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Asking for a Seller Concession on a California Home Purchase

In a previous article, we pointed out that seller concessions are becoming more common in the Bay Area. The same is true in other parts of California as well. As the real estate market cools, sellers have to do more to attract buyers. And concessions are one such strategy.

But what if a seller doesn’t offer to make a closing cost contribution up front? Can a home buyer in California ask for a seller concession when making an offer? And if so, what’s the best way to handle it?

Let’s explore!

The Seller Concession Explained

Definition: A seller concession (also known as a seller contribution or assist) occurs when a homeowner contributes money toward the buyer’s closing costs or other expenses.

There are other types of seller concessions as well. For instance, a homeowner might agree to leave a pool table behind as part of the transaction. But most of the time, when you hear the phrase “seller concession,” it refers to a financial contribution toward the buyer’s expenses.

Some mortgage programs set a limit as to how much the seller can contribute. For example, here are some common rules and guidelines:

  • FHA loans often limit these contributions to 6% of the sale price.
  • With a conventional loan, a seller concession might be capped somewhere between 3% and 6%, depending on the down payment.
  • VA home loans typically limit these contributions to 4%.

But these are just general rules that might not apply to your particular situation or loan type. So be sure to research this up front, if you plan to ask for such a contribution.

How to Ask for a Seller Contribution

As mentioned above, the process of requesting a seller concession in California is fairly straightforward. You would simply write it into your purchase offer, or have your real estate agent do it for you. These clauses are typically only a few sentences long.

The language is often standardized and usually looks something like this:

Seller agrees to pay $ at the closing to be used towards any of the following: Purchaser’s closing costs, down payment, discount points, pre-paids, Purchaser’s commission or adjustments. Purchaser reserves the right to use any portion of these funds to reduce the purchase price.

Note: Depending on the specifics of your transaction, different language might be needed.

The seller can accept or reject a request for concessions, just like they can accept or request the amount you’re offering to pay. Like most things in the real estate world, it’s negotiable.

So, when is it a good idea to ask for a seller concession in California? And when might it work against you? It really comes down to current housing market conditions.

Generally speaking, seller concessions are more common in a slower market and less common in a fast-moving real estate market.

So let’s talk about that next.

Understanding Current Market Conditions

In a “balanced” real estate market — and especially in a buyer’s market — it never hurts to ask for a seller concession. The worst-case scenario is that the homeowner will say no. But they might accept the other terms of your offer, including the purchase price.

In a hot real estate market, on the other hand, asking for a seller concession could work against a home buyer. If the seller has a half-dozen offers to choose from, and only one of them requests a closing cost contribution, they’ll probably choose one of the other offers.

This is where market research comes into the picture. A real estate agent can bring you up to speed quickly, but you can also do some of this research for yourself. With a few Google searches, you could find out what the real estate market is like in your area.

  • Are houses selling quickly, or are they staying on the market for a while?
  • Are bidding wars and multiple-offer scenarios common, or rare?
  • Does the market currently favor buyers or sellers, or somewhere in between?

These are the kinds of things you want to know before asking for a seller concession.

This is one reason why it makes sense to work with an experienced real estate agent. Agents deal with purchase offers on a regular basis. It’s their job. So they can advise their clients whether or not it makes sense to request a concession, based on past experience.

It’s all about market awareness. You want to make a smart offer based on current real estate trends and conditions in your area. And that applies to the seller concession as well.

Mike Trejo

Mike Trejo is a Bay Area mortgage broker with 20+ years of knowledge and experience.

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