While you hope that everything goes right when buying a home, sometimes there’s a few bumps in the road. It takes time and effort for preapproval, financing, and the home inspection. From the first escrow payment to the closing date, there could be unexpected issues. For example, a home inspection reveals more extensive repairs than originally estimated. This is where seller concessions come in.
A concession is either an extra “gift” or bonus to help reduce the closing cost associated with buying the home.
So it’s discovered that a part of the property is not up to code, the seller can agree to cover it.
There’s no physical cash involved, but there are a few different ways to structure this agreement so that both parties benefit. Like if the seller agrees to pay all closing fees if the final sales price on the property is raised above the original level.
As long as the concession ultimately offsets closing costs, there’s many scenarios that can play out, including the payment of mortgage related fees, state taxes, title fees, inspection fees, appraisal fees, the setup of the escrow account, and even insurance costs. And if both sides verbally agree on certain points but not others, be sure to get it in writing so you’re on the same page!
Note that a concession cannot cover the down payment, and there is a limit to how much can be given. This keeps the market fair and sustainable. The limit depends on the type of loan used. A traditional loan usually allows 2-9% of a property’s sales price in concessions. Financing from the FHA, USDA, and the VA allow up to 6%.
A concession can really sweeten the deal. It’s an extra incentive towards selling the house quickly; and for buyers, this is great news because it’s another way to make homeownership possible.