What is a Seller Concession?

REAL ESTATE AGENT / DEFINITIONS

What are Seller Concessions in Real Estate?

Real Examples for 2024

By: Joe Stephenson

What are Seller Concessions?
Examples of Seller Concessions
How Seller Concessions Work
Advantages and Disadvantages
FAQs
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Definition

Seller concessions, also known as seller contributions or seller assists, refer to the practice where the seller agrees to absorb certain costs associated with the home buying process, typically closing costs, to facilitate a real estate transaction.

This can be seen as a gift from the seller to the buyer, reducing the financial burden on the buyer.

Seller concessions may cover closing costs, loan origination fees, and appraisal fees.
They may be used to attract potential buyers in a competitive market.
Understanding seller concessions can help both buyers and sellers navigate the real estate market more effectively.

Examples of Seller Concessions

Seller concessions are a key tool in real estate transactions, often making the difference between a deal that closes and one that falls through. Here’s an example to illustrate how they work.

Consider a young couple, the Johnsons, who have been diligently saving for their first home. They’ve managed to set aside $20,000 for a down payment on a $200,000 home.

However, they’re apprehensive about the additional costs that come with buying a home, specifically the buyer’s closing costs, which can range from 2% to 5% of the purchase price.

Their real estate agent suggests asking for seller concessions. The Johnsons decide to make an offer on a home priced at $200,000 and ask for a 3% seller concession to cover their closing costs. This means they’re effectively asking the seller to contribute $6,000 towards their closing costs.

The seller agrees, understanding that this could help facilitate the sale. As a result, the Johnsons can use their saved money entirely for the down payment, without having to worry about the closing costs.

Here are some common costs that seller concessions often cover.

Loan origination fees – These are fees brought by the lender for the processing of a new loan application.
Home inspection fees – A home inspection is typically required to ensure the property is in good condition.
Appraisal fees – This is the cost of determining the fair market value of the home.
Title search and insurance – These costs ensure the seller has the legal right to sell the property and protect against future property ownership claims.
Underwriting fees – These are fees charged by mortgage lenders to evaluate the risk of lending to a particular borrower.

Seller concessions can be a win-win situation for both parties in a real estate transaction. The buyer can save money and potentially afford a home they might not have been able to otherwise, and the seller can attract more potential home buyers and expedite the sale of their property.

Whether you’re a buyer considering a conventional loan or a government-backed loan, don’t hesitate to ask for seller concessions—it could make your home purchase more affordable.

How Seller Concessions Work

Seller concessions work by the seller agreeing to pay for certain upfront costs typically borne by the buyer.

This reduces the amount of money the buyer needs at closing. The concession is usually a percentage of the home’s purchase price.

Seller concessions can cover most closing costs including title insurance, home inspection fees, and discount points.
The exact amount of the concession can vary depending on factors like local market conditions and the buyer’s loan program.
Both the buyer and seller must agree to the terms of the seller concessions.

I have personally used seller concessions in multiple ways over my career, so they can be quite useful.

Advantages and Disadvantages of Seller Concessions

Seller concessions offer advantages for both the buyer and seller.

For buyers, they reduce the amount of cash needed at closing. For sellers, they can make the property more attractive to potential buyers, especially in a buyer’s market.

However, there are also disadvantages. For sellers, offering concessions can reduce their net proceeds from the sale. For buyers, if the price of the house is inflated to accommodate the concession, it could affect the appraisal.

Advantages for buyers: lower upfront costs, less money needed at closing.
Advantages for sellers: attract more buyers, potentially speed up the sales process.
Disadvantages for sellers: lower net proceeds, potential difficulty with appraisal.
Disadvantages for buyers: potentially higher purchase price, potential issues with mortgage lenders.

I have seen the benefits go multiple ways in seller concessions. It’s just a matter of deciding what is best for you at the time.

Seller Concession vs. Price Reduction

A seller concession differs from a price reduction in that it does not reduce the home’s purchase price.

Instead, the seller agrees to take on some of the costs usually paid by the buyer. A price reduction, on the other hand, directly reduces the selling price of the property.

Seller concessions can make a home more affordable for buyers without reducing the asking price.
Price reductions lower the overall cost of the home but do not help with closing costs.
Both strategies can be effective depending on the circumstances and local market conditions.

Who Benefits From Seller Concessions?

Both the buyer and seller can benefit from seller concessions.

Buyers benefit because they need less cash at closing.

Sellers benefit as concessions can make their property more attractive, which can be especially helpful in a buyer’s market.

Buyers benefit by having lower upfront costs.
Sellers benefit by making their property more appealing to potential buyers.
The benefits for each party depend on the housing market conditions and individual financial situations.

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What Can Seller Concessions Cover?

Seller concessions can cover a wide variety of costs associated with the home buying process. These may include the following.

Closing costs – These are fees associated with finalizing a real estate transaction and can include title insurance, home inspection fees, and loan origination fees.
Prepaid expenses – These are costs paid in advance, such as property taxes and homeowner’s insurance.
Discount points – These are fees paid to the lender at closing in exchange for a reduced interest rate.

Who Benefits from Concessions, Buyers or Sellers?

