Seller concessions for a cash sale?

[shrubberyvaluation]

What is the point of seller concessions for a sale without financing? Wouldn't you just adjust the sales price? Is there some other tax implications?

 

[J Grant]

What is the point of seller concessions for a sale without financing? Wouldn't you just adjust the sales price? Is there some other tax implications?

It's less common, but it can happen - a concession is analyzed the same as in a financed sale - if the concession is noted to have affected the price, I adjust for it in a cash sale the same as I would if it were a financed sale.

The concession pays for some repairs or helps with closing costs. It presents a savings or incentive to the borrower.

 

[shrubberyvaluation]

It's less common, but it can happen - a concession is analyzed the same as in a financed sale - if the concession is noted to have affected the price, I adjust for it in a cash sale the same as I would if it were a financed sale.

The concession pays for some repairs or helps with closing costs. It presents a savings or incentive to the borrower.

Right but if someone is paying cash, closing costs are not really the issue. Why not negotiate the price down $5k rather than adding a $5k concession? More commision? I've bought multiple properties in cash and never asked for a seller concession. I'm genuinely curious.

 

[J Grant]

Right but if someone is paying cash, closing costs are not really the issue. Why not negotiate the price down $5k rather than adding a $5k concession? More commision?

I honestly dont' know, but The way I see it, even a wealthy person loves a freebie or a savings. It is what it is, I was not present at the negotiaiton. Some people just like to drive a hard bargain and feel like they "won". the few times a year I see a concession and the sale was cash , I adjust for it if it affects the price.

Also, if it is a comp, very often the MLS reports a cash sale where the contract had no financial contingency clause, but the buyer went ahead and got a mortgage anyway. A so-called "cash" sale really means that unless it is otherwise specified, the buyer is not subject to a financing coningency clause and must close with their own funds if they get rejected for a loan.

 

[Terrel L. Shields]

The concession is to keep the apparent price high while the seller finances the closing costs. A possibility at least.

 

[alebrewer]

To Terrel's point, I guess if you're an altruistic neighbor, you'd keep the sales price high and negotiate concessions to offset any deferred maintenance. Keeping the sales price high helps the neighbors' property values...

 

[Elliott]

Fannie and Barney wanted more sales and financing, so they wanted to roll closing costs into the purchase price. So say a house is listed for $400,000 and closing costs are $12,000 (3%), then a purchaser could pay $400,000 cash, or $412,000 with the seller paying for $12,000 of the buyers closing costs. From the seller's standpoint, their net would be the same. Fannie would say the $412,000 is MV, because as a stakeholder, they changed the definition of MV so more 'average' people could buy houses. The definition of MV is 'suppose' to be cash or cash equivalent. It really isn't.

 

[Mark K]

From my experience, its because of the brokers. They get paid more commission on the higher price.

Also, some (brokers and sellers) are so f'n stupid that they don't understand the concept. Example: my son bought a house and offered $2,500 below list price. Seller/broker countered back wanting full price. We said 'fine'. Increased the offer to full price and asked for $2,500 in closing costs. They signed it.

 

[J Grant]

Fannie and Barney wanted more sales and financing, so they wanted to roll closing costs into the purchase price. So say a house is listed for $400,000 and closing costs are $12,000 (3%), then a purchaser could pay $400,000 cash, or $412,000 with the seller paying for $12,000 of the buyers closing costs. From the seller's standpoint, their net would be the same. Fannie would say the $412,000 is MV, because as a stakeholder, they changed the definition of MV so more 'average' people could buy houses. The definition of MV is 'suppose' to be cash or cash equivalent. It really isn't.

MV definition : payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto;and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.

A Concession is not a payment for the property from buyer to seller, a concession is an incentive from the seller to the buyer - only if it seen to affect the price do we adjust for it.. Closing costs are often shared between buyer and seller in columns per state or local law and custom -but a portion of the closing costs a buyer would pay can be covered by a concession, and prices also include the RE commission - for better or worse, RE prices often include closing costs and RE commissions..

Appraisal fees are one of the few fees paid up front and in real money ( not financed)- which keeps appraisal fees low since a buyer feels the pain of writing a check for $500 vs financing 30k in price to cover a RE Agent commission

 

[Tom4value]

I am no accountant, nor did I stay at a Holiday Inn Express, but my guess would be tax considerations.