With at least half of all home transactions in Bend including some type of concession, it’s important to understand them. Whether you’re a buyer or seller, being prepared for requests for concessions can help the negotiation and closing processes go as smoothly as possible.
What are concessions?
In the real estate world, you can think of a concession as a monetary credit that affects the closing price of a property. Concessions are commonly given from sellers to buyers, but also from buyers to sellers.
Seller concessions
Sellers offer concessions in a few different ways. Some sellers opt to offer a concession toward an expense the buyer will likely incur upon the purchase of a home. For example, a seller may not want to replace carpeting, a roof or furnace prior to the sale, so they offer a concession for those upgrades.
Another common source of concessions are issues that are discovered during a home inspection. This period of due diligence allows the buyer to have a professional home inspector get an in-depth look at the house in a way the buyer couldn’t during showings. This discovery process might reveal issues that require repair. Some of these fixes are best suited for a buyer credit rather than the seller having to address prior to closing.
Within their purchase offer, buyers may also request a credit to be used toward buying down the interest rate on their home loan or to pay for their closing costs at the end of the escrow period.
Buyer concessions
A credit proposed to a seller by a buyer is considered as more of a benefit or incentive to make an offer more appealing. These concessions are dependent upon what a seller may find appealing. A faster or slower escrow period, a rent-back to the seller after closing, waiving a contingency or covering the seller’s closing costs are common examples of buyer concessions.
What are common concessions?
Typical concessions requests we see from buyers are for:
- Credit to use toward a rate buydown to lower the interest rate on their loan
- Pre-paid expenses the buyer will be paying at the end of the escrow period such as property taxes, HOA dues or homeowner’s insurance
- Money to use for repairs or the replacement of aged or older finishes or systems within the home such as flooring, a furnace, A/C or water heater
Common concessions that sellers request include:
- Rent-back agreements, especially in a market where we’re seeing more sellers needing time to bridge the gap between the closings of the home they’re selling and a replacement home they’re purchasing
- Shorter or longer escrow periods dependent on the seller’s needs for timing
What are less common concessions?
Although non-realty property—otherwise known as personal property—can be used as a negotiating tool in lieu of money, this is an uncommon source of concessions.
How do concessions affect the negotiation process?
Concessions are often viewed as a negotiation tool, so there is a certain amount of a “feeling of fairness” that can come into play. No one wants to feel as though they are giving up too much.
Some sellers may sense that a buyer is quietly going into a transaction with the expectation they will be able to get a concession—and with the buyer believing they will be able to keep more money in their pocket—which can leave a sour taste in a seller’s mouth.
On the other hand, a concession can also be regarded as a way to allow for a more smooth closing that will satisfy both the buyer’s and seller’s needs.
How do you prepare sellers for possible concessions?
When working with sellers, it’s best to let them know up front that concessions are a real possibility, especially in this market, where we’re easily seeing half of all transactions include some sort of concession. Setting the expectation is key to not keeping sellers from feeling blindsided.
Are concessions avoidable?
Although concessions are not guaranteed to be avoidable, the best ways to lessen the possibility are to have a home that is desirable to the widest array of buyers by making your home as purchase ready as possible.
Other ways to reduce the possibility of concessions include:
- Doing a pre-inspection to take care of any items that may come up during the buyer’s due diligence and home inspection period
- Replacing any aging systems within the home such as the HVAC system, water heater, roof or air conditioning unit
- Servicing systems that are not in need of replacement
- Addressing cosmetic issues
- Decluttering and, potentially, staging your home when it’s time to list
- Pricing your home appropriately based on solid, expert market data
—Kimberly
