Agents, has the fluctuating market made it more difficult to close deals this past year? You are certainly not alone. As interest rates began to rise in the spring of 2022, we all started to face some unique challenges in attracting home buyers. As Realtors, we had to think creatively to help our sellers sell their homes.
In some areas of the U.S., the standard practice of price reductions was not enough to get buyers to put pen to paper. So, what do you do? To think outside the box, some Realtors began using seller concessions.
Often, drastic price reductions impact the value of home, neighboring homes and ultimately, don’t save the buyer as much money in the long run. Whereas seller concessions make the home-buying process more affordable and exciting for potential buyers, while also maintaining the home and the community’s value.
Here are five seller concessions that I’m using that can help navigate today’s market:
1. Closing cost incentives
Closing cost incentives can include owner’s and lender’s fees, escrow or settlement fees, transfer taxes and government recording fees. Imagine being a buyer who’s getting ready to close the deal and realizes thousands of extra dollars in closing costs have been tacked on to the final price of the home sale. If agents can get the seller to agree to cover closing costs, the buyer is more inclined to seal the deal and can then focus on other important tasks that go into buying a home.
2. Home repairs
One way of receiving seller concessions is when the seller agrees to pay for the buyer’s repair costs. Most real estate contracts contain a home inspection contingency — it’s what gives the buyer and seller options in case a problem arises during an inspection. Buyers may choose to use their seller’s concession towards costly repairs outlined in the inspection. Alternately, the seller can also tack the seller credit on to the final price of the home sale.
Prepaids are upfront cash payments that are made prior to a buyer making their down payment to obtain a mortgage. Prepaids include the initial escrow deposit, homeowners’ insurance premium, real estate property taxes, and mortgage interest. Prepaid costs are paid at closing and put in an escrow account to help cover mortgage expenses.
This is different from closing costs as the seller may cover the closing costs, but the buyer will almost always pay the prepaids. If the seller’s agent can work out an agreement to pay for prepaids, this is another great tool to use to close the deal.
4. Interest rate buydowns
The 2-1 buydown term has worked extremely well for me. A temporary buydown lowers the interest rate, allowing it to increase year after year until it reaches the original rate. With the buydown being paid by the seller, the buyer can have funds reserved to take care of other large closing cost expenses.
For example, taking $10,000 off the price of the home won’t save as much using that $10,000 to buy down the interest rate. The lower rate will usually save the buyer more per month and over the life of the loan and have a bigger impact than purchasing the home for $10,000 less.
5. Funding HOA dues
Homeowners’ Associations can charge both yearly dues along with transfer fees which can cost hundreds, even thousands of dollars, depending on the location of the home. One thing that has worked for some agents is having the seller take care of those HOA fees, which certainly helps speed up the process during a home sale.
Seller concessions help the buyer save on expenses and the seller close the deal quickly and efficiently while maintaining the value of the home. There are some limitations depending on your local housing market, the type of mortgage the buyer has, the size of their down payment and the type of property being purchased.
While each market is different, and what works in Austin may not work in Tampa, it is critical to consistently innovate your strategies to stay ahead of the market and ensure your client is educated and aware of their options.
With education and offering seller concessions, we can formulate strategies to get buyers into homes, help sellers sell their homes and maintain home values.
Christina Cova-Simmons is a licensed broker and Realtor with huntington & ellis, A Real Estate Agency and has nearly two decades of experience serving the Southern Nevada market.