Seller Concessions

Seller concessions make the difference in property sales!

Seller concessions reduce a buyer's cash outlay.
Funds provided are deducted from the seller’s home proceeds.
Raising sales price to cover concessions eliminates financial impact to seller.
It minimally changes the buyer’s monthly payment, while providing needed assistance.
This is a common and customary practice in the marketplace.

 In underwriting, this topic is referred to as: “Interested Party Contributions” (IPC’s).
Seller concessions = financing concessions.
Financing concessions:

  • funds from interested parties paid to borrowers
  • used to lower rate or pay closing costs
  • not allowed for down payment, reserves or required contributions
  • limits are based on occupancy type
  • amounts in excess of limits are sales concessions
  • sales concessions are deducted from price for loan amount calculations

 Items normally seller paid by custom don't apply (Example: owners title policy in resale transactions).

 
RULES:
conventional primary/second over 90% 3% max
    up to 90% 6% max
conventional investment all 2% max
FHA (no change yet) all 6% max
VA   all 4% max
  (VA = 4% + unallowables)    

 

Sales concessions are non-realty items or IPC’s that exceed rule limits.
IPC’s are cash, furniture, personal property, decorating or repair allowances, moving costs, or giveaways.
These are considered inducements to purchase & are deducted from sales price to calculate loan amount.
Personal property doesn’t refer to home items, such as: range, dishwasher, washer/dryer.
Generally, it refers to items such as: furniture, electronics, boats, mowers, cars, etc..
Now you understand why lenders don’t permit non-realty items to be in earnest money contracts.

 Mortgage lenders must guarantee that concessions don’t artificially inflate property value.
Inflated property value is the negative side effect of seller concessions.
Since 2008, this is a huge focus for prudent mortgage lending.

 Best realtor practices:

  • Keep seller concessions within rules
  • Confirm property value is supported by sales data
  • Check for comps that have similar concessions