Oct 16

Seller Contribution


What is it? When do we see it? Should I expect it?


Seller contribution is often termed "closing credit", "closing help", "seller help", and a dozen other names by agents and consumers. In our contracts in Maryland, it's usually dubbed "Seller Contribution" because its a portion of the sellers proceeds that gets contributed towards the buyer's side of the transaction.


For example, if a buyer and seller have agreed to a contract with terms of $500,000 sale price and $10,000 seller contribution, the net price for the seller is $490,000. But Shane, why not just do a contract for $490,000? Shhhh I'm getting to that! Simmer down!


A buyer asks for a seller contribution for a multitude of reasons. It can mean the buyer can afford the mortgage but doesn't have all the cash they need to bring to closing. It can mean there are repairs to be made and in lieu of the seller doing them, the buyer will get compensated at closing and do the repairs on their own. It can mean seller has delayed closing and buyer is stuck in temporary housing for a few extra days and this is compensation for that. There's more ways to use it but these first two are by far the most common.


We see this a lot more in the entry level markets and the middle class markets. First time buyers are often "cash poor" but make good money. Especially these days. Again, that means that we have a buyer that can afford the monthly payments, but they don't have or aren't comfortable having all the cash that's needed to actually close on the property.


In our move-up buyers (buyers selling their first or second homes and moving up in the market to a bigger or more expensive home), we set it a little less and it's usually related to inspection items. Bigger houses mean more maintenance and thus more issues that can come up at an inspection. A lot of the houses they are buying will be bought from owners who are downsizing and therefore not interested in fixing much, so they offer money in lieu of repairing items.


If you're selling a house that is in either of those two categories - expect some seller contribution attached to the offer.



New Posts
  • What is it? Do I need it? Is it attractive? How does it work? In Maryland residential real estate transactions, you can offer to buy a home and make that purchase contingent on you selling another property. In most cases, you see this with move-up buyers and they are selling their smaller or less expensive house to purchase a larger or more expensive house. The contingency is not specific to the residence you live in, just a residence that you own. To be clear, this is not a very attractive option for sellers. Most sellers want to see a non-contingent contract placed on their house, simply because it's easier to deal with. In 2018, we saw a lot more contingent contracts than I've seen in the past 5 years. You may or may not need this contingency in your offer. If you can afford two or more mortgage payments at one time, you don't really need this in you offer. Again, it's not very attractive to sellers when you're making your case to buy their home. There are cases where the only way you can purchase the new home, is with the proceeds from the sale of the residence you own. Your lender will be able to qualify you based on your assets and put a plan together for you and your realtor to get the new house. When you put a contingency like this in an offer in Maryland, you set deadlines for your property you own to receive 3 things... 1) an offer - someone needs to write an offer on your house and you need to come to terms in writing on that in the form of a contract; 2) a loan commitment - that buyer for your house if they are obtaining a loan, needs to present a loan commitment letter to your realtor by the deadline set; 3) a closing - the buyer for your house needs to close on it by the deadline; There is a 4th option to have a deadline of a lease on your property by a certain time. This is seldom used but can be if you can afford that option and still qualify. Your lender will tell you in advance if this is a real option. If you have any specific questions or want me to elaborate on this, comment below!
  • Have you ever read a listing that said a house was being sold as-is? Wonder what that is? In real estate (at least here in Maryland), that means the s eller will not be making any repairs. You see it a lot in estate sales, foreclosures, auctions, tax sales and houses that are OLD. In an "as-is" sale in Maryland, a buyer can specify whether they are doing inspections or not and within what timeframe. If you choose to do inspections, you can do ANY inspection you want within your timeframe and you use those inspections for informational purposes only. If you are within your timeline and you get uncomfortable with what is uncovered at inspections, you can unilaterally release yourself from the contract and request your deposit back from the escrow account.

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