By negotiating seller concessions, you can make a good property deal even better. Without negotiation, you won’t get any price reductions on closing costs, and your new property could cost more than you bargained for. To secure your latest property investment in a better deal, you must learn the art of negotiating seller concessions.
[Disclaimer: We are not accountants, lawyers, or financial advisors, so please consult your own team of professionals about the topics covered in this article.]
In real estate investing, sometimes good deals aren’t found so much as they are created.
That’s good news! Because it means there are good deals to be had no matter what the market is doing. Provided you know how to create them.
How do you create a good deal when buying real estate?
One of the principal ways is through negotiation, and one of the biggest things you can negotiate are seller concessions.
What is a seller concession?
Most people define seller concessions as the seller covering some or all closing costs. However, this definition is for primary home buyers.
Investment properties are completely different.
Sure, getting some or all of the closing costs paid for is great, but that’s just the beginning.
With investment properties, it’s about getting the best deal overall. The best deal, in this case, is one that will help you reach your financial goals fastest and with the least amount of resources.
So, many in our community are going beyond closing costs and are able to successfully negotiate a number of other concessions from sellers.
Here, we are going to offer an expanded definition that includes a number of other types of seller concessions.
Before diving into some of the other types of concessions, let’s start with closing costs since those are most common.
Closing costs are all the fees and assessments that must be paid at the time a real estate transaction is completed. But that doesn’t mean they must all be paid by the buyer. Many of these can be negotiated as to who pays them.
Loan origination fees, property taxes, cost of a third-party appraisal, inspection fees, title insurance, and even the cost of getting the deed transfer recorded with the municipality are all examples of common types of closing costs.
It may be possible to get the seller to cover these or, more commonly, for the buyer and seller to split them and each pay a portion.
Some types of financing may impose limits on the value of seller concessions, particularly with regard to closing costs.
For example, Fannie Mae and Freddie Mac loans for investment properties have a concession cap of 2% of the sale price. (The caps for primary home buying are slightly different.)
The caps for VA loans is 4% and FHA is 6%.
In terms of value, a price reduction is one of the biggest seller concessions.
Where closing costs may total a few hundred to a few thousand dollars, it’s common for those who’ve learned the negotiation tactics we teach in our Zero to Freedom course to negotiate several thousand to tens of thousands of dollars off of the asking price.
The first step to getting a price reduction is to believe that it’s possible.
Many investors don’t believe that you can get a price reduction in a hot market. Or fear that by even pursuing it, another investor will swoop in and outbid them.
As a result, they never even ask.
There are many strategies you can use to get price reductions – we cover these in detail in our signature real estate investing course Zero to Freedom.
Using some of these strategies, one course alumnus negotiated a $200,000 price reduction on a property she was buying.
That amounted to more than a 20% discount in a red hot real estate market!
There are many points of leverage for negotiating to get money off. For example, issues with the property or misinformation in the listing.
Maintenance and Repairs
If a property inspection reveals defects with the property or repairs that must be made, often referred to as deferred maintenance, you might negotiate for seller-paid repairs.
The seller may pay to correct these things. That would reduce your out of pocket expenses once you buy the property.
However, sometimes the seller doesn’t want to repair the item. Perhaps because it might delay the close and they are facing a time crunch. (Some types of tax-deferred transactions impose very strict time limits.)
Instead, they might agree to a credit to cover the cost of repair.
Including Personal Property
An often overlooked category of seller concession is personal property.
Here is where you have the opportunity to start getting really creative.
For our purposes, we define personal property as anything that is on or in the property but not part of the house or land. These are often not normally part of a typical real estate transaction.
For example, purchasing an office space and getting to keep all of the office furniture: desks, chairs, conference tables, cubicle dividers, etc.
Another SRMD community member got the seller to throw in a vintage Greyhound bus for free! She now markets it as a unique short-term rental. This helped her differentiate her property and has become a huge driver for bookings and profitability.
Several Zero to Freedom alumni has even been able to negotiate concessions in which sellers include furnishings, decor, and personal items along with the property.
Personal property is especially relevant for short-term rentals or commercial property, where the owners have often outfitted the space with a lot of furniture and furnishings.
With a little ingenuity and imagination, there’s almost no end to what can be negotiated as a seller concession when dealing with investment properties.
Another category of seller concession is to ask the seller to be the bank. This is called seller financing.
To use a simple example, let’s say you buy a property for $200,000. The bank is going to lend you 75% of the purchase price, or $150,000. This means you need to come up with $50,000 of your own money to complete the purchase.
Only you don’t have $50,000 laying around.
This is where seller financing comes in.
Let’s say you get the seller to finance $30,000. Now you only have to put down $20,000 of your own money.
Not only that, you negotiate with the seller for a very low interest rate on that $30,000.
Not all sellers can or will offer seller financing. But this is where negotiation and the belief in what’s possible comes into play. After all, you probably won’t think of asking unless you believe it’s possible!
You Can Even Go For Small Things
Don’t stop with the above. You can go so much further with seller concessions if you just ask. It’s all about getting creative.
For example, a fairly easy concession is to ask for a home warranty. These are relatively inexpensive and cover the appliances if they should have problems after you buy the property.
While you might not normally buy a home warranty for yourself, it can represent significant value if the seller pays for it.
Items related to safety are often inexpensive but have tremendous value. Take radon testing and mitigation, for example. This is relatively inexpensive but critical to ensuring a property is safe and livable.
In another case, we negotiated for earthquake straps to secure a water heater. While it’s a small item, it’s required for homes in earthquake zones.
These are just a few examples of how you can get creative and ask for what you need. When you do, you sometimes might be amazed at the results you can get.
We expanded the definition of seller concessions to include not only closing costs but many other things.
Investment properties should never be an emotional purchase. Taking emotion out of the transaction makes it easier to negotiate for more than just closing costs.
There is no one-size-fits-all solution when it comes to seller concessions. It’s not just about getting the absolute lowest up-front price. Sometimes a bit of creativity can lead to an even better deal in the long-term.
It starts with knowing what’s possible and having a long-term vision for what you hope to accomplish. From there, it’s all a matter of flexibility and negotiation.
Negotiating is the key to getting seller concessions. It’s a way to make a good deal even better. This is how you create great deals, no matter what the broader housing market is doing.
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