Savvy buyers are not asking for price reductions first. As the real estate market across Pinellas County shifts, buyers and sellers are seeing a change in how transactions are structured compared to the post COVID boom of 3 years ago. Now, more and more sellers are having to offer some form of concession in order to get sales to close. So exactly what concessions should you ask from a Seller?
For both buyers looking to manage costs and sellers aiming to protect their property price, understanding how concessions work, and why they often outperform a basic price reduction, is essential.
What is a Seller Concession?
A seller concession is when a homeowner agrees to use a portion of their sale proceeds to pay for some of the buyer’s closing costs or financing expenses. Instead of reducing the headline listing price of the home, the seller agrees to give a financial credit to the buyer at the closing table.
Examples of a seller concession include:
- A portion of buyer closing costs such as a contribution to lender fees or title insurance
- A contribution to prepaid escrow accounts for insurance and property taxes
- A credit instead of doing repairs, often minor, identified in the home inspection
- Mortgage interest rate buydowns
Why Concessions Outperform Price Cuts for Sellers
When a home isn’t selling, a homeowner’s default response is often to lower the price. However, offering a strategic concession instead of a price cut is often a far more effective way to protect a seller’s bottom line.
1. Protecting Neighborhood Comparable Sales
A straight price reduction lowers the recorded sale price of a home in public records, which matters for other sellers whose appraisals will use the lower priced home as a comp. This will negatively affect future appraisals for the neighbors and lower the perceived value of the neighborhood. A concession, however, allows the headline sale price to remain intact, protecting local property values while still providing financial relief to the buyer. Protecting future home values may not be a priority for a seller who is moving anyway, but the neighbors will certainly be grateful.
2. Solving the Buyer’s Actual Hurdle
In today’s market one of the primary obstacles for buyers is the monthly mortgage payment. What if a seller could reduce a buyer’s monthly mortgage payment by purchasing interest rate reducing points?
Look at this comparison on a $525,000 home. The buyer is putting $25,000 down and getting a $500,000 6.2% mortgage:
- Seller offers a $10,000 price reduction. The price is now $515,000, reducing the mortgage required to $490,000. With a 6.2% rate, this saves the buyer roughly $60 per month on their mortgage payment. It’s nice but doesn’t change their monthly payment very much, the buyer will still pay just over $3,000 per month in principal and interest.
- Seller offers $10,000 to buy down the interest rate. Keeping the price at $525,000 but offering a $10,000 credit allows the buyer to purchase an interest rate buydown. On a $490,000 mortgage each point is about $4,900 so the seller is buying 2 points for the buyer. See the table below on the difference between permanent discount points and a temporary rate buydown
| Concession | Loan Amount | Monthly P&I | Savings over 3 years |
|---|---|---|---|
| None (6.2% rate) | $500,000 | $3,062 | – |
| $10,000 price reduction (6.2% rate) | $490,000 | $3,001 | $2,196 |
| Permanent Discount Points (0.5% rate reduction) | $500,000 | $2,902 | $5,700 |
| Temporary 2-1 Buydown (2% year 1, 1% year 2) | $500,000 | Year 1: $2,445 Year 2: $2,745 | $11,208 |
By offering a concession, the seller spends the exact same $10,000, but creates a benefit that is significantly more attractive to a financing buyer concerned about their monthly payment.
The Appraisal Constraint
Every concession strategy must still fall in line with the property appraisal. If you negotiate a sale price of $525,000 with a $10,000 seller concession, the home must still appraise for the full $520,000. If the appraisal comes in short, the concession or price, or both, must be renegotiated to reflect the lower valuation.
The Bottom Line
Whether you are selling a single family in Palm Harbor or purchasing a condo in downtown St Pete, looking beyond the purchase price to the structure of an offer is how smart moves are made in this market.
If you are preparing to list your home and want to discuss how to structure an appealing concession strategy to attract qualified buyers, or if you are a buyer looking to minimize your cash out of pocket and maximize benefits from seller concessions, I’ll be happy to help.
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Explore the Buying a Home section of The Property Briefing for practical guidance on financing, inspections, making offers, condos, and the decisions that come before closing.
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