Reasons for Seller Concessions vs. Price Discount

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Reasons to structure offer with seller credit for closing costs in Lieu of discount off list price

This is simply a Paper Credit. Its not as if the Seller is asked to bring a separate check to closing to pay the Buyer’s Closing Costs. Keep in mind, if a seller is willing to reduce the list price by even one dollar, then they’ll just as easily credit that dollar towards the buyer’s closing costs as they still net the same.

To reach a lower LTV (Loan To Value) to qualify

The buyer will have more money to put down to lower the LTV level if the lender requires another 5% down to meet DTI (Debt To Income) ratios or may enable the buyer to qualify for more loan programs at a lower LTV level.

To meet Reserve Requirements to qualify

Most loan programs require a certain amount of reserves (money left in the bank after closing). Also, may help the buyer qualify for better terms by showing extra reserves, thus making them a lower risk.

To have more money available to Pay Off Debt to qualify

The buyer could then use the money that would have gone towards paying closing costs, to instead pay off debt if needed before closing to lower their DTI to qualify.

To have more money to use for Rate Reduction

The buyer will have more money available to buy down the rate if required to qualify for a loan program due to DTI (Debt To Income) ratios.

To help increase the Neighborhood’s Home Values

Other sellers in the neighborhood can then use the higher sales price as a comparable sale to list and sell their home at an even higher price which will increase the neighborhood’s value (i.e. Appreciation)

To be able to pay for taxes and insurance when due after closing

The buyer will have more available money to pay for taxes and insurance when they are due if not escrowed.

To pay lower Capital Gains Tax when selling the property

If the buyer resells within the first year or turns it into an Investment Property, the buyer pays up to 25% Capital Gains Tax on the profit between the Purchase price and the Sales price when resold. Example: approx. $1,250 tax savings per every $5,000