What are Seller Concessions?
With the recent real estate market shifts in favor of buyers, you may be wondering “What are seller concessions?” To answer that question, you first need to understand closing costs.
Closing costs boil down to up-front fees that are typically required at the end of a property transaction and will typically come out of a borrower’s pocket. These fees can be high enough to spook even the most experienced home buyers. A seller concession can be helpful for buyers as closing costs can number in the thousands, and they can help the seller incentivize a buyer and help get the property sold faster. Closing costs certainly aren’t anyone’s favorite part of real estate but understanding how options like seller concessions work can help you feel confident throughout the process.
Seller concessions, defined most simply, are when a seller agrees to pay some or all of the buyer’s closing costs.
How do Seller Concessions Work?
Though the seller isn’t really paying anything according to Daria Uhlig, a contributor to Credible covering mortgage and real estate, “[Sellers] simply allow the closing costs to be rolled into the mortgage and increase the sales price to make up the difference.” This may seem minute but it makes the closing process a lot more worthwhile for everyone. Additionally, it is significant to know that the total amount the seller contributes can’t exceed total closing costs.
Fees that may be covered by seller concessions include:
- Appraisal fees
- Inspection fees
- Property taxes
- Escrow fees
- Origination fee
- Mortgage points
- Title insurance
- Transfer tax
- Recording fees
- Survey fees
How do you negotiate seller concessions?
Here are some effective strategies to use during the planning process and tips for negotiations:
1. Determining the state of the market; when the market is constantly and rapidly adjusting it is important to understand what and why a type of market may have an effect on seller concessions. Sellers are much more likely to agree to concessions within a buyer’s market. Whereas in a seller’s market, a buyer will have to make a stronger offer.
2. Deciding which concessions to ask for; unfortunately, concessions are not an all-or-nothing thing. But this does mean that there is some strategy involved, you’re more likely to get concessions if you ask for the only concessions you need as opposed to all the concessions you want.
3. Give something in return; handouts in the real estate market are rare which means you might need to offer something in return, such as a full-price offer or rescheduling repairs.
Are seller concessions tax deductible?
An important distinction to make is that only one side of the arrangement is tax deductible when it comes to closing costs. Hanna Kielar notes that seller concessions are considered “sales expenses” for the seller of the home and are in fact tax deductible. Whereas the home buyer, on the other hand, closing costs are not eligible for tax deductions, with a few exceptions.
In the end, it is easy to say that no one is a fan of closing costs. But this post outlines that there are a few good options to reduce or even completely avoid closing costs as a buyer and have some more competition as a seller. This may seem like a large order to fill, but it is very common and a fantastic way to compromise and ensure a smooth closing for everyone.