Put simply, a seller concession is when the buyer and seller of a property agree on a purchase price and then also agree to an additional amount (the concession) to help the buyer with their closing costs. For example, let’s say a buyer and seller agree to the purchase price of $500K but the buyer also requested a 6% ($30K) Seller’s Concession in order to assist them with closing costs. If the Seller agrees to offer them a concession, the actual contracted price would be $530K, however, the additional $30K would not go to the seller, it would actually go towards the buyer’s closing costs. Now, in Western, Central, and Northern Queens, Seller’s Concessions are not very common. However, in South Central Queens and in Southeast Queens it is not uncommon to see offers come in with seller concessions included as part of the terms.
A seller concession is a great way for buyers who are short on assets to finance their closing costs. Closing costs are usually 4-5% of the loan amount and lenders typicaly allow concessions up to 6% of the loan. In Queens, the seller concession is typically added on to the agreed upon purchase price. So, for example, if a buyer and seller agree to $500K price with 6% seller concession, then the contract price would be increased to $530K in order for the net to remain the same for the seller while allowing for the concession which helps the buyer.
What this ultimately does is allow the buyer to borrow 80% or 90% of $530K instead of 80% or 90% of $500K. The additional amount borrowed is used by the buyer to pay for bank and title closing costs.
While the purchase price stated in the contract is $530K (for example), there is a clause in the contract that explicitly states “the seller is giving the buyer a seller’s concession in the amount of $XX,XXX towards closing costs”.
This concept is also useful in satisfying Coops and Coop boards who have a “minimum sale price” or minimum floor price policies. Instead of calling them seller’s concessions however, they are more commonly referred to as a “renovation credit” in these circumatances. This allows for buyer and seller to satisfy the Coop’s minimum floor price policy thereby protecting the value of the unit.
There is one caveat when agreeing to a seller concession or renovation credit. The success and use of a concession ultimately depends on the property appraising for the higher/contracted price. So, if you’re a Queens home seller and are asked for a seller concession by the buyer, you should strongly consider whether the property will appraise or not. On the other hand, if you are a Queens home buyer, you should also make sure that the property can appraise for the higher contracted price because under appraisals always cause issues and can very likely result in cancelled deals if not planned for accordingly.
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