What can seller concessions be used for?

Many individuals may not be aware of what the seller’s concessions can be used for when conducting a real estate transaction in New Jersey.

As is well known, buying a property can be a complex negotiation, as the parties involved seek to maximize their profits. Therefore, counting on our NJ real estate attorney will help you achieve the best results.

What Can Seller Concessions Be Used For In 2024 In New Jersey?

Seller concessions can only be used to reduce the buyer’s closing costs on a New Jersey home. Therefore, they cannot be used for a down payment on the house or any other associated costs, such as appliances.

Closing costs that seller concessions may cover include:

• New Jersey home appraisal.
• Real estate tax service rates.
• Title insurance in New Jersey.
• Attorney’s fees.
• Management fees.
• Reduction of interest rate or points.

Payment Limits On Seller Concessions

Some of the limits on the payment in these scenarios include:

• VA loans: There are no limits to the costs of mortgage discount points, origination costs and credit reporting fees. However, the loan has a 4% limit on some costs.
• FHA and USDA loans: These loans will be limited to 6% of the mortgage amount.
• Conventional loans: Loans from Freddie Mac or Fannie Mae will have a limit based on the down payment. For example:
  • If 10% or less is paid, the limit will be 3%.
  • If more than 10% is paid but less than 25%, the limit will be 6%.
  • Contributions greater than 25% or more will have a limit of almost 9%.

The best possible recommendation in these situations is to consult with the lender or our lawyer to find out the maximum amount that can be received.

Are you looking to find out what are the requirements to apply for a mortgage in New Jersey? In our blog you will find information about it. Likewise, knowing what to avoid when applying for a mortgage can also be useful . 

How Common Are Seller Concessions?

Seller’s concessions are very common in the real estate market. However, these tend to occur more in the buyer’s market than in the seller’s market.

What Is An Example Of A Seller’s Concession?

As we mentioned earlier, the limits of the seller’s concessions vary according to the type of loan. To better understand this, let’s take the following example: 

1. An individual offers $200,000 for the purchase of a house.
2. Said house is appraised at $195,000.
3. In addition, seller concessions reach a maximum of 3%.
4. As a result, the seller can provide up to 3% of $195,000, or what would also be about $5,850 to help pay closing costs.

We invite our readers to learn more about buying a house in New Jersey or selling a house in New Jersey in our corresponding blogs.

Can Sellers Refuse To Contribute To The Buyer’s Closing Costs?

Sellers are not required to contribute to the buyer’s closing costs. As a result, all of the seller’s concessions must be negotiated through the contract.

What If Some Repairs On The Property Need To Be Covered?

Nearly all real estate contracts in the state require a home inspection in New Jersey. If the inspection reveals that costly repairs are needed, the seller may offer a concession to offset these costs.

Similarly, the seller also has the option of offering a reduction in the sales price, or simply letting the buyer do the repairs.

What Does It Mean To Sell Concessions?

The general term of “selling concessions” means a business arrangement whereby a consignee agrees to pay the consignor for the merchandise after the good is sold. 

Although the consignment is usually seen mostly in stores, they are also appreciated in real estate transactions. For example, seller concessions on real estate are closing costs that the seller has agreed to pay.

Why Would A Seller Pay For Concessions?

In general, sellers often agree to pay a concession when trying to sell their home fast. 

This could be because the house has been on the market for a long time and has not received any offers, or the seller has already bought a new house and is paying off two mortgages.

Are you about to sell a jointly owned home? Check our blog to learn more about this process in detail.

Who Gets The Sales Concession?

In this case, the buyer would be the party that would obtain the sale concession, since the seller will be the one who agrees to pay the closing costs of the house. 

It should be noted that the seller’s concessions in a seller’s market may vary from that of a buyer’s market. Next, we will explain more about this topic.

Seller Concessions In A Seller’s Market Vs. A Buyers Market

Often, in a seller’s market, there are more buyers than there are homes for sale. This usually gives the seller a great advantage, since there is a high demand, it is likely that more offers will be received.

