When you're listing your property for sale, you want to think about all of those things you can do that will make your property more attractive to sell faster. Today we're going to talk about one of those concepts called seller concessions.
I'm Sandi Warner with Warner Realty Group, and today we're going to talk about an idea known as "seller concessions".
A seller concession is when a seller of a property offers to pay for some of the costs or fees associated with the sale of that property. By paying some of those costs, the Seller reduces some of the UPFRONT expenses for the Buyer.
These generally fall into sell two categories. One of those categories is that the seller were offer to pay one or more professionals involved in the transaction, like the attorney or the lead inspector or the property inspector. The other category is the various fees that are incurred. Maybe the seller will offer to pay all the closing costs, which could include any fees for shipping documents, filing fees, registration fees or other costs.
In this case, the seller is directly paying the vendor for that work to be done. This is a different concept than what we typically think of as seller compensation. When a seller offers compensation that's a direct payment by the Seller to the buyers Real Estate Agent.
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The primary difference is that Concessions can be advertised on the MLS, and Compensation can not. You can put into your MLS that the seller will pay closing costs or the seller will pay for title fees or the seller will pay pay the first two months of working capital deposit.
Under the newer NAR rules, sellers can no longer advertise that they will pay the compensation for the buyer's agent. So sometimes using this combination of concessions with an off MLS negotiated compensation can make it easier for a seller to attract a really good high quality buyer. Concessions can help buyers in this very expensive market, and we want to call them cash strapped buyers because many of these buyers are seller concessions, can make your house stand out on the market, particularly if you're in those markets where buyers are putting down 10 to 20%.
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If we think about the average market value of a home in Rhode Island, I think it's $460,000 or $470,000 at the time of this filming (Actually, it was $490,000!), which means that a home buyer has to save up between $40,000 and $90,000 before they can even get into the market.
If we add on to that amount, maybe the cost of redoing a bathroom or paying for their buyer's agent or redoing a roof, or fixing gutters or paying for the attorney or paying for all these inspections, replacing a heating system, all of these things will push a buyer right out of the market for a period of time if there isn't some assistance from the seller.
So how does a seller determine what makes a good concession and when it makes sense during the listing? Well, one thing you want to make sure you do is have a really high quality and experienced Realtor® on your side when you're listing your property.
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That Realtor® should have a lot of market knowledge about where you are and where your house sits in among the competition. Say for example, you've got a house that's in a great neighborhood, it's a beautiful home. It's got all of those qualities that everyone wants, but your kitchen's dated compared to everyone else. Well, one thing you might consider doing is list your house for the market value of similar homes in your area, but offer a concession for a kitchen remodel. So maybe you say you will put $20,000 towards appliances, or you will put $20,000 towards a general kitchen remodel. This can help keep your home priced where you want it, but it is going to net you less money, but it's going to attract more buyers because you're removing one of those obstacles. Remember, at the time of closing is when there's a whole lot of cash in the deal.
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Is there a limit to the type or the amount of concessions you can offer? Yes, there is. Concessions are limited by the type of buyer that you have and what that means if your buyer is being financed in the deal, the buyer can only finance the buyer, can only accept concessions up to certain limits based on the type of loan that they have, whether it's a conventional loan or if it's a VA loan or an FHA loan, or a 203(k) loan or a construction loan or whatever it is.
And that has to do with the lender is lending the funds based on the value of the home. And if the value of the home is impacted in too great a fashion by the concession that's being offered, it impacts the lender's ability to make up the money should those payments not work. And I'm sure I'm botching how that's done, but it has to do with value ratios and why am I forgetting that word when the house is collateral for the loan.
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So you might have to renegotiate those concessions in the middle of the deal. And the other thing to remember, just because you advertise the concessions, you still have to identify those and write them out and agree on them inside your purchase and sale agreement. So that is one way that a seller of a home can make their home attractive. They can make it easier for cash strapped buyers to choose their home over other homes that are on the market and get the deal closed faster.
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