Understanding Seller Concessions at Closing: A Homebuyer's Guide

Buying a house is expensive. Having the cash for the down payment is only part of the cost. There are other charges during the buying and closing process. In order to help a buyer purchase a home, a seller may offer a credit at the time of closing. Also referred to as seller concessions or contributions, buyers would be wise to negotiate these into the contract before it is signed by all parties.

Purpose

If a seller has enough equity in the property but does not have much cash to spend during the selling process, a credit at closing spares the seller from having to come up with the money before it's in hand. The credit is subtracted from the seller's proceeds at the close of the transaction. It is either directly given to the buyer or held in escrow until the provisions of the sales contract have been satisfied.

Closing Costs

When you arrive at the settlement meeting to close the sale, you will need enough money for the down payment and closing costs, which can be 3 to 6 percent of your loan amount and add thousands to your out-of-pocket expenses. One way to alleviate the burden is to ask the seller to give you a credit at closing for some or all of the costs incurred. This can be a fixed amount, such as $5,000, or reimbursement for the actual cost of the expenses. Sometimes a seller will agree to pay only the discount points, origination fees or other costs of the loan.

Repairs

During the escrow process, you more than likely will have the home inspected by a licensed contractor or other service. THe inspector checks major systems and other home features. It's possible that the inspector will find repairs that are needed. You may choose to ask the seller to pay for professional repairs, or you might prefer to oversee the work yourself. If you want to be in charge of any repairs, you can ask the seller to give you a credit at closing in order to have the repairs completed.

Other Credits

Other buyer credits can be written into the contract at the time it is being negotiated. If the seller needs to remain in the house for a certain amount of time after the sale closes, then a credit for the amount of rent will be given at the close. Also, if the buyer has asked for certain appliances or furnishings, the seller may agree to a credit instead of buying the promised items before the close.