It is not a seller’s market anymore and if you are on the hunt for your dream home, a second home or an investment property, consider the broader menu of seller concessions — not just sales price. Think big. Ask for a lot. Sellers can just say yes, no or monkey in the middle. For example, consider a permanent rate buydown. Assume you can get a 30-year fixed rate at 5.5% without points. The principal and interest payment would be $3,407 on a $600,000 loan. At 4.875%, the payment would be $3,175, or more affordable by $232 per month. This concession would cost the seller roughly 2% of the loan amount, or $12,000. But it could potentially save the buyer $83,520 over the life of the loan.
Homebuilders are especially open to a cornucopia of concessions if it doesn’t mean discounting the sale price. They want their closed sales comps to remain steady to make sure discounts don’t torpedo pricing for an entire phase of freshly built homes. Freddie Mac allows “interested party contributions” of up to 3% of the sales price for home buyers making down payments of less than 10%. Such “IPC’s” include home seller, builder and real estate agent concessions. Freddie also allows up to 6% in IPC concessions for loans with 10-25% down, and up to 9% for buyers putting more than 25% down. Freddie allows a maximum 2% IPC for investment properties, regardless of down payment size.
Other potential concessions arise after your home inspection. For example, the buyer and seller can agree to a seller’s credit for roof and plumbing repairs, which can be completed after escrow closes. Say the cost of repairs totals $15,000. You could convert that into closing cost credits or reduce the sales price by that amount – if the appraisal does not require the repairs before closing. How about asking the seller to carry back a second “piggyback” mortgage to qualify for a decent-sized home instead of living in a shoebox? This could garner the buyer cheaper payments and avoid mortgage insurance. Seller financing could provide an additional bonus for some home sellers: a capital gains tax delay. “Seller delays any potential capital gains tax on the $75,000 until the buyer repays the principal balance,” said Jeff Hipshman, CPA partner at Eide Bailly LLP. “Any interest payments from the buyer to the seller are taxable to the seller as ordinary income.” If you are angling for concessions in addition to getting your best price, collaborate with your mortgage loan originator and your real estate professional — especially if you are focused on a permanent mortgage rate buydown.
Source: Orange County Register
