With most of the Phoenix metro area now in a buyer’s market, buyers not only have more homes to choose from — they also have more negotiation power than they’ve had in recent years. That shift means they’re becoming a lot pickier, and sellers are having to adjust. While home prices remain relatively stable, we’re seeing more price reductions as homes linger on the market. Sellers are more open to negotiations and more buyers are asking for seller concessions rather than a price reduction, which can be far more beneficial to a buyer.
WHAT ARE SELLER CONCESSIONS?
Seller concessions are when the seller agrees to pay an agreed upon amount that will be credited to the buyer and used to pay costs and fees associated with purchasing a home. They are negotiated as part of the purchase contract, usually at the time the offer is made and can be either a flat dollar amount or a percentage of the purchase price that typically is up to three percent.
DO SELLER CONCESSIONS BENEFIT THE BUYER OR THE SELLER?
The simple answer: both.
FOR BUYERS
Concessions can make a big difference in affordability. Covering closing costs means buyers don’t need to have as much cash up front. That’s especially helpful for first-time buyers or anyone with limited cash reserves. In some cases, concessions can allow a buyer to qualify for a slightly higher-priced home without increasing their monthly payment. It also leaves a buyer with more cash available to use for home repairs or improvements.
FOR SELLERS
Offering concessions can make your home more appealing, especially in a competitive market. It may attract more buyers, reduces time on the market, and can even lead to a smoother sale. Concessions are a good negotiating tool when repairs are requested by the buyer. Instead of doing the repairs, a seller may offer sellers concessions to cover the repair costs.
WHAT CAN SELLER CONCESSIONS COVER?
Seller concessions can be used to pay for a variety of buyerrelated costs, such as:
- Title fees
- Appraisal fees
- Lender fees
- Prepaid real estate taxes
- HOA fees
- Home Warranty
Your lender will determine what concessions are allowed based on the type of loan you are using and the total amount permitted.
USE CONCESSIONS TO BUY DOWN THE INTEREST RATE
With higher interest rates and no guarantees the rate will drop anytime soon, another powerful way to use seller concessions is for a rate buydown. A rate buydown allows buyers to use the seller’s concession money to reduce their mortgage interest rate by paying discount points upfront at closing. By investing a little more upfront, you can lock in a lower interest rate and enjoy smaller monthly payments for the life of your loan. This can make your home more affordable month-to-month and save you thousands of dollars in interest over time.
HERE’S HOW IT WORKS
DISCOUNT POINTS
Each point typically costs 1% of the loan amount and lowers the interest rate by about 0.25%, depending on the loan type.
UPFRONT FEE
The fee is paid at closing — either by the buyer or through seller concessions.
LOWER MONTHLY PAYMENT
That reduced interest rate results in lower monthly mortgage payments.
LONG-TERM SAVINGS
Over the life of the loan, this can add up to significant savings in interest.
BREAK-EVEN POINT
It’s important to calculate how long you need to stay in the home for the savings to outweigh the upfront cost. If you plan to stay long-term, a buydown can be a smart move. If you’re a buyer, discount points are definitely something to consider. It’s especially worthwhile if you plan to stay in your home for several years or more. Plus, in some cases, you may even be able to negotiate for the seller to cover the cost of the points, giving you the long-term benefits without the extra out-of-pocket expense at closing.
FINAL THOUGHTS
In a market where buyers are more selective and homes are sitting longer, seller concessions offer a win-win solution. Buyers can reduce their upfront costs or lower their interest rate, and sellers can attract more interest and close deals faster. If you’re buying or selling in today’s market, it’s worth looking at how seller concessions can work in your favor.
If you’re thinking about buying or selling and want to learn more about seller concessions, discount points, or have any questions at all, I’m always here to help — don’t hesitate to reach out!