Issue Date: June 28, 2006

Seller Concessions become the norm

By Jody Zink
Licensed Realtor in Ohio & Michigan

Seller's concessions are incentives that can help you buy or sell a home. They have become increasingly common and can benefit both sides of the transaction.

Initially, the reaction to a buyer's request for a contribution isn't always favorable to a seller. Some even think it's improper and clearly do not always fully understand the benefits.

With the lender's approval, the seller can contribute funds to the buyer to help cover closing costs, acquisition fees and pre-paid items. The amount should be negotiated in the offer to purchase. Standard underwriting guidelines allow for up to 3 percent seller contribution toward closing costs for a conforming loan and up to 6 percent for a non-conforming loan.

Here's an example of how it works: You're a buying a house at $100,000. Let's say closing costs are going to run about $3,000. So you offer $103,000 and put in the purchase contract that the Seller is to pay $3,000 of closing costs. In most cases with the inflated price, the seller nets nearly as much money as if he or she hadn't paid those costs . The conveyance fee and guaranteed certificate of title would increase by about $18 for the seller in this case (about $3 per thousand in Lucas County.) Keep in mind that the home must appraise to the higher value as well.

The benefit to the buyer is less money needed to close. They are financing those closing costs by rolling them into their mortgage. That means less cash out of pocket at the closing table. The seller secures a buyer, encourages a quicker sale and can sometimes get more money for the house since people are often willing to pay more if they can finance more.

Buyers requesting concessions should not be viewed as less qualified or marginally able to afford the home. Many buyers are cash-poor but credit-worthy. Young buyers getting started likely haven't had time to save. For sellers it's a matter of being flexible and allows prospective purchasers more options. Such a maneuver is common in a buyer's market where sellers must compete and consequently become more creative in trying to close the deal.

If your Realtor suggests a proposition that includes “seller concession” consider it. Your agent is being creative and will guide you through the process. It can result in a win-win situation for all parties when applied properly.

Jody Zink is a licensed REALTOR in Ohio and Michigan with the Loss Realty Group. Her column appears every other week in the Toledo Free Press. She can be reached at jody@jodyzinkrealtor.com or 419-725-1881.