How to Write a Home Offer With Seller Concessions

Homebuyers often encounter various costs beyond the purchase price. A home offer, a formal proposal to purchase real estate, outlines the terms a buyer is willing to accept. Seller concessions are financial contributions from the seller. These concessions aim to reduce the buyer’s out-of-pocket expenses associated with the home purchase. Such an arrangement can make homeownership more accessible by alleviating some of the financial burden at closing.

Types of Seller Concessions

Seller concessions involve the seller agreeing to cover costs or fees typically the buyer’s responsibility. This arrangement can take various forms, designed to lessen the buyer’s upfront financial commitment.

One common type is a contribution towards closing costs, which are fees paid at the culmination of the real estate transaction. These can include loan origination fees, appraisal fees, title insurance premiums, and recording fees. Another form involves repair credits, where the seller provides a credit to address issues identified during the home inspection.

Sellers might also offer to cover prepaid expenses, such as prorated property taxes or homeowner’s insurance premiums. Additionally, a seller could offer a rate buydown to lower the buyer’s mortgage interest rate. Providing a home warranty is another concession, offering peace of mind regarding potential appliance or system failures after closing.

Calculating the Concession Value

Determining seller concession amounts involves understanding limits set by loan types and the loan-to-value (LTV) ratio. These limits prevent artificial inflation of property values.

Federal Housing Administration (FHA) loans cap seller contributions at 6% of the home’s purchase price or appraised value, whichever is lower. United States Department of Agriculture (USDA) loans also allow seller concessions up to 6% of the sales price. Department of Veterans Affairs (VA) loans allow sellers to contribute up to 4% of the purchase price towards specific concessions, in addition to covering standard loan-related closing costs. Conventional loans have variable limits depending on the buyer’s down payment: 3% for down payments less than 10%, 6% for 10% to 25%, and up to 9% for over 25%.

The total amount of seller concessions cannot exceed the buyer’s actual closing costs and prepaid items. For example, if a home is $300,000 and the FHA limit is 6% ($18,000), but closing costs are $15,000, the concession cannot exceed $15,000.

Including Concessions in the Offer

Once determined, the concession amount must be clearly stated within the home purchase agreement. This document serves as the formal proposal to the seller and becomes a legally binding contract upon acceptance. The language used should leave no room for ambiguity regarding what the seller is contributing.

Standard real estate purchase agreements typically have specific sections or addendums where seller concessions are detailed. Common phrasing includes, “Seller agrees to credit Buyer $X towards Buyer’s closing costs and prepaid items at closing,” or a percentage like “Seller agrees to credit Buyer X% of the purchase price towards Buyer’s closing costs and prepaid items.” Specify whether the concession is a flat dollar amount or a percentage, and precisely what expenses it covers, such as appraisal fees, title insurance, or loan origination fees. Clear wording helps prevent disputes during the closing process.

Offer Submission and Negotiation

After the offer document, including seller concession details, is prepared, the next step is its formal submission to the seller’s agent. This is typically handled by the buyer’s real estate agent. The seller then reviews the proposal and can respond in several ways. They may accept the offer as presented, leading to a binding purchase agreement.

Alternatively, the seller might reject the offer or issue a counter-offer. A counter-offer proposes changes to the original terms, which could include adjustments to the purchase price, closing date, or the amount of seller concessions. Seller concessions frequently become a point of negotiation. Buyers can then choose to accept the counter-offer, make their own counter-offer, or withdraw their proposal. All agreed-upon terms, including any negotiated changes to concessions, are documented in the final accepted purchase agreement before closing.