Welcome Back to the Seller Concession Playbook

Jennifer Chicano, Your Loan Chic, is back with another episode of the Seller Concession Playbook to address a costly mistake that happens more often than most buyers realize. Negotiating more seller concessions than you can actually use.

What Happens When Concessions Exceed Eligible Costs

The scenario plays out like this. A buyer negotiates ten thousand dollars in seller concessions. The eligible closing costs and allowable transaction expenses total eight thousand dollars. The buyer assumes the extra two thousand dollars will come back to them in some form. Generally it does not.

Seller concessions are not cash the seller hands directly to the buyer at closing. They are credits that can only be applied toward allowable costs associated with the transaction. When the concession amount exceeds what is actually eligible to be covered under the loan program guidelines the excess does not transfer to the buyer. It simply disappears from the deal without producing any benefit.

A buyer who negotiated aggressively and won a large concession can still leave money on the table if the structure was not thought through before the offer was written.

Why This Has to Be Figured Out Before the Offer Goes In

Knowing what your estimated costs are before the offer is written changes everything about how the concession negotiation should be structured. The goal is not to win the largest concession number possible. The goal is to negotiate dollars that can actually be used within the transaction.

When the estimated costs are known in advance there is also an opportunity to structure any excess concession dollars differently rather than losing them. Depending on the loan program guidelines excess concession capacity might be directed toward discount points that lower the interest rate or toward other allowable costs that produce real financial benefit rather than evaporating at the closing table.

The Principle Behind Every Episode of This Series

Do not just negotiate the price. Have a plan for the money.

That principle applies to every conversation about seller concessions. The strategy behind the dollars matters as much as the dollar amount negotiated. Structuring the concession correctly before the offer is written is what converts a negotiated win into an actual financial benefit at closing.

Follow along for the next episode of the Seller Concession Playbook and reach out to Jennifer Chicano, Your Loan Chic, to build the right strategy for your specific purchase before the offer goes in.

Sources

ConsumerFinancialProtectionBureau.gov
FannieMae.com
MortgageNewsDaily.com
HUD.gov
Investopedia.com