While both parties can benefit from seller concessions, the primary beneficiary is typically the buyer. Seller concessions reduce the amount of cash the buyer needs to close the deal and can make home ownership more accessible.

Buyers benefit from reduced upfront costs.
Sellers may benefit by making their property more appealing to potential buyers.
The exact benefits for each party depend on the local market conditions and individual financial situations.

How to Negotiate Seller Concessions

Negotiating seller concessions involves several steps. First, the buyer should determine how much assistance they need with closing costs. Then, with the help of a real estate agent, the buyer can request seller concessions as part of their offer.

Determine how much assistance you need with closing costs.
Work with a real estate agent to request seller concessions in your offer.
Be prepared to negotiate and potentially compromise with the seller

Can Sellers Refuse to Contribute Toward My Closing Costs?

Whether or not a seller agrees to concessions depends on various factors such as the housing market, the seller’s financial situation, and the competitiveness of the offer.

A seller may refuse concessions if they have multiple bids or if it’s a seller’s market.
Sellers may be more likely to agree to concessions in a buyer’s market.
Each situation is unique and depends on various factors

Know The Market

Understanding the current housing market is crucial when considering seller concessions.

In a buyer’s market, where there are fewer buyers than properties, sellers may be more willing to offer concessions to attract buyers.

Conversely, in a seller’s market, where there are more buyers than properties, sellers may be less inclined to offer concessions.

In a buyer’s market, sellers may offer concessions to attract buyers.
In a seller’s market, sellers may be less likely to offer concessions.
Understanding the current market can help both buyers and sellers make informed decisions.

Are There Limits To Seller Concessions?

Yes, there are limits to seller concessions. These limits vary depending on the loan type. For example, conventional loans typically allow seller concessions of up to 9% of the home’s sale price, while FHA and USDA loans limit seller concessions to 6%.

Conventional loans: Seller concessions can be up to 9% of the home’s sale price.
FHA loans: Seller concessions are limited to 6% of the home’s sale price.
USDA loans: Seller concessions are also limited to 6% of the home’s sale price.

(Note: Please check with a mortgage loan office or consultant for good measure. These factors have a tendency to change over time.)

Buyer’s Markets vs. Seller’s Markets

In a buyer’s market, there are more properties for sale than there are buyers, making it a great time for buyers to negotiate seller concessions.

In a seller’s market, there are more buyers than properties, making it less likely for sellers to offer concessions.

Buyer’s markets can be advantageous for negotiating seller concessions.
Seller’s markets may make it more difficult to negotiate for seller concessions.
Understanding the current market conditions is key when considering seller concessions

Seller Concession Limits by Loan Type

The limits on seller concessions vary by loan type. Conventional loans typically allow for seller concessions of up to 9% of the home’s sale price.

FHA and USDA loans limit seller concessions to 6%, and VA loans do not have a strict limit but require that concessions do not exceed the buyer’s actual costs.

Conventional loans: Up to 9% of the home’s sale price.
FHA loans: Up to 6% of the home’s sale price.
USDA loans: Up to 6% of the home’s sale price.
VA loans: No strict limit, but concessions cannot exceed the buyer’s actual costs.

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What Is An Easement?

REAL ESTATE AGENT / DEFINITIONS

What Is An Easement?

Definition And Tips For Homeowners

By: Joe Stephenson

REALTOR®

Table of Contents

What is an Easement?
Real Life Examples
Types of Easements
What Should I Do if I’m Buying a Property With an Easement?

Definition

A right to utilize another person’s property for a particular objective, such as establishing a right-of-way or installing utilities, is termed an easement. It represents a non-possessory or intangible interest in real estate, as it doesn’t confer any ownership or occupancy rights.

Easement Diagram

1). Lot C has an easement by necessity across Lot B

2). The public has an easement right over Lot A to the lake.

3). A utility easement in gross crosses Lots A, B, and C

Common easement types

Common easement types include utility easements, private easements, conservation easements, and right-of-way easements.

Easement in gross

An easement in gross benefits a particular individual or entity, rather than a neighboring property.

Easement by prescription

An easement by prescription is another term for a prescriptive easement.

Light and Air Easements

Light and air easements are a type of nonpossessory interest in real property. They grant the right to access light or air from a property owned by another person. For instance, a building owner might purchase a light and air easement from neighboring properties to ensure that their building will continue to receive sufficient light and air, even if new structures are built next door. This can be particularly crucial in densely populated urban areas where high-rise buildings are common. These easements can significantly impact the value and development potential of a property.

Emergency Access Easements

Emergency access easements, also known as fire or police easements, are granted to public authorities or first responders to allow them access to private property in case of an emergency. This can include the need for an ambulance to drive across private land to reach a patient more quickly, or a fire truck needing access to combat a forest fire. In some cases, these easements may also be used for routine patrol by law enforcement agencies. The owner of the property cannot obstruct these easements and must allow access when necessary.

