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You don’t have to be a first time home buyer to be confused about how sellers concessions work.   Many 2nd and 3rd time home buyers ask the sellers for concessions (help in paying the buyers closing costs, pre-paid items, and/or tax prorations.)

The confusion sets in for buyers when they make a strong offer on a home, or a full priced offer, and ask for sellers concessions. Often buyers will ask why a seller didn’t want to accept the offer when in their eyes it is a “full price offer”.    Explaining to the buyer at the time the offer is written how sellers concessions work, how they affect the home seller, and how the full purchase price (including concessions) is financed by the buyer is the best possible way to avoid confusion.  Below is a graph of how the sellers concessions look to the home seller when evaluating the offer to purchase that is in front of them:

Home buyers need to keep in mind that even though they are receiving sellers concessions to help pay their closing costs and associated costs, they they are financing the full amount of their offer to purchase (less their own down payment).   In the scenario above the buyer would be applying for a mortgage for the $100,000 purchase price and NOT the $94,000 net to the seller. **Note**  If you are using an FHA mortgage for your purchase you may ask for up to 6% in sellers concessions.

Kris Wales - A Macomb County MI real estate agent
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