Concessions

Incentives offered by the seller to the buyer of a property to close the deal faster. This may be reduced final price, repair cost, or personal possessions like furnishing.

What are Concessions?

In real estate, concessions refer to incentives offered by the seller to the buyer to speed up the closing of the sale. These incentives could include a reduced final price, covering the cost of repairs, or even leaving behind personal possessions such as furnishing.

Buyers should consider concessions when making a real estate purchase. For sellers, concessions can be an excellent tool for getting a deal done quickly and efficiently. By offering incentives, sellers can attract buyers who might otherwise be hesitant to commit to a purchase. This is especially true in a competitive real estate market where buyers have more options to choose from.

When it comes to concessions, it's important to strike a balance. As a buyer, you want to make sure that you're getting a fair deal and not simply being swayed by a seller's incentives. That said, if a seller is willing to offer concessions that benefit you as a buyer, it's certainly worth considering.

For sellers, concessions can be an effective way to close a deal quickly and move on to their next opportunity. By offering incentives, they can help to build trust with potential buyers and make the deal more appealing.

What types of concessions can a seller offer to a buyer?

There are different types of concessions that a seller can offer to a buyer, including:‍

• Price reduction: This is the most common type of concession offered by sellers to buyers. A price reduction is a discount on the sale price of the property, which can make the property more affordable and attractive to buyers.
• Closing cost assistance: Closing costs are fees associated with the purchase of a property that is paid by the buyer. Sellers can offer to pay some or all of these fees to help the buyer cover the costs associated with closing the sale.
• Repairs and maintenance: Sellers can offer to make repairs or provide maintenance to the property before closing the sale. This can help to ease any concerns that the buyer may have about the condition of the property and can make the sale more appealing.
• Personal property: Sellers can also offer to leave behind personal property, such as appliances, furniture, or electronics, as part of the sale. This can be particularly attractive to buyers who are looking for a turnkey property that is ready to move into.
• Home warranty: It is a type of insurance that covers the repair or replacement of certain items in the home, such as appliances or HVAC systems. Sellers can offer to purchase a home warranty for the buyer, which can provide added peace of mind and protection against unexpected repair costs.

How can a buyer request concessions from a seller?

Buyers can request concessions from sellers in a number of ways. Typically, the buyer's agent will include a request for concessions in the initial purchase offer. This request can be specific, such as a certain dollar amount for repairs or a reduction in the sale price, or it can be more general, such as a request for the seller to pay closing costs.

 If the initial offer is rejected, the buyer may have the opportunity to negotiate for concessions during the counteroffer stage. Note that Buyers should have a clear understanding of the local real estate market and the specific property in question when requesting concessions to ensure that their request is reasonable and likely to be accepted by the seller.

Can concessions affect the home's appraised value?

Concessions offered by sellers to buyers in a real estate transaction can potentially affect the appraised value of the home. When an appraiser evaluates a property, they consider a number of factors, including the condition of the property, its location, and recent sales of comparable properties in the area.

If a seller offers concessions that directly impact the condition of the property, such as repairs or upgrades, the appraiser may take those improvements into account when determining the home's value. For example, if a seller offers to replace an outdated HVAC system as a concession, the appraiser may factor in the value of the new system when determining the overall value of the home.

However, if the concessions offered are not related to the condition of the property itself, such as a reduction in the sale price or assistance with closing costs, they may not have a direct impact on the appraised value of the home. In these cases, the concessions may still affect the sale price of the property, but they may not be reflected in the appraised value.

Buyers and sellers should understand the potential impact of concessions on the appraised value of a home. 

Buyers should be careful not to overpay for a property based on the value of concessions, while sellers should be mindful of how concessions may impact the overall value of their property. Worth Mentioning, the impact of concessions on the appraised value will depend on a myriad of factors and should be evaluated on a case-by-case basis.

Are there any tax implications of concessions for the buyer or seller?

There can be tax implications of concessions for buyers as well as for sellers in a real estate transaction. From the buyer's perspective, any concessions that are made by the seller could potentially affect the tax basis of the property. This is because the tax basis is generally equal to the purchase price minus any adjustments for closing costs or other expenses.

If the seller pays for some or all of the buyer's closing costs, for example, this could reduce the buyer's tax basis and increase their potential capital gains tax liability when they sell the property in the future.

From the seller's perspective, any concessions that are made may be subject to certain tax rules. For example, if the seller pays for repairs or upgrades to the property as a concession, this may be considered a capital improvement and could potentially be deducted from their taxes as a business expense. Similarly, if the seller offers a reduction in the sale price as a concession, this may impact their overall tax liability by reducing their gain on the sale of the property.

As with any tax-related matter, it's important for both buyers and sellers to consult with a qualified tax professional to fully understand the potential implications of concessions on their individual tax situation. 

Conclusion

Whether you're a buyer looking for assistance with closing costs or a seller considering offering repairs or upgrades as a concession, it's important to understand how these concessions may impact the value of the property and any potential tax implications. 

By working with experienced professionals, such as real estate agents, appraisers, and tax advisors, you can make informed decisions and ensure that your interests are protected throughout the transaction. So, whether you're buying or selling a property, take the time to understand the potential impact of concessions and make sure you're fully prepared to negotiate the best possible deal.