Profile picture for carol1808

how does a seller's concession work?

MY husband and I are trying to buy a home that is being sold by owner no R.E is involved. however we dont have enough money to cover  closing costs. We want to know how does a seller concession work? how exactly this money would be paid and how would it affect the seller? I'm confused please help.
  • April 21 2009 - Amityville
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Answers (7)

If you are offering 200K for the house and need 6% to for closing costs you write the offer for 212K (selling price).  Another clause in the contract will state that $12,000 is being applied to your closing costs.

You borrow the $12,000 in addition to the price of the house.  The house has to appraise at $212.  The seller agrees that although they know you are borrowing $212 they will permit you to use $12 for your closing costs.

The seller only pays transfer taxes on 200K.  If your tax structure in NY requires that each buyer and seller pay transfer tax on the purchase you agree to pay both sides on the $12,000.

That's how it works in PA.  In NY attorneys write all the sales contracts the Realtors only negotiate out the terms.
  • March 23 2013
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Profile picture for user0755952
Does the Seller pay realty commission on the actual sales price (inflated price less concessions) or does the Seller pay based on the inflated price?
  • March 23 2013
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Profile picture for Weld Realty
You are rolling the concession into your mortgage, as a Buyer. This effectively makes the amount of the selling price inflated a certain percentage. Your bank is the one, really, that must tell you it is OK for you to do this as a Buyer. The Seller is agreeing to a purchase price, and then adding your concession on top of that price, so the Seller isn't necessarily effected financially, they only need to be willing to take the risk of having the sales price inflated, for appraisal purposes.
  • September 29 2012
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Simply put... the $10,000 would come from the Seller's net proceeds at the time of closing.

There is no 'cash' involved.  Rather, the closing attorney subtracts $10k from what would be given to the seller, gives it to you (on paper) and then that 'paper' shows the $10k going to whatever costs you have incurred up to $10k.

As Chris said... it is an accounting game.  The $10k flows through the process from the Seller to the actual recipiants.
  • May 01 2011
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When you hear of the seller paying all or part of the buyers closing costs it is all semantics or word games. The reality is the seller isn't paying a penny of the buyers closing costs. The phrase really means on the HUD-1 Settlement Statement, at closing, the buyer's closing costs appear on the sellers side. "Seller Concessions" are an accounting game.

So here is how it works. If you don't have the money to pay your own closing costs you raise the price of the house by the amount of your closing costs. Now the seller is receiving a higher price. And then the accounting game happens. The HUD-1 Settlement Statement reflects the seller as paying your closing costs. In reality you are getting a larger loan to cover the higher contract price, so you're therefor financing your closing costs. Make sense?

And as a previous poster said be careful with this approach. If a house is worth $200,000 and you agree to buy it for $195,000 you won't have a problem. As long as you are paying your own closing costs the appraisal only needs to come in at the contract price of $195,000. But the moment you cannot or do not want to pay closing costs the contract price is now raised by oh let's say $10,000. So now the home has to appraise for $205,000 and not $195,000.

Many deals fall apart these days because buyers are asking for the seller to pay their closing costs. And then the property doesn't appraise for the inflated value.
  • April 30 2011
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Profile picture for DonaldStallman
that still does not explain where the $10,000 concession come from?
  • April 30 2011
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You would add the amount needed to what the seller has agreed to net but be careful not to over inflate this amount because you may have an appraisal issue. Example: Seller wants to net $250K and you need $10K in closing cost so you would write a contract for $260k with the seller's concession to the buyer being $10K.

  • April 21 2009
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