In this article, we’re taking a look at seller concessions in New York City real estate transactions. We’ll take a look at what a seller concession is, how common seller concessions are in NYC real estate sales, different ways a seller concession can work, scenarios where they come up, when you’re likely to see seller concessions, when a buyer should (or shouldn’t) ask for a seller concession, and when a seller might want to agree to one. You can also catch the video accompanying this article on the YouTube channel:
What is a “Seller Concession?”
Many buyers and sellers of NYC real estate might be unclear on what exactly a seller concession is, so it might be helpful at this time to define the term. At its most basic, a seller concession is a credit given by the seller to the buyer at closing. This credit can take several forms and can be given for many reasons. Most commonly in Queens home sales and Brooklyn home sales, a seller concession is a credit to the buyer at closing to address deficiencies to the property or work that needs to be done, or it’s a credit to the buyer to help them with their closing costs in order to effect the sale of the property. In Manhattan, where luxury condos and new development form a large part of the market, seller concessions might more often be related to closing costs than something related to property condition. We’ll look a little more in depth at some different scenarios of how and when a seller concession may take place below.
How common are seller concessions in NYC Real Estate
While there’s no real hard data to back this up, there is a perception that seller concessions are perhaps less common in NYC real estate than in some other markets in the country. Of course, the local economics and market conditions will have a big influence on the prevalence of seller concessions wherever you are (as we’ll see in the next section) and in slow markets — as well as in certain property sectors — seller concessions may become more prevalent than in others. Regardless of the market conditions, however, buyers and sellers shouldn’t feel that seller concessions are the norm or occur in the majority of sales. Almost all of Brooklyn home sales, Queens home sales, and Manhattan sales are “as-is” sales, where it is specifically stated that the seller will not make repairs or give concessions based on property condition, whereas in many other states it is understood that the property will go into contract first and then have a renegotiation based on the inspection. NYC real estate sales generally have the inspection BEFORE the contracts are signed, so this scenario is uncommon here. On the whole, seller concessions occur in a very small percentage of sales, overall, with that number ticking up when the sales market favors buyers, and ticking down to almost zero when it’s a hot seller’s market.
When would a seller concession be used in NYC?
As we’ve mentioned previously, there are various times and reasons a seller concession might be used in a New York City real estate transaction, and they are dependent on several factors. One of the principal ones being the current market conditions.
In a seller’s market, supply is low, demand is high, and buyers are competing with each other and scrambling to get properties. Sellers in this environment have more leverage, and less reasons or occasions to give a seller concession. In a seller’s market, sellers can place their property for sale and feel more confident that there will be multiple offers from buyers. That allows the seller the luxury and leverage to choose the most favorable offer, with the best price and terms. In a market like that, one of the first things to drop away is any expectation the buyer might have of a seller addressing issues on a property or helping with closing costs, because the buyers will know — or will have been advised by an expert real estate agent — that there are plenty of other buyers lining up right behind them to make an offer that the seller will prefer, and that they have to let go of many or all of their demands just to compete.
As one might expect, the opposite is true in a buyer’s market. When sellers are struggling to find a buyer, or properties are moving slowly, a seller might be more apt or open to agreeing to a concession in order to get the sale to the finish line. If a seller has been on the market for months, and really needs to make the sale happen, and they’ve only got one buyer to work with and that buyer needs or wants a concession to close the deal, guess what — that seller may just go for it because it’s the best option available. In fact, in a slow market, a seller may even offer a seller concession as part of the marketing of the property to attract buyers. As we’ll discuss later, this is seen often with new development, but it can also happen in resale when a seller is really motivated to sell and is willing to get creative to make the sale happen.
Seller concessions aren’t just dependent on the market conditions, however. They also depend on the specifics of the property or the seller or buyer.
One very common scenario when seller concessions are used is in the sale of co-op apartments. Specifically, co-ops that have a minimum sale price. As you might be aware, co-ops are a special type of New York property, where the apartment owners are actually shareholders in the building. And one way some buildings try to (artificially) maintain the prices of those shares, is by instituting minimum sale prices. The problem comes when the market price (i.e. what buyers are actually willing to offer) isn’t high enough to meet the co-op’s minimum sale price. What’s the seller to do at that point? The seller won’t be able to extract more money out of the buyer, and the co-op won’t allow the sale to go through if it’s below the minimum. Enter the seller concession. The sales contract gets written at a price acceptable to the co-op, and the attorneys for the buyer and seller work out a way to get a credit back to the buyer so their net payment is what they offered. It has to be handled carefully and appropriately, and here, again, is when working with an expert real estate agent or team can really help both the seller and buyer.