Drainage Easements

Drainage easements are commonly used where water from higher ground naturally flows across a lower piece of land. The owner of the upper parcel may have a drainage easement allowing them to direct water (such as rainwater or melted snow) onto or across the lower parcel. This can prevent waterlogging or erosion on the upper parcel. Conversely, the lower parcel’s owner may hold an easement allowing them to drain water onto the upper parcel. These easements can be critical in maintaining the health and integrity of both properties, especially in areas prone to heavy rainfall or snowfall.

Private Easements

Private easements are a type of easement that grants specific rights to a particular individual or entity, rather than to the general public or a large group of people. These are often created through express agreements between property owners. For example, a homeowner might grant a private easement to their neighbor, allowing them to use a portion of their property for driveway access. The rules and regulations of private easements are typically outlined in the easement agreement itself.

Conservation Easements

Conservation easements are legal agreements between a landowner and a land trust or government agency that restrict the use of a property to protect its conservation values. They’re commonly used to preserve natural or man-made features like forests, wildlife habitats, or historic buildings. Once in place, these easements restrict activities like development and subdivision, while allowing the land to be used for purposes consistent with conservation, such as agriculture or outdoor recreation. The specifics of what is and isn’t allowed under a conservation easement will depend on the terms of the individual agreement.

Right-of-Way Easements

Right-of-way easements, often associated with roads and utilities, give certain parties the right to travel over another’s property to reach a specific destination. This can include public access routes, such as hiking trails, as well as utility lines for services like electricity, water, or internet. These easements are usually created through an agreement between the property owner and the party requiring access, with the terms outlining who can use the easement, for what purpose, and any maintenance responsibilities.

Prescriptive Easement vs Adverse Possession

The distinction between a prescriptive easement and adverse possession lies in the rights they confer. While a prescriptive easement simply bestows upon an individual the privilege to utilize the property, adverse possession can eventually result in the individual becoming the legal owner of that property.

How can I prevent someone from acquiring a prescriptive easement to my property?

To prevent someone from acquiring a prescriptive easement to your property, you can make it clear that their use of your land is with your permission. This can prevent their use from being considered “hostile,” a requirement for prescriptive easements.

What’s an easement appurtenant?

An easement appurtenant is a type of easement that benefits an adjacent property. This could be something like a right-of-way through your land to provide access to the neighboring property.

Prescriptive easements

Prescriptive easements are acquired when someone uses a part of your property without your permission for a certain period of time.

Utility easements

Utility easements allow utility companies to use a portion of a property for their equipment.

Real Life Examples of Easements

In the bustling city of Easement Heights, various types of property easements are woven into the urban fabric. Let’s explore some illustrative examples:

Express Easement: Consider Mr. Williams, a property owner whose private property borders a public school. The school, as the easement holder, has an express easement inscribed in the property deed. This agreement allows them to use a portion of Mr. Williams’ land as a path for students – a clear example of property access on someone else’s property.
Implied Easement: Next, there’s Mrs. Baker, who enjoys a beautiful ocean view from her patio. The previous owner had an unwritten agreement with the neighboring property owner, Mr. Lee, that they would not build anything obstructing this view. Even though it’s not officially documented, this implied easement continues to provide Mrs. Baker with an unobstructed vista.
Private Easement: Down the lane, Mr. Rodriguez’s home is hidden behind Ms. Chen’s property. To access his home, he uses a private easement through Ms. Chen’s driveway. His property is the dominant estate, benefiting from this easement, while Ms. Chen’s property is the servient estate, bearing the burden of this arrangement.
Affirmative Easement: On the edge of the city, the local utility company has an affirmative easement to maintain power lines that cross over Mrs. Patel’s spacious backyard. This easement allows them to perform necessary work on a person’s land without transferring any ownership interest.
Negative Easement and Historic Preservation Easement: At the heart of Easement Heights stands a historic building owned by the Anderson family. They granted a negative easement and a historic preservation easement to the local historical society. This ensures that even after a property sale, future owners cannot alter the building’s exterior, preserving its historic integrity.

Through these examples, the definition of easement comes to life. It’s clear that property easements play a vital role in balancing the rights and interests of property owners, easement holders, and the community at large. Whether it’s an express, implied, private, affirmative, negative, or historic preservation easement, each serves a distinct purpose in the complex landscape of property rights and access.

What To Do If A Home You’re Buying Has An Easement

If you’re considering buying a home with an easement, it’s important to understand the terms of the easement and how it might affect your use of the property. It can be a good idea to consult with a real estate attorney before making a decision.

Should I buy a property with an easement?

Buying a property with an easement depends on the terms of the easement and how it affects the property. It’s advisable to understand the details of the easement before making a decision.

Should you buy a home with an easement?

Whether you should buy a home with an easement depends on the type of easement and how it impacts the use of the property. You may want to consult with a real estate professional or attorney to understand the implications.

How To Create An Easement

Creating an easement typically involves drafting a legal document that outlines the terms of the easement and having it signed by both parties.

Categories Of Easements

Easements can be categorized into several types such as utility, private, conservation, and right-of-way easements.

How to create, or remove, a property easement

Creating or removing an easement usually requires a legal agreement between the property owner and the party that holds the easement.

Will an easement impact my property value?

The impact of an easement on your property value can vary. Some easements may have little impact, while others could potentially decrease your property value.