It’s an incredibly competitive housing market out there right now. Home values are going up throughout the country. As a result, prospective buyers are having to make higher offers in many cases to get a home.
While it’s a seller’s market right now, that doesn’t mean you have no negotiating power if you’re the one buying a home. Negotiating seller concessions can help offset the cost.
We talked to REALTOR® and Certified Negotiation Expert (CNE) Ina Sajovich about the best way to ask for and get sellers to accept your request for concessions to help with closing costs.
What Are Seller Concessions?
Seller concessions are parts of the closing costs on your home that you negotiate to have the seller pay. This can help cut down on the amount you need to bring to the table at the end of the transaction.
Sellers can agree to help pay for things like property taxes, attorney fees, appraisal inspections and mortgage discount points to lower your interest rate.
The exact amount sellers are allowed to pay is dependent on the investor in the loan (Fannie Mae, Freddie Mac, FHA, etc.) and whether the home is a primary residence, a second home or an investment property, among other factors. The absolute limit for seller concessions is defined as a certain percentage of the loan amount. If you’re an eligible veteran, an active-duty service member or a surviving spouse, certain types of concessions are unlimited on VA loans.
Negotiating Seller Concessions
However, just because a seller can pay for closing costs doesn’t mean they will. It’s all in the negotiation.
Do Your Research
Sajovich says that having an experienced REALTOR® or agent on your side can really be helpful because they know the market and what’s common. For example, take the scenario we talked about earlier where a buyer has to pay a higher price to get their offer accepted.
“In our current market, the best way to ask for and receive a seller concession is to have your agent scour the recent sales for similar comps (comparable properties) that have closed with seller concessions,” she said. “This can help offset the higher purchase price many buyers have to offer in order to get under contract.”
By having the seller pay for certain items in your closing costs, it enables you to make a higher offer. Therefore, you’ll effectively be paying your closing costs throughout the life of the loan rather than upfront at the closing table because they’re now built into your loan amount. This can save you from having to spend a ton of money just to get in the door.
Your agent may also have insight into just how motivated the sellers are to move. If they need to get rid of the home, they may be more willing to work with you on concessions than a seller who can afford to wait for the best possible offer.
However, you might also save money by taking a different tact.
Stand Out By Covering Closing Costs
While seller concessions can be nice, there’s a flip side to the coin. Sellers are often motivated to work with the prospective buyer who has the cleanest offer with the fewest strings attached.
Let’s say you’re in a situation where there are multiple bids on the home. It may actually work to your advantage to have a lower bid but the ability to pay for your full closing cost rather than have a higher bid with concessions included.
“We are pretty lucky in our area because, even though we are in a low inventory seller’s market,” Sajovich said, “it is common for sellers to pay for the title insurance policy, and to split closing costs. In multiple offer situations, many buyers’ agents don’t realize that the buyer could cover these costs, which puts money in the sellers’ pocket without increasing purchase price and running the risk of having the appraisal come in low. This is where I often see that an offer price that is $2,000 or $3,000 less than any other offer can still get the house.”
Because a lender can’t lend you any more than the home is worth, a seller may actually benefit if you don’t offer more because you’re lowering the risk of the deal falling through later on. If you pay the closing costs for yourself, it makes it that much sweeter.
Are you looking to buy a home soon? Hopefully these tips have been helpful. If you’re renting, you can get started online with Rocket Mortgage® by Quicken Loans. One of our Home Loan Experts would also be happy to work with you if you