• In these scenarios, the seller will most likely accept the offer that provides the most money possible.
• On the other hand, sellers may be more motivated to pay a seller’s concession in a buyer’s market. 
• This is because there are more houses for sale than buyers, so sellers would have a hard time selling their house.
• Although competition between sellers can be high, offering concessions often leads to sales advantages and attracts more buyers. 

Advantages And Disadvantages Of Seller Concessions

Before requesting a concession from the seller, one must first evaluate the advantages and disadvantages that this brings. While the benefits may be tempting, concessions only work if the seller agrees to pay for them.

Advantages 

• They can benefit both the buyer and the seller.
• They can lighten the financial burden on homebuyers.
• Helps sellers sell their home faster.
• It provides the opportunity for new buyers to be interested in buying the house.

Disadvantages

• It may be difficult for the seller to agree to pay them.
• The seller will not be able to get as much money as possible from the sale of the house.
• If there are other uncompromising offers, the buyer may lose out on their dream home.
• There is a risk that concessions will prolong the deal and sour the existing relationship between buyer and seller.
• Concessions may not help in the long run. In fact, you may end up paying more over the years than if you had paid at closing. 

Is It Worth It To Get A Seller’s Concession?

Before applying for a seller’s concession, it is best to seek help from an experienced real estate expert. This is because only an expert will know more about the current state of the real estate market.

Also, it’s crucial to speak with a financial advisor to determine how this might affect taxes, budgeting, or any other financial goals in mind. In addition, the following post-closing costs must be taken into account:

• Maintenance, repairs and/or replacements.
• Moving expenses. 
• Property taxes.
• Homeowners insurance.
• The payment of a private mortgage insurance.
• Utility bills.
• Moving or purchasing new furniture and appliances.
• Purchases of tools for the home. For example, a snow blower, lawn mower and others.

Tax Consequences For Seller Concessions

Every case is different, so asking the seller to pay concessions won’t have any major negative implications. Additionally, you may be eligible for a limited number of deductions.

• In fact, the IRS has certain rules that dictate how homeowners and recent homebuyers are taxed.
• Currently, the only closing costs that can be deducted are the mortgage interest on the property. Some property taxes may also be deductible.

To properly prepare for these matters, it is best to consult with our property tax appeal lawyer in NJ. She will help you review the guidelines and navigate the home buying process.

How Do Seller Concessions Affect The Sale Price?

Sellers often increase the price of the home by the amount of closing costs that the home will pay in a seller’s concession. 

It’s crucial to be careful here, as banks typically won’t finance a mortgage that’s worth more than the price of the home.

Therefore, it must not only be kept within the limits of the seller’s allowance, but it must also be kept in the sale price of the home. This can be at or below what is indicated by the real estate appraisal. 

Other Options To Seller Concessions

If they don’t have enough money saved to cover closing costs, buyers may have some possible alternatives to the seller’s concession. Some examples include:

• Save more: One of the best options buyers have is to keep saving more money to pay for closing costs without the need for a concession from the seller.
• Find a Low Down Payment Loan: VA, FHA, and USDA programs may require little or no down payment. Although more expensive in the long run, these loans may help you avoid paying closing costs.
• Buying a cheaper home: This increases your chances of paying less in closing costs.
• Using a first-time homebuyer program: There are several programs focused on offering help to first-time homebuyers in New Jersey. This could help reduce the financial burden in terms of closing costs.

Seller Concessions FAQ

New Jersey Real Estate Lawyers In Helping To Utilize Seller’s Grants

Now that we’ve explained what seller’s concessions can be used for, surely this can make a home more affordable for buyers. Plus, it could help sellers close more sales deals.

• It is important to work with a real estate agent or our attorney Carolina T. Curbelo to decide if you have a good opportunity to apply for this grant.
• If the market is right, the seller may be required to pay a fraction or all of the closing cost.
• However, it must be ensured that what is being requested is within the limits dictated for the type of loan in which it is being received.

Contact us today so we can examine your real estate scenario and provide you with the advice you deserve. You can contact us through our telephone number, by E-mail or by scheduling an appointment with our office, located in Ridgewood, New Jersey.