Vail Daily column: When should a person use a ‘seller concession’?
Ryan Summerlin August 22, 2014
Can you please clarify when a person can or should use a “seller concession” for? When we bought our home, our Realtor had us ask for a seller concession of several thousand dollars since we did not have much cash for a down payment. Now that we are selling our home, years later, the buyer wants us to pay a seller concession to them to make up for all of the items they feel need to be fixed in our home. My broker said they are asking for more than is allowed. What does that mean? I am a little confused about this and would like you to shed some light on this subject.
You have asked about a small but important paragraph in the Colorado Real Estate Commission approved contract to buy and sell real estate . It is Paragraph 4.2, seller concessions, and says, in part: “Seller, at closing, will credit, as directed by buyer, an amount of $__ to assist with any or all of the following: Buyers closing costs, loan discount points, loan origination fees … and any other fee, cost, charge, expense or expenditure related to buyer’s new loan … seller concession will be reduced to the extent it exceeds the aggregate of what is allowed by buyer’s lender … ”
Throughout the years, that program (down payment assistance fund) has helped 374 local families with over $4.6 million in loans. That is a very significant accomplishment, and cheers to all who have worked hard to make this program happen!
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Therefore, this seller concession paragraph can be used by a buyer getting a loan to reduce his initial cash outlay for the purchase of a home. The amount of money that the seller is allowed to contribute toward the buyer’s closing costs is based on a percentage of the lesser of the sales price or the appraised value of the property being purchased. You should check with a lender for the details, but in general, the maximum amount is 6 percent of the purchase price (or appraisal) that the seller could contribute on a purchase of a personal residence, if the buyer has 10 percent or more to put down or if it is an FHA loan. There are several other rates depending upon the type of loan and down payment. The minimum would probably be 2 percent on an investment property where the buyer is getting a loan. There are many other conditions and regulations — this is just a brief overview.
Now, back to your questions. When you made your offer to purchase your home, you were able to buy more home, even though you did not have much cash, because you got the seller to help with your front end costs. In your situation now, my guess is that the buyer for your home wanted some items to be replaced or repaired, but they were willing to go forward and buy your home the way it is if you would help them financially with the repairs. Most lenders do not allow the buyer to receive cash from the seller, nor do they like to hear about repairs that might need to be done, but will not be completed by closing. Since sellers are able to make “seller concessions” to save the buyers money at closing, an amendment to your contract for a seller concession may be the legal system they are using to accomplish their goal. Just make sure nothing is being hidden from the lender, as no one wants to be a part of loan fraud. I would suggest you visit with your broker and a trusted lender so you can have a complete explanation of what your bottom line will be and the reasoning behind it. Legal advice is always recommended on every contract as well. Hope this will help you understand and ask the right questions. Best of luck in getting your property closed!
Joan Harned is an owner and broker for Keller Williams Mountain Properties and heads up Team Black Bear, her own real estate team. Harned has been selling real estate in Eagle County for 27 years, is a past chairman of the Vail Board of Realtors, past Realtor of the Year, past director on the Great Outdoors Colorado Board and a member of the Luxury and Land Institutes. Contact Harned with your real estate questions at Joan@TeamBlackBear.com, 970-337-7777 or www.SkiAndTeeHomes.com.