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How do seller concessions work?

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Quick Answer

Seller concessions are agreements which stipulate that the seller of a property will pay or continue to pay financing and closing costs for their buyer. This is most often used as an incentive to encourage buyers to close a deal.

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Full Answer

Seller concessions can help make a home more desirable for purchase. For eager sellers, this is a considerable motivator. Sellers typically cannot pay more than 9 percent of the home's appraised value in their concessions, putting a ceiling on just how dramatically concessions can influence selling price.

Closing costs also depend on how much the buyer ultimately borrows to make their purchase, which can affect the allowable concessions. When sellers are not driven to sell immediately, seller concessions may be refused or reduced. The Department of Housing and Urban Development states that a tighter cap on seller concessions minimizes the United States Federal Housing Authority's exposure to the risk of adverse selection. This is in reference to overeager sellers offering concessions to parties that will be unable to render payment in the future.

Rebates from brokers and agents to the seller can help to fund seller concessions. These rebates are not offered consistently by all agents. When they are offered, they are typically predicated upon the sale of a home by a target date or for a certain target price that gives them a certain amount of profit from the sale.

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