In a real estate transaction both buyer and seller may use negotiating ploys known as "concessions," either to improve their own position, or to encourage the other party to move forward with the deal.
When competition was very high during the pandemic housing boom, buyers had to make most of these concessions.
Some agreed to waive home inspections and appraisals, on top of making offers far above the listing price. Sellers simply listed their homes, found a buyer, collected the cash, and handed over the keys.
But in a higher mortgage market, sellers have a bit more difficulty "moving their merchandise." A record 42% of sellers offered concessions in the fourth quarter of 2022, compared to just over 30% a year ago. That beat the previous high of 40.8%, notched in each of the first three months of the Covid pandemic.
Seller concessions vary, but typically, they cover things the buyer usually pays for, such as closing costs, title searches, property appraisals, and other fees.
Sometimes the buyer will have written into the contract that the seller will pay the buyer’s closing costs up to a certain percentage or amount.
Sellers can also offer to pay for repairs to any defects found during a home inspection. These incentives can be very important in convincing buyers to go ahead with a deal in a high-price, high-interest environment.
In today’s market, buyers can be a bit more discerning. Buyers should not hesitate to follow up on issues that arise during a routine home inspection. Get estimates from contractors to find out what repair costs might be during the due diligence period.
Sellers’ concessions can be introduced at any point in the process or can be advertised directly on the listing. At the very least, a flaw should be used to obtain a possible price reduction during negotiations.
Another fee the home seller usually covers is any commission due the real estate agents. This fee is typically subtracted from the proceeds of the home sale at the settlement table.
The real estate agent commission is a percentage of the price the home sells for, and that percentage can vary from agent to agent.
There doesn’t necessarily have to be an exchange of cash. Sellers’ concessions are often deducted from the purchase price at closing.
In the end, leveraging concessions gets everyone where they need to be. The buyer pays less than they would have otherwise, and the seller increases demand for their home and speeds up the sale process.