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Concessions other than lowering the price

11/30/2022

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Sellers offer concessions as an incentive to encourage buyers to purchase their home.  The concessions, paid for by the seller, benefit the buyer in ways that may be more appealing than a lower price.
In some situations, buyers have good income, credit, and even the down payment to purchase a home but not necessarily enough cash reserves to pay their closing costs.  Another possibility is that there could be a feature in the home that the buyer wants replaced but can't afford to do it themselves.  If the seller agrees to make that improvement, it could cause the buyer to act favorably.
Concessions could include paying the buyer's closing costs, buying down the interest rate, or any possible combination of physical improvements or upgrades to the property.
Sellers, occasionally, question why they should provide concessions to a buyer.  It should be obvious; it improves the marketability of the home.  With less than the normal number of homes on the market, it may appear that the seller has the advantage and may not need to offer concessions.
Today's market is different.  The decreasing number of sales and increased days on the market are resulting from a smaller than normal pool of buyers.  Interest rates have more than doubled in 2022 which has made houses less affordable.  Buyers who qualified last year but couldn't find a home to buy, may be able to find a home today but their debt-to-income ratio has increased significantly, causing them to qualify for smaller mortgages.
Most buyers, especially in lower priced range homes, can't afford to put more money down and human nature tends to discourage them from considering a smaller home.  For that reason, they are forced out of the market until rates come down.
To counteract this dilemma, sellers are willing to consider making concessions, something that builders have successfully used for years to sell their inventory without lowering their prices that will have a direct impact on comparable sales which affects appraisals.
Concessions can take on different forms.  A seller could offer to pay the buyer's closing costs or pay points for the buyer to get an FHA or VA loan.  Another option would be to pay for a 2/1 buydown that would lower the buyer's payments in the first two years of the mortgage.
Any number of improvements could be offered to the buyer like appliances, floor covering, countertops, roof, fence, etc.
Typically, these would be included in the listing agreement and promoted in the listing description through MLS and other public media.  When a sales contract is written, it needs to be included so that there is no misunderstanding between the parties and that the lender is completely aware of the concessions.
To avoid possible disputes, it is also recommended that a dollar limit is attached to the concession.  For instance, "Seller to pay up to 3% of the sales price in buyer's financing concessions" or "Seller to escrow up to $5,000 for appliances at buyer's discretion."
Concessions have not been used much in the past fifteen years, but changing times requires us to use different methods to be successful.  Sellers can offer concessions and buyers can ask sellers to make concessions in the purchase agreement.
If your agent is not familiar with concessions, it may be that they have never used them before.  They are commonplace and legal, within limits, if they are disclosed.  The benefit is that concessions can improve marketability of a home and put a transaction together between parties that would not be possible otherwise.
Considering a concession?  Let's talk...

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    John Stapleton

    Real estate artist
    Broker / Owner / Founder
    Focus Realty
    Texas Monthly 5-Star Service Award Winner 11 straight years! 2012-2022
    5-Time Best of Houzz 
    Referral-Based since 1997

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  • home
  • 2418 Madeline Loop
  • 6400 Lakeshore Drive
  • 7812 Dakota
  • Zuma
  • Full Move
  • Help Us Buy a Home
  • Steps in Buying a Home
  • Come Sell Our House
  • Reviews
  • New Clients Please Watch
  • Steps in Selling a Home
  • Austin Realty Blog
  • Buy before Selling
  • Sold on Legend Hills
  • Recently Bought & Sold
  • Texas Real Estate Commission Information About Brokerage Services
  • Real Estate Marketing Photos
  • Travel Blog
  • Cabinet Painting
  • Milburn Park
  • Lakeline Metro Rail
  • Hill Country
  • Selling Process Overview
  • Contract Class
  • Big Bend Adventure
  • Lake Cedar Park
  • Search
  • Make Ready Consultation
  • Safety During Showings
  • Vendor Recommendations
  • Working By Referral
  • Mortgage Pre-Approval Process
  • Live MLS Search
  • Mulitple Offers
  • Cancel Insurance
  • Make an Offer
  • Counter Offers and Negotiation
  • Contract on a Home!
  • Negotiate Concessions
  • 80
  • Another sale on Old Mill
  • Pending Without Option