Another scenario commonly seen in Manhattan real estate sales is in the sale of new development condos, especially in recent years when there’s been a lot of inventory to move. The developer wants to maintain the sale prices as high as possible to please their investors and their development lenders, and therefore will often go to contract at a certain price, while offering a credit to the buyer to facilitate the sale. That will often come in the form of help with closing costs, and more specifically the transfer taxes that the buyer would normally have to pay.
One obvious scenario for a seller concession that is more property-specific is a property that needs some significant repair. Although most sales in Queens, Manhattan and Brooklyn are “as-is,” meaning a seller won’t make repairs or give credits, in practice this is often negotiable. An inspection is typically ordered by the buyer in the purchase of a residential property (1- to 4-family), and that inspection may turn up some significant issues. In most cases, issues on an inspection — and there are always some — wouldn’t be grounds to renegotiate. It’s understood that the buyer will be responsible for taking on all the work, and risk, that comes with home-ownership. In some cases, however, the issues are significant enough that it warrants coming back to the negotiating table and asking the seller for some concessions as a result of the property condition. This is more common in the sale of Queens residential property and Brooklyn residential property, because co-op purchases rarely involve an inspection and the same is true in the purchase of many condos.
How does a seller concession work?
So, we’ve covered what a seller concession actually is, and some of the scenarios in which it might come up, but how does it actually work, practically speaking?
It can be done in many ways. What it isn’t is a reduction in the contract price. That’s just a price renegotiation. Remember that a seller concession is a credit at closing. So is it a rebate, or what? It can be. The simplest seller concession is a simple “credit” — or rebate — back to the buyer. But that isn’t the only way one can be handled. Another way, useful if a property needs repairs, is for the the buyer and seller to negotiate money held in escrow at closing that will allow the buyer to accomplish needed repairs. This can be a very useful and attractive alternative to both parties. The buyer get’s liquidity at the closing to handle the needed repairs, and any money that doesn’t get used from the funds in escrow would revert back to the seller. That means that the seller could potentially net more money than if they just gave an outright rebate and walked away. To negotiate something like this it’s useful to have the help a very knowledgable and experienced real estate agent, who not only knows all the options available, but can negotiate effectively with the other side to get an agreement in place.
Another way a seller concession can be structured, which we mentioned above, is for the seller to pay part or all of the buyer’s transfer tax or other closing costs. In New York City, we also have something called the “mansion tax,” which is a 1% tax on properties over a million dollars, and which increases at regular intervals all the way up to 6% for properties over $25 million. One way the seller concession often works is for the seller to agree to pay a portion of the buyer’s mansion tax to drop them into the next lower bracket.
When should a buyer ask for a seller concession?
While there’s no rule saying a buyer can’t ask for a concession anytime they want, it’s always wise for a buyer to consult with their agent on what they think is the best strategy and whether asking for a concession is appropriate in a given situation. Not every property defect warrants a concession demand, and just because a market might be slow doesn’t mean one should ask for concessions on every property they make offers on. Ultimately, your goal as a buyer is to find a home and buy it at the best price possible. Find a knowledgable real estate agent you trust, hire them to be your buyer’s agent, and then follow their guidance on negotiations.
When should a seller agree to a seller concession?
As a seller, the decision to agree to a seller concession is an entirely personal one, and will depend a lot on the factors we’ve covered in this article: the market conditions, the specifics of your property, and the specifics of your particular life situation. These are all things that you should be consulting closely on with a trusted real estate agent who not only has the experience and knowledge to propose different scenarios and guide you through them, but who listens closely to you and has your interests at heart.
If you’re a seller or buyer of New York City real estate and you’d like more information on this topic or any other topic, and need to speak to an expert who can help you with your questions, don’t hesitate to reach out using the available contact form.
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