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Seller Concession (As a Buyer) Explained!

Ok, so by now you have been hanging around long enough to know what a seller concession's an amount of money a seller is giving back to the buyer at closing. By definition, this could be for any myriad of reasons, but in this exercise we will approach that the money will cover the buyers closing costs, and the buyer asked for same in the beginning of the transaction.

Let's say the home is $500,000, but your closing costs run around $10,000, bringing the actual purchase price up to $510,000. With money as cheap as it is, you figure why not lump those fees into the purchase of the home and pay it off with time. Great thinking.

First, the offer (purchase contract) has to be written to reflect the total amount, not just the home's actual sale price. So in this instance, the offer would be written for $510,000. From there, in paragraph 43, you would explain you, as the buyer, are requesting $10,000 back to cover prepaids and closing costs, net to seller $500,000. This is important. The reason you want to do it this way instead of agreeing to $500,000 and bumping it in attorney review or after, is the appraiser will get a copy of the contract price, not anything amended after, and you do not want to deal with a low appraisal because the appraiser did not see the actual cost. By doing this, you remove one common folly that is easily avoidable.

Speaking of appraisal, the reason a lot of sellers do not like offering a concession is if they, themselves, have doubts their home will appraise for sale price, much less anything above. Remember, you are borrowing $510,000 from the bank, so the bank wants to make sure the home is worth $510,000, not $500,000.

From here on out, it's a normal transaction UNLESS the home should underappraise. Then, you have a sticky situation. For this reason, it's always recommended that you have your agent look through the comparable homes prior to your offer, so they can approach the listing agent from a point of confidence when presenting your offer. You always want to show proofs that it will appraise and their seller is taking no additional unreasonable risks, instead of submitting the offer and "hoping" it appraises.

Until next week!

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