Do you know the difference between a seller credit and a seller concession? Or have you always just lumped them together in the same statement? 

Actually they are very similar, a seller credit is simply one type of a seller concession which is a broader term. And the reason I am bringing this up today is I've been seeing a bit more competition in the Northeast WI real estate market. Not enough to say that we are out of a seller's market, no we for sure are in a seller's market, but enough to say that I've been seeing more & more inspections. And this leads to further negotiation, as does the industry change that occurred last August involving commissions now being more open for negotiation as part of offers than how we used to operate.

So based on these two things I thought I'd take a few minutes to share with you what a seller concession is and how it is a benefit.  Essentially a seller concession is a negotiation tool used by buyers to make a home more affordable for them by having the seller give something up as part of the transaction. So yeah these are not common in a seller's market where top dollar, and cleanest offer, usually wins, but when there is less competition and a seller needs to sell, well these come into play.

Seller concessions can be written in the form of a % of the purchase price, or in a flat dollar amount that a buyer is requesting, and generally this is a benefit to the buyer, not the seller. But for the seller it's a benefit because it can help get their home under contract and then they will have it sold sooner, so it's a benefit if they are looking for a streamlined sale but not if they are trying to make more money.

But can I use seller concessions for anything to an unlimited amount? Nope!!

Seller concessions can generally be used for various lender fees like the appraisal or loan origination fees, real estate taxes, some title fees, and fees related to a home inspection. The maximum amount is going to depend on the state you live in, but is usually around 3-6% of the purchase price; but check with your lender before taking my word for the exact amount. 

The way that I generally describe seller concessions to my clients and it's helped them understand is that when writing an offer that is to their benefit we can go one of two ways. In this example assume I am helping someone write an offer on a $300,000 home that's been on the market for 6 weeks, so there is no competition:
 - We can write an offer for $5,000 less than asking, aka $295,000.
 - Or we can write an offer for $300,000 and ask for $5,000 in seller concessions.

The first example means the buyer's loan is based on $295,000, amortized over a period of time like 30 years. So interest and principal are based on a starting point of $295,000. In the second example, those two things are based on $300,000, which isn't a huge difference, but the buyer gets to bring $5,000 less to the closing table so they are saving cash in their pocket now for unknown expenses in the near future. 

From here I tell them to talk with their lender to understand the difference and which is better for them; cash in hand today, or a slightly lower mortgage payment. Both examples net the seller the same amount, so it's for the buyer to determine what makes the most sense.

The other way that I typically use seller concessions is for home inspections. If my buyer has a home inspection and wants $3,000 worth of items fixed, I will usually recommend a seller concession. If the buyer is comfortable fixing later, I recommend getting the cash from the seller in this form, and then being in complete control of the fixes after you close. There are stipulations with this obviously with lender requirements potentially, and if something is a safety concern, then I may differ, but that's my general opinion.

Overall seller concessions are a great tool for a buyer to use towards saving some cash in their pocket at the closing table for future costs, but just make sure you know the limit for how much and this can be figured out by chatting with a lender. Though I'm happy to have a conversation with you if you'd like to discuss in more detail, I just may need to bring a lender with :)

For more information you can also check out the article I used to help me draft this, LINK.