Concessions Help Make Your Home More Marketable

Concessions help you market your property

CONCESSIONS HELP MAKE YOUR HOME APPEALING

Concessions help sellers as an incentive to encourage buyers to purchase their home.  The concessions, paid for by the seller, benefit the buyer. Many times this is in ways that may be more appealing than purchasing the home for a lower price.

MANY & DIVERSE CONCESSIONS TO CONSIDER

In some situations, buyers have good income, credit, and even the down payment to purchase a home. But they may not necessarily enough cash reserves to pay their closing costs.  Or, there may be a feature in the home the buyer wants replaced but can’t afforat that time.  If the seller agrees to make that improvement, it could cause the buyer to act favorably.

Concessions could include paying the buyer’s closing costs, buying down the interest rate, or any possible combination of physical improvements or upgrades to the property.

WHY DO IT?

Sellers, occasionally, question why they should provide concessions to a buyer.  It should be obvious; it improves the marketability of the home.  When there are fewer homes on the market, it may appear that the seller has the advantage. In this case, they may not need to offer concessions.

Today’s market is different.  The decreasing number of sales and increased days on the market are due to a smaller than normal pool of buyers.  Interest rates have more than doubled in 2022 which has made houses less affordable.  Buyers who qualified last year but couldn’t find a home to buy, may be able to find a home today. But their debt-to-income ratio has increased significantly, causing them to qualify for smaller mortgages. Most buyers, especially in lower priced range homes, can’t afford to put more money down. Human nature tends to discourage them from considering a smaller home.  For that reason, they are forced out of the market until rates come down.

IMPROVING MARKETABILTY WITHOUT REDUCING THE PRICE

To counteract this dilemma, sellers are willing to consider making concessions. Builders have successfully used concessions for years to sell their inventory without lowering their prices. This way they avoid a direct impact on comparable sales which affects appraisals.

Concessions can take on different forms.  A seller could offer to pay the buyer’s closing costs or pay points for the buyer to get an FHA or VA loan.  Another option would be to pay for a 2/1 buydown that would lower the buyer’s payments in the first two years of the mortgage.

Any number of improvements could be offered to the buyer like appliances, floor covering, countertops, roof, fence, etc.

MAKE SURE YOU DOCUMENT AND LIMIT CONCESSIONS

Typically, these would be included in the listing agreement and promoted in the listing description through MLS and other public media.  When a sales contract is written, it needs to be included. This way there is no misunderstanding between the parties and that the lender is completely aware of the concessions.

To avoid possible disputes, it is also recommended that a dollar limit is attached to the concession.  For instance, “Seller to pay up to 3% of the sales price in buyer’s financing concessions.” Or, “Seller to escrow up to $5,000 for appliances at buyer’s discretion.”

Concessions have not been used much in the past fifteen years, but changing times requires us to use different methods to be successful.  Sellers can offer concessions and buyers can ask sellers to make concessions in the purchase agreement. You can learn more about concessions from Rocket Mortgage by CLICKING HERE.

If your agent is not familiar with concessions, it may be that they have never used them before.  They are commonplace and legal, within limits, if they are disclosed.  The benefit is that concessions can improve marketability of a home. They help put a transaction together between parties that would not be possible otherwise. In today’s market it is wise to consult with a real estate professional who understands how concessions work as a tool to help get your property sold. Any questions? Contact us by filling in the form HERE and we will be glad to help.