I'm selling a rental house FSBO. An agent calls and says she has a buyer willing to pay the asking price. She and the buyer each want 3%. The agent wants a 3% commission (fine with me), and the buyer wants a 3% concession to "cover closing costs." Do you see any red flags with the 3% concession to the buyer?
Sellers assist. Common and negotiable
Like @Max Tanenbaum said, closing costs can be paid by either buyer or seller and they're negotiable. 3% seems a little high. I usually do:
(Purchase Price x .012) + $2500. That's most accurate for my area.
Seller concessions are essentially putting the closing costs on the mortgage. The seller has to approve it. Asking for concessions is essentially a weaker offer than not asking for them.
In a seller's market, sellers usually say no to them.
The issue is that the property has to appraise at the higher amount.
This is how it normally works: Price $300,000 Buyer offers $319,149 with seller concessions, 3% goes to closing costs, 3% goes to the buyer's agent. Loan will be $319,149 less whatever down payment the buyer is providing. The property will have to appraise now at $319,149 because that will be the sales price the lender will use for their LTV. Different loan products will have different limits on seller concessions.
If the property doesn't appraise at the higher amount, the buyer will have to bring the difference or the seller will have to reduce the price.
It's a weak offer because the buyer doesn't have the full cash for the down payment and the closing costs. That puts some risk in the offer as far as getting to the closing table.
Very helpful. Thank you, all!
Seller concessions are commonly used in RE transactions. In matter a fact, I tell my first time home buyers to ask for concessions. Essentially they’re over paying you to get that extra seller credits to cover their closing costs.
Think of it like getting money back from the grocery store when they’re asking you if “you want money back”. Same sort of principle.
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