Title Tip: An Introduction to Seller Concessions

Step right up. Get your hot dogs, peanuts. Oh, wait. Wrong kind of concessions. Get your mind out of the amusement park and back to real estate.

Real estate concessions aren’t offered up in a cone or on a stick. These kinds of concessions are allowances offered by a seller to a buyer of a property. Occasionally a seller will offer an incentive to potential buyers in the MLS listing. Maybe they will include the washer and dryer or patio furniture with the sale. More often though, the buyer will request and negotiate a seller concession in the contract. They may want the piano or pool table. But usually, the buyer negotiates for some of their closing costs to be paid by the seller.

In the standard TREC residential contract, non-financial seller concessions such as furnishings or appliances are addressed by attaching a Non-Realty Items Addendum to the contract. This should always spell out exactly what is being transferred with the sale.

Buyer Expenses

All financial seller concessions are handled under paragraph 12A of the contract. There is a space to fill in the specific amount that the seller will agree to pay off the “buyer’s expenses as allowed by the lender.”

The term Buyer’s Expenses is defined in the contract under paragraph 12A. These include lender fees such as an application fee, loan origination charges, credit report, underwriting fee, document preparation, inspection fee, pre-paid interest, title policy endorsements, reserves for taxes or insurance, and the appraisal. They may also include recording fees, escrow fee, and any courier fee.

A buyer may incorrectly interpret a concession from the seller as a credit given to them at closing. Or they may think they are getting that amount from the seller as a separate check. Those are not Buyer Expenses as defined in the contract. Buyer’s Expenses only include typical closing costs and those listed in paragraph 12 of the contract. And they must be “allowed by the lender”. Some lenders will not allow a seller to pay certain buyer expenses, so always check with your lender.

What happens when the allowable Buyer Expenses end up being less than the amount that the seller agrees to pay? For example, let’s say the amount in paragraph 12A was filled in as $4,000. That means the seller has agreed to pay up to $4,000 of buyer’s expenses. Then the “buyer’s expenses as allowed by the lender” total up to $3,500. What happens with the leftover amount?

In this case, the seller would only be paying $3,500 of the buyer’s closing expenses. Thus, saving the seller $500. The buyer may not be happy because they expected to get a full $4,000 credit. The parties might agree to amend the contract to allow the leftover amount to be applied to some other cost. However, the lender would have to approve such an amendment. If there are financial concessions, the buyer should plan to arrange their loan to maximize those seller concessions.

What if it is a cash contract and there are no lender expenses? The buyer expenses could include inspection fees, homeowner’s insurance premium or taxes. If buyers and sellers understand how concessions work in advance, they may structure the transaction to meet everyone’s expectations.

Just because an MLS listing offers a seller concession doesn’t make it part of the contract. If the washer and dryer will stay with the house, ensure it is included with the contract in writing. Any seller concession should always be included in the contract or an addendum.

The opinions expressed are of the individual author for informational purposes only and not for the purpose of providing legal advice. Contact an attorney to obtain advice for any particular issue or problem.

Lydia Blair (formerly Lydia Player) was a successful Realtor for 10 years before jumping to the title side of the business in 2015. Prior to selling real estate, she bought, remodeled and sold homes (before house flipping was an expression). She’s been through the real estate closing process countless times as either a buyer, a seller, a Realtor, and an Escrow Officer. As an Escrow Officer for Allegiance Title at Preston Center, she likes solving problems and cutting through red tape. The most fun part of her job is handing people keys or a check.