A seller assist involves a seller providing credit to the buyer to help them cover the closing costs associated with buying a home. The credit can be used for other things, such as lowering the interest rate, paying the first monthly mortgage payment, or be put towards property taxes, but typically speaking, it’s used for closing costs on a sale.
It’s very common for homebuyers to successfully and accurately budget for the things like down payment but forget completely about the high expenses of closing costs. In these situations, a buyer might approach the seller and ask for a seller assist, particularly if they know that they have enough for the down payment and monthly payments but they just don’t have enough money to make the closing costs work. This is a particularly common situation for first-time homebuyers who aren’t expecting closing costs to be as pricey or don’t have the funds to cover them out of pocket.
The most common situations where a seller's assist would occur are when a buyer is interested in purchasing a home but needs help covering the closing costs. For example, if a buyer wants to purchase a home for $500,000, but needs help covering the closing costs they could make an offer for $500,000 but ask for a 3% seller assist. If the seller agrees, they would provide the buyer a $15,000 credit to use towards their closing cost.
Seller assists are a way for sellers to help buyers afford the home. They can be offered by the seller or can be worked into an offer made on a home by the buyer. Buyers will usually put in an offer for a sale price with an included percentage for a seller's assist. The seller's assist would then be used to cover the closing costs of the home.
It should be noted that not all loans allow for a seller assist. Even if buyers do qualify, there’s a limit to how much they can apply for in many situations. For example, with an FHA loan the maximum seller assistance allowed is 6%.
So, a seller assist is clearly helpful for buyers, but what’s in it for the seller? Well, first and foremost, offering a seller assist can be a huge help when it comes to drawing in potential home buyers. Furthermore, a seller assist can help to secure a pending sale and make sure it goes through. If a buyer and seller have spent months invested in the selling process, it’s more beneficial for a seller to offer a seller assist if a buyer can’t cover closing costs. If the buyer were to back out due to insufficient funds, the seller would have to start the process all over again with a new buyer.
It’s also common for sellers to accept a request for a seller assist only on offers that come in above the listing price. This helps the seller ensure that covering the closing costs doesn’t cut too far into the profit they can make on the home.
Sellers Assist Pros
- Reduces Costs For Buyers
- Makes the Home More Attractive
1. Reduces Costs For Buyers
The main benefit of a sellers assist is that it reduces costs for buyers. This makes the home more affordable for buyers, especially if they need help covering the down payment or other closing costs for the property.
2. Makes the Home More Attractive
Since offering a sellers assist lowers the out-of-pocket costs a buyer needs to purchase the home, it also becomes more attractive. Sellers who offer this type of credit can expect more buyers. Often, you can even attract buyers who might otherwise qualify for a mortgage, but be unable to cover the closing costs.
Sellers Assist Cons
- Can Reduce Sellers Proceeds
- Requires negotiation
1. Can Reduce Sellers Proceeds
The main drawback of offering a seller assist is that it is an additional cost that can reduce the proceeds a seller receives from the sale of the home. As most sellers want to receive the most amount of money possible, a seller's assist can seem counterintuitive. However, it's usually worth it as it will create more interest and competition among buyers.
2. Requires Negotiation
Another challenge with a sellers assist is that it can lead to a lot of negotiation with the buyer. Purchasers who need the seller's assistance to be able to afford the closing costs will likely try to get a larger credit, which can lead to difficult negotiations.
All in all, a seller assist can be hugely beneficial for both buyers and sellers alike. Buyers who don’t have the cash to pay closing costs upfront and out of pocket will still be able to afford homes that they are interested in if a seller's assist is an option. And for sellers, it can be a good way to attract potential buyers or secure a sale that the buyer otherwise may have to back out of due to lack of funds for closing costs. In these circumstances, a seller assist benefits both parties and can be a win-win situation overall.