Seller concessions are being used in the Maplewood, Millburn, S. Orange and W. Orange real estate market and can benefit both NJ home buyers and sellers.
A seller concession helps a borrower pay some or all of their closing costs (such as attorney fees, lender fees, title insurance, recording fees, and escrows for taxes). A seller concession generally ranges between 3% to 6% of the purchase price, although it can be any amount the parties choose. The funds can only be used to pay costs. Borrowers cannot receive cash in hand from a seller concession.
Seller concessions are beneficial to sellers because they open the market to buyers who are short of cash needed to close. A seller concession is helpful for borrowers who do not have enough funds to pay for the down payment and closing costs. It is also helpful for homebuyers who prefer to keep more of their funds liquid, potentially for home repairs, moving expenses or new furniture. The seller concession is especially helpful in New Jersey because most lenders require four (4) to five (5) months of taxes to be pre-paid at closing — such amount could easily be in excess of $5,000.
Here’s an example of how a seller concession works:
A buyer wanted to pay $300,000 for a home and was $9,000 shy of the cash need to cover closing costs. The realtor would include the seller concession into the purchase contract by increasing the purchase price by the amount of the seller concession. The purchase price would be $309,000 and the seller would agree to pay $9,000 of the buyer’s closing costs.
The seller would still receive $300,000 from the sale — a seller concession doesn’t cost the seller anything. The extra $9,000 in the purchase price is given back to the buyer in the form of a $9,000 credit on the closing statement, which allows the buyer to come to closing with $9,000 less cash.
Be sure to speak to both your realtor and mortgage professional before signing the real estate contract to ensure it is worded properly. The property must be able to appraise at the higher purchase price for the deal to work.
In sum, seller concessions can be a great tool for home buyers and sellers in the Maplewood, Millburn, S. Orange and W. Orange area real estate market by helping to keep deals together.