing costs. Concession limits vary by the loan type and the amount the seller puts down on the loan, with one exception. Those limits and the exception are:
Conventional Loans
Max concession on a loan with a 10% or greater down payment is 3%
Max concession on a loan with 25% or less down max is 6%
Max concession on a loan with more than 25% down payment, max is 9%
Exception: If the property is not owner-occupied then the max concession is 2% of the purchase price regardless of the down payment
FHA Loans
Max concession is 6% regardless of the down payment amount
VA Loans
Max concession is 4% regardless of the down payment amount
USDA Loans (loans primarily for farm property)
Max concession is 6% of the purchase price regardless of the down payment
Are You or Your Client Looking for a Home Loan?
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