Seller Assist in Closing Costs: How, What, and Why

In the world of real estate transactions, understanding financial strategies like seller assist can be the key to securing your dream home or maximizing your profits as a seller. Seller assist, also referred to as seller concessions, is a common term in the housing market, but many potential buyers and home sellers are unsure of how it works, its benefits, and why it might be a good idea. This guide will break it all down for you.

First-time home buyers may also benefit from my Ultimate First-Time Buyer’s guide, located in the free download section of the website here. 

What Are Seller Concessions?

Seller concessions, sometimes called seller’s assist or seller contributions, are agreements where the seller agrees to pay part of the buyer’s closing costs. These costs can include attorney fees, escrow fees, title insurance, transfer fees, and more.

In my area (central Florida), the term seller assist is not one that we use often. We typically refer to it as a seller credit, or seller concessions. Specifically, when writing it up in an offer, I would use language similar to this:

“Seller to pay up to 3% of purchase price toward buyer’s closing costs and prepaids”

We haven’t seen seller’s concessions as a regular part of our offers in the past few years, when competition for homes has been tight. However, now that inventory is rising and it is a bit more of a buyer’s market, sellers concessions will become more common in a real estate transaction and it’s important to know how these sales concessions can benefit you. 

For first-time homebuyers or those without enough money saved for all the expenses associated with a home purchase, this can be a great way to lower the financial burden at the closing table. Seller concessions are also advantageous in a buyer’s market, where sellers compete to attract potential buyers.

How Does Seller Assist Work?

When negotiating the sale price of the home, buyers may request seller concessions. These concessions can help cover additional fees such as origination fees, recording fees, discount points, or even the initial funding of an escrow account.

For example:

• A home with an asking price of $300,000 may include $5,000 in seller assist to cover the buyer’s closing costs.
• In many cases, the sales price is adjusted to account for the seller’s contribution, meaning a higher purchase price of $305,000 may be negotiated.

However, the appraised value of the property must support the adjusted home’s sale price, or the loan amount may be reduced.

Why Is Seller Assist a Good Idea?

Seller assist is a powerful tool in real estate. Here’s why it benefits both parties:

1. For Buyers:
   • Reduces out-of-pocket expenses at the closing date.
   • Allows buyers to preserve cash for additional costs like home inspections, homeowners insurance, or post-move expenses.
   • Makes first-time homebuyers more competitive in the market.
2. For Sellers:
   • Attracts potential buyers in a buyer’s market.
   • Helps close deals faster in areas with high demand.
   • A seller’s assist can offset buyer concerns about the total closing costs.

How Much Can Sellers Contribute?

The type of loan determines the limits for seller concessions. Let’s look at the different rules for various loan programs. You should confirm these with your lender at the time of your loan, since regulations and limits may change–it’s important to know how much you can request that the seller pay:

• FHA Loans (Federal Housing Administration): Sellers can contribute up to 6% of the home’s purchase price.
• VA Loans: Contributions are limited to 4% of the sale price of the home but can include costs like the VA funding fee.
• Conventional Mortgages: Limits range from 3% to 9%, depending on the down payment amount.
• USDA Loans: Contributions are typically capped at 6% of the purchase price of the home.

What Can Seller Assistance Cover?

Seller assist can be used for a wide range of expenses, including:

• Lender fees and loan costs.
• Private mortgage insurance (PMI).
• Home appraisal and title search.
• Service providers like title companies.
• Prepaid expenses like property taxes and homeowner’s insurance.

Some loan programs even allow seller assist to cover discount points, reducing the interest rate on the mortgage loan for the long run.

What about real estate agent fees?

Recent developments have significantly altered the landscape of real estate transactions, particularly concerning who is responsible for paying real estate agent commissions. Historically, sellers typically covered both their own agent’s commission and that of the buyer’s agent. However, following a substantial legal settlement, the National Association of Realtors (NAR) has implemented changes that shift this responsibility.

Key Changes:

• Buyer-Broker Agreements: Buyers are now required to sign written agreements with their agents before touring homes. These agreements outline the services provided and the associated fees, ensuring transparency and allowing buyers to negotiate the terms.National Association of Realtors
• Commission Negotiation: The obligation for sellers to offer compensation to buyer agents has been removed. This change enables buyers and their agents to negotiate compensation directly, fostering a more competitive environment.National Association of Realtors

Implications for Buyers and Sellers:

• For Buyers: With the responsibility of compensating their agents, buyers need to budget for these costs. They have the flexibility to negotiate fees and can seek clarity on the services rendered.
• For Sellers: Sellers are no longer mandated to cover the buyer’s agent commission, which could potentially reduce their overall selling expenses. However, offering such compensation might still be a strategic move to attract more buyers.

