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Local Business

What are real estate concessions?

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If a seller is offering concessions, it’s likely they are eager to sell the property.

A concession is a gift that a seller can offer a potential buyer to reduce the cost of buying a home. It’s an incentive that makes a property more attractive to the purchasers.

In the case of sales, concessions may be in the form of a reduction in sale price, moving expenses or the inclusion of a few appliances in the deal. Most commonly, concessions involve the sellers picking up some or all of the closing costs.

The seller may concede that the property needs some maintenance and may offer a monetary concession to compensate for this. The seller contributes this cash from its own proceeds, and the purchase price is not affected.

There are concession limits by lenders.

Fannie Mae and Freddie Mac limit concessions to 3 percent of the sales price or of the appraised value of the home if you're putting down less than 10 percent, but this increases to either 6 percent or 9 percent if your down payment is greater.

Private lenders also follow these general guidelines. FHA loans only allow the seller to pay the buyer's points at closing – anything else will require more of a down payment. The VA loan limit is 4 percent.

Appraisers may take concessions into consideration when evaluating comparables and appraising the value of the home.

Concessions can be used in both a buyer’s market and seller’s market.

With low rates and the current home market, buyers are expected to stay in their homes an average of 13 years now, according to a study by the National Association of Home Builders. Seller concessions can help you keep more cash in your pocket that you may need for updates or repairs.

Heartland Iowa Realty : 736 N. 3rd Ave. E., Newton, IA, 50208: 641-792-5656 : www.heartlandiowarealty.com