First-time home buyers looking to purchase a home are likely focused on saving for a down payment, but they may forget about closing costs. And this poses a problem when they get to closing. On top of their down payment, buyers also need to pay between 2-5% of the sale price of their home. Rather than close up shop and try to save some more later, however, they can use a sellers assist.
What do sellers assists mean for buyers? How does it impact sellers? Here's your guide to the sellers assist.
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Sellers Assist in Real Estate
If the buyer needs some help with the closing costs on their house, they will often ask the seller to pay for a credit. This is known as the sellers assist.
It seems nuts, really, to think that the seller would dish out some of their profit to help a buyer purchase their home, but really it's all part of the negotiation, and both the buyer and seller can benefit.
Sellers Assist Considerations for Sellers
In tough real estate markets where home buyers are far and few in between, sellers assist can be the ticket to selling your house.
When a seller assists the buyer, you aren't actually paying them out of your own pocket (unless their offer amount is lower than your list price).
Say the house is listed at $240,000 and the buyer offers $240,000 and asks for a 3.5% seller's assist. That offer looks like your listing price, but as you do the math you find out that the offer is actually $231,600 because the buyer is asking you to assist with $8,400.
If your house has been on the market a while and you're ready to sell, this might be a great offer. If not, then you've got to weigh your options and the likelihood of getting a higher offer than that.
Willing to offer sellers assist? You can have your real estate agent mention it in the listing, or you can make that knowledge available to those who call about making an offer on the house.
The sellers assist isn't the only way a seller can help a buyer. Other ways for the seller to assist the buyer include discount points, property taxes, conveyance fees, underwriting fees, or even mortgage insurance premiums. The seller could advertise assistance with one or all of these mentioned fees in their listing instead of the sellers assist.
Sellers Assist Considerations for Buyers
The mortgage loan program you use determines how much the seller can assist you. For certain conventional loans and FHA loans, the seller can assist for up to 6% of the purchase price. If you put a down payment of less than 10% using a conventional loan, the seller can only assist 3%.
Sellers assist helps buyers purchase the property that they want without having to come up with another 2-5% of their purchase price.
Generally, a buyer will offer more than the seller's asking price when asking for sellers assist. They may ask for $248,400 on a $240,000 asking price and then ask for a 3.5% seller's assist. The seller is usually willing to oblige in this case. There is a caveat, however: The house must appraise at the offer price of $248,400 to be eligible for that sellers assist.
If the house doesn't appraise at the offer price, the seller may be willing to make concessions for the buyer.
One of the benefits of asking for a sellers assist is that it doesn't add too much more to your monthly mortgage payment. In fact, in many cases, you'll end up paying less than $100 extra on your monthly mortgage.
Who needs a sellers assist?
Some sellers hesitate to offer a sellers assist after considering who, exactly, might be buying their home. After all, if the buyer is terrible with money—as some sellers may conclude—it's possible that they'd back out of the sale due to lack of funds.
But in reality, that's rarely the case.
Most often, those who ask for the seller to assist are first time homebuyers. They may be at more of an entry-level position in their jobs or are just beginning to pay off their student loans.
While many people asking for sellers assist get loans without issues, it is a good idea for the seller to ask for a pre-qualification letter from their lender before they agree to the offer. The pre-qualification amount should be at or below the offer amount for you to consider the offer seriously.
Alternatives to Sellers Assist
There are a couple of other ways for the buyer to get the funding they need to purchase their house.
- Gifted down payment. If the buyer is using an FHA loan, they are able to have part of their down payment gifted to them.
- Seller financing. Rather than go through a lender, the buyer could get a loan from the seller to finance the entire deal. While not usually employed as an alternative to a sellers assist, it is definitely something they can do.
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If you're looking for help drafting up a sellers assist in your contract, you'll want to employ the help of a local real estate expert like those at Clever. Clever uses the best agents in your area to give you the top level of service and expertise. Call us today at 1-833-2-CLEVER or fill out our online form to get started.