You can utilize seller concessions to pay your buyer agent fees. Oftentimes, sellers are still including the commission as part of their listing, your agent just needs to ask the listing agent for the compensation amount as it can no longer be included in the MLS data.

Considerations for Sellers

If you’re a seller, offering assistance can be a strategic move, but it’s essential to understand the potential impact:

1. Net Proceeds: Seller assist reduces your profit from the transaction. (However, you can adjust the purchase price to account for the difference)
2. Market Conditions: In a seller’s market with high demand, concessions may not be necessary to provide.
3. Appraisal Concerns: A higher offer to account for concessions must match the appraised value.

Work with a trusted real estate agent to navigate these challenges effectively.

What About Buyers?

For buyers, requesting seller assist can lower the amount of money needed upfront, but it’s crucial to keep a few things in mind:

• Check your loan program’s rules on interested party contributions.
• Review the loan estimate carefully to understand the actual closing costs.
• Consider the impact of a higher purchase price on your monthly payment.
  
  I will tell you though, the reduction in the how much money is needed at closing is typically worth the additional cost to mortgage (since the additional monthly cost is usually pretty low in comparison).

FAQs About Seller Assist in Closing Costs

1. Can seller assist cover all my buyer closing costs?
   • Not always. The limits depend on your loan type and local market.
2. Does seller assist affect the sales price?
   • Often, yes. The asking price or sales price may be adjusted to account for the seller’s contribution.
3. Do all mortgage lenders allow seller concessions?
   • Lenders like Freddie Mac and Fannie Mae have specific guidelines. Check with your lender.
4. Can seller’s cost assistance cover my home inspection?
   • This is something we typically don’t see, because the home inspection is usually paid for by the buyer before reaching the closing table. 

Let’s run through an example:

Assumptions

1. Closing Costs: 4% of the loan amount (not the purchase price).
2. In this example let’s assume the buyer is getting a conventional, 30 year loan at 6.5%
3. Seller Concession:
   • Example 1: No seller concession.
   • Example 2: 3% of the purchase price (used to offset the buyer’s closing costs).

Example 1: Original Purchase Price with No Seller Concession

• Purchase Price: $300,000
• Down Payment: 20% of $300,000 = $60,000
• Loan Amount: $300,000 – $60,000 = $240,000
• Closing Costs (4% of Loan Amount): $240,000 × 4% = $9,600
• Net Closing Costs: Since there’s no seller contribution, the buyer pays the full $9,600 in closing costs.
• Monthly Mortgage Payment (principal and interest): $1517

Example 2: Adjusted Purchase Price with Seller Concession

• Adjusted Purchase Price: $309,000 but we’re requesting that the seller pay $9,000 toward buyer’s closing costs (seller “sees” this as an offer of $309,000-$9,000=$300,000, making it equivalent in terms of price to the seller as in example 1 above)
• Down Payment: 20% of $309,000 = $61,800
• Loan Amount: $309,000 – $61,800 = $247,200
• Closing Costs (4% of Loan Amount): $247,200 × 4% = $9,888
• Seller Concession (3% of Adjusted Purchase Price): $309,000 × 3% = $9,270
• Net Closing Costs: $9,888 – $9,270 = $618
• Monthly Mortgage Payment (principal and interest): $1593

***This is a HUGE difference in the amount of money you need to bring to closing. You’ll bring $9,000 less to closing and your monthly mortgage will increase by only $76 per month! You can see why this is a very worthwhile strategy to use. 

Key Observations:

• Example 1: Without seller concessions, the buyer bears the full burden of closing costs, totaling $9,600.
• Example 2: The seller concession of $9,270 significantly reduces the buyer’s out-of-pocket closing costs to just $618.
• In Example 2, the slight increase in closing costs is due to the higher loan amount resulting from the increased purchase price.

This breakdown shows how seller concessions can make a significant difference in reducing the buyer’s upfront expenses, even though the overall purchase price and loan amount increase slightly.

Conclusion

Seller assist is a win-win strategy that can ease the financial burden for buyers while helping sellers close deals faster. Whether you’re navigating a buyer’s market or competing in a seller’s market, understanding seller concessions and how they interact with the real estate market can make all the difference in a successful transaction.

By leveraging tools like seller assist in closing costs, buyers can secure their new home with fewer upfront expenses, and sellers can attract more interested buyers. Speak with a real estate agent to explore your options and make informed decisions in today’s dynamic housing market.

Questions?

If you have questions or anything about seller assisted closing costs isn’t clear, please let me know!

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