Home Buying in Queens>Question Details

New Homebuyer, Home Buyer in Nassau County, NY

If the seller is paying the sellers concession how come the amount that's paid is added on to the loan or mortgage of the house for the buyer to pay?

Asked by New Homebuyer, Nassau County, NY Sun Mar 31, 2013

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Technically seller concession is a dollar amount (not to exceed 6% in NYS) that's gifted to the buyer(s) to be used towards closing costs. In theory, you'll offer the seller for example $200,000 including 6% concession ($12,000), meaning the seller will net $188,000 after the seller concession.

In the day-to-day real estate practice, everyone does it backwards. Instead of determining the purchase price including the concession, they determine the seller's net and then add anything you're requesting as seller concession. This is why it appears to be that you're adding on to the sales price.

In reality you're not financing the seller concession, it's actually being gifted to you by the seller(s).

I strongly suggest that you speak to your attorney, they should be able to explain this better than anyone invoked, though your Realtor should have been able to as well. If you need a Loan Officer to help you through this, I'm always available to meet face-to-face in our Nassau County offices. Good luck!

If my response was helpful, consider clicking BEST ANSWER!

Javier Meneses
Senior Loan Officer
NMLS #23130
STERLING NATIONAL BANK
310 Crossways Park Drive
Woodbury, NY 11797
jmeneses@snb.com
(516) 606-9648
1 vote Thank Flag Link Sun Mar 31, 2013
Hi New Homebuyer, Mark summed it up below. The so-called concession is really a misnomer in our area and other high-demand real estate markets. I've been told by mortgage professionals in softer markets that true concessions where the seller actually gives you money out of the sale price towards your closing costs thereby reducing his net-are more common. In your case, you're really financing the closing costs equal to the amount of the "concession."

As Javier suggested, your attorney and agent should really explain this very important component of the transaction with you. That said, if the contract is fully executed (signed by buyer and seller) it's too late to make any changes. Your focus now should be to minimize your closing expenses and get the mortgage best suited to your needs. There are many options available to reduce your closing expenses, especially if you are a union member, educator, health care professional, law enforcement/fire fighter or city, state or federal employee.

I have extensive experieince helping buyers become successful homeowners with affordable and simple mortgages. For more info or assistance, I can be reached directly at 917.699.0183 or via email.

I value your opinion, please hit the thumbs up if my reply was helpful. All the best.

Michael Denniston l Cell: (917) 699-0183
Residential Home Funding, Corp.
Licensed Mortgage Loan Originator l Sales Manager
6901 Jericho Turnpike Ste. 219 | Syosset, NY 11791
Main: (516) 605-1733 | Fax: (888) 881-2557
NMLS # 24076 | Company NMLS # 34973
Mdenniston@RHFunding.com
http://www.rhfunding.com
0 votes Thank Flag Link Tue Apr 2, 2013
When the seller accepts to give you a "seller's concession he or she is essentially accepting to help you finance your home because you are short of cash say to cover the closing cost. This is done with the acquiescence of the appraiser because the property has to appraise to the total of the purchase price plus the seller's concession. The bank also has to consent . they limit the total concessions at 3% or less. The concession can also be real, usually as credit for things the owner should have done before closing. These types of concession are paid cash.
0 votes Thank Flag Link Mon Apr 1, 2013
Homebuyer,

You're not getting the seller's concession for free as Mark mentioned below correctly. With the seller's permission, the bank is allowing you to roll in a portion or all of your closing cost, and as a matter of fact allowing you to do so could be considered a disadvantage to the seller. Here's why, (using a similar example as below) if you are purchasing a home for $280,000 and need a $10K seller's concession (increasing the purchase price to $290K), the seller will net $280K but will have to pay transfer tax on $290k for the extra $10K. The seller does not get to pocket the extra $10K and therefore gain no financial benefit other than perhaps to get the house sold.

HOWEVER, now that the market is shifting, that is inventory shortage and multiple offers for the same home, a buyer wanting a seller's concession will be at a disadvantage in a bidding situation for the reasons mentioned above.

All the best with your home search.

Janet Nation, CBR
Sailing Home Realty
Direct: 646-321-9649
Office: 516-377-4760
Licensed Real Estate Salesperson
http://www.jnationproperties.com
0 votes Thank Flag Link Sun Mar 31, 2013
Sellers concession is sometimes used for the buyer to include his/her closing costs into the mortgage. The seller will agree to add to the selling price and you in turn will get your closing costs into your mortgage- instead of coming up with more money for the down payment. Sometimes a sellers concession is added for repairs that will need to be done. There are a variety of reasons concession are done, depending on who wants it- will determine who pays the difference on taxes that will be due for the higher price. Terry K 718-614-3167 or TKorahais@elliman.com
0 votes Thank Flag Link Sun Mar 31, 2013
Assuming that the property appraises for the higher amount, a seller's concession is really a way to help a potential buyer qualify for the purchase...
0 votes Thank Flag Link Sun Mar 31, 2013
It's called a "Sellers Concession" but the seller isn't paying for anything. You are raising the contract sales price and then the seller is "crediting back to you" the difference between the contract price and what you agreed to pay them for the propert, at the closing. If you negotiated them down to 280k from 300k, and need a sellers concession to pay for your closing costs, your contract price wouldn't be 280k it would be closer to 295k.
0 votes Thank Flag Link Sun Mar 31, 2013
There are different ways of going about it.

Seller contribution can be put on top and included in the purchase price - in this case
the seller does not loose any money by contribution, and buyer wins buy getting their closing costs paid by the seller (instead of laying cash out at closing, which the buyer may or may not have).

Or, a seller can agree to pay the closing costs without them being added on top.

However, in certain types of loans, buyers get confused - and it's their MIP (in FHA loans) that
gets added on top.

Best way to find out what's what is by reading your contract, Good Faith Estimate from your lender,
and asking questions of your agent/mortgage pro.

You may want to ask questions like: "What is the best way for me and why?", "Which way saves me more money in a short/long run?" Once you get your answers - decide which way works best for you in your current situation.

Of course, in every negotiation seller and buyer have to agree on all terms.

Hope this helps,

Irina Karan
Beachfront Realty, Inc.
IrinaKaran@gmail.com
0 votes Thank Flag Link Sun Mar 31, 2013
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