Concession or Contribution -What's the Difference?

The words "concession" and "contribution" are used synonymously by professionals in our industry, but it is important to realize that they can have two totally different meanings when it comes to a real estate transaction. Allow me to explain.

Some closing costs and prepaid settlement costs generally are paid by the property purchaser, while other costs are the responsibility of the property seller. Other costs may be paid by either the property purchaser or the property seller. When any costs that are normally paid by the property purchaser are paid (indirectly or directly) by someone else, they are considered to be contributions. All contributions may be paid by any interested party to the property sale transaction, although limitations may be imposed on the amount of the contributions. These limits are usually based on the loan to value ratio of a particular loan as well as other factors; and can vary from 2-9% of the purchase price. When a buyer obtains a loan to buy a home and a seller or other interested party pays costs on behalf of the buyer, this is referred to as a "Financing Contribution" or "Seller Contribution". This is a common practice and does not affect the purchase price as long as the contribution is within lending guideline(s).

When a seller or other interested party gives something of value to a buyer as an inducement to purchase such as cash, furniture, vehicles, vacations, personal property, etc.; this is considered a "Seller Concession" and requires a dollar for dollar reduction in the sale price. For example, if the seller were to give a buyer a flat screen television worth $1000, the purchase price must be reduced by $1000. Some items may be left behind for the convenience of the seller, such as an expensive light fixture or chandelier, as long as the appraiser states in the appraisal that no personal property was used in determining the value of the home. Under some circumstances, "Seller Concessions" are permitted without reducing the purchase price, such as on a VA loan, but the concession is limited to 4% of the purchase price. This does not affect or limit the sellers ability to pay reasonable and customary closing costs for the buyer.

As one can see, there can be a distinct difference between a "contribution" and a "concession" when it comes to buying a home. A "concession" is usually associated with an interested party paying closing costs for buyer, whereas a "concession" is associated with an interested party giving something of value to induce a buyer to purchase the home.

Avoid Mistakes That Could Cost You Thousands - Part 2

Below is the continuation from the previous post.

6. Market Timing/Seasonal Selling

Just as a broker who continually follows the trends of stock, your real estate professional continually follows trends of your real estate market.They will know if the market cycle is poised to
net you the most money. Avoid believing that property sales are seasonal, property is always selling.

7. Refusing To Make Cosmetic Changes

The prospective home buyer's first impression is the most important. Hundreds of thousands of home sales have been lost to unkempt lawns, cluttered rooms, bad stains, unpleasant odors- all the seemingly little things. Imagine you were the home buyer and clean your place from top to bottom... military style.

8. Wasting Time with an Unqualified Prospect.

Your representative's responsibility is to screen a prospect's qualifications before valuable time is lost. Be sure to align your self with the right professional and eliminate negotiating with unqualified prospects.

9. Don't Test The Market

Never put your property online to sell unless you are serious. The right professional will find you buyers and if you are harboring indecision... you will blow the sale.

10. Believing You Are Powerless To Make A Difference

Be a part of the team! Take an active role with your real estate professional to see what you can do to facilitate your sale. Networking with professional peers and personal friends often results in the sale of a home. It's s surprising how many homes are sold this way.

11. Believing All Realtors, Brokers and Others Are The Same.

With all the intricate details and critical decisions to be made concerning your home sale, should you rely on anyone but an experienced real estate investment professional? Many friends and family members have been estranged as a result of failing to meet expectations. Your home sale is a time consuming, effort related, difficult task. Maximize your profit by utilizing an experienced real estate investment professional.