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Illustration of a for sale sign with some cherry shaped balloons with a house in the background
Chris Gash for Money

When Chad L.’s Atlanta home lingered on the market for a couple of months this fall, he took a drastic step to get it sold: He paid $50,000 in closing costs on behalf of his buyers.

Times have changed. Instead of sifting through multiple offers like they were just a few months ago, many sellers must pay closing costs or offer other incentives to make a deal. Higher mortgage rates have reduced competition as some buyers drop out of the market and others are laser focused on finding a house they can afford.

“The buyers wanted the house, but they didn’t have a big enough down payment to qualify for the loan they wanted,” says Chad, a homeowner and real estate investor who asked to be identified only by his first name and last initial because he prefers to keep his real estate holdings private. “My covering their closing costs allowed the deal to go through.”

Whether concessions are offered as a marketing tool or during negotiations, they can be a good way to get a transaction over the finish line.

“If a house isn’t in a great location or in perfect condition, or is overpriced and not selling fast enough, sellers may be motivated to offer concessions to buyers,” says Todd Luong, a real estate agent with Re/Max DFW Associates in Frisco, Texas.

If concessions aren’t offered upfront, buyers can ask for them when making an offer. Whether you’re a seller or a buyer, everything is negotiable and should be tailored to market conditions and the individual circumstances of your transaction.

Here are six concessions to consider whether you are a buyer or a seller.

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1. Pay closing costs

Reducing the buyer’s outlay can be helpful, especially for buyers without cash from another home sale, says Dyan Pithers, a real estate agent with Coldwell Banker Realty in Tampa, Florida.

Sellers can typically contribute up to 3% to 6% of the loan amount toward the buyers’ closing costs, depending on the loan program. The concessions can never exceed total closing costs.

“The down payment must come from the buyer,” says Eric Mullis, branch manager for CMG Home Loans in McLean, Virginia. “Contributions to closing costs can be a mix coming from the sellers, the agent and the lender.”

2. Buy down the buyer’s mortgage rate

Another option is that sellers can pay to lower the buyer’s interest rate for the first one, two or three years of a fixed-rate loan.

“The biggest concern buyers have is about the cost to purchase a home now that mortgage rates have gone up,” says Pithers. “Some sellers opt for straight price reductions, but first-time buyers especially appreciate it when sellers buy down their mortgage rate for the first couple of years of their loan.”

Buydowns are available on all types of fixed-rate loans, including conventional and government-backed loans.

Typically, what’s known as a “3/2/1” buydown would work this way: If the current rate is 7%, the borrower would pay 4% the first year, 5% the second year and 6% the third year, then 7% for the rest of the loan unless they refinance.

“The buyers must qualify based on the fixed rate when the loan closes,” says Hugo Astorquiza, vice president of mortgage lending for Guaranteed Rate in Tampa, Fla.

The cost of a buy down depends on the loan amount and the type of loan program, Astorquiza says. He estimates a 2/1 buy down on a $400,000 mortgage would cost about $9,000.

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3. Pay upfront mortgage insurance

Mortgage insurance, which protects the lender rather than the borrower, is required on conventional loans with a down payment of less than 20% and on all Federal Housing Administration (FHA) loans.

The cost of mortgage insurance depends on the loan amount, the size of the down payment and the borrower’s credit, as well as the loan program. Some loan programs require upfront mortgage insurance and others allow mortgage insurance to be paid in a lump sum before monthly payments begin. Sellers can pay those costs as a closing cost concession, says Mullis.

4. Provide an allowance for repairs

Not too long ago, buyers opted out of a home inspection and wouldn’t ask for repairs to make their offer more attractive. Now, many sellers offer an allowance at closing to pay for things like paint or new carpet, says Luong.

The typical advice is to make necessary repairs before listing a home or after a home inspection. This can be a viable alternative. However, sellers should keep in mind that it can be difficult to sell a house that’s not in good condition and buyers may make a lower offer even if an allowance is on the table.

On the other hand, buyers beware that while having the seller just make the repairs may be attractive, the sellers may choose the least expensive option rather than pay for high quality work.

5. Offer a perk

A variety of small expenses add up fast for buyers such as home inspections, pest inspections and moving costs. Sellers can offer to reimburse those costs to ease the strain on buyers.

One of Luong’s clients paid the fees for a home security system contract for a year for his buyers. Other sellers pay for home warranties to cover appliance and system repairs, says Pithers.

In urban locations, paying for a parking spot for a year could sweeten the deal. Sellers may also offer to give the buyers some furniture, a grill or outdoor play equipment at no charge.

6. Cover condo or homeowners association dues for a year

Builders and home sellers can cover fees for a specific period for the buyers, which means the buyers have more room in their budget to adjust to making a mortgage payment, says Luong.

Monthly condo fees can run from $200 to as much as $1,000 or more, while homeowners association dues can be $200 to $300 per month. Paying those fees for a year can be a relatively small out-of-pocket cost for the sellers while making a significant difference to the buyer’s budget.

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