Concessions are a critical component in negotiating successful real estate deals. As a real estate investor, you might benefit from concessions when buying a new asset, selling one, or even leasing a property.
In this article, we’re going to outline some valuable concession types you can use as a real estate investor to secure a better deal or close a deal faster! But first, let’s define what concessions are.
What Are Concessions?
Concessions are incentives one party offers another to make a real estate transaction more attractive.
Concessions are commonly associated with financial assistance given by a property seller to the buyer. However, concessions can be conveniences rather than financial gifts. They can also be offered by any party to a transaction, such as a buyer concession to a seller or a landlord concession to a renter.
How Concessions Benefit Investors as Buyers, Sellers, and Landlords
When acquiring a new property for your real estate portfolio, requesting concessions can help you reduce upfront costs, lower the overall expense, or close the deal on your terms.
When selling one of your properties, offering concessions can help you attract a buyer and close the deal faster.
As a landlord, offering concessions can help you attract and retain qualified tenants.
How Market Conditions Affect Concessions
It is important to understand where you are in the real estate cycle and how current market conditions impact your negotiating leverage when requesting or offering concessions.
For example, in a hot seller’s market, there is more demand than supply, so sellers have an advantage. If you’re buying during a seller’s market, requesting concessions could cause the seller to choose a better offer over yours. If you’re selling during a seller’s market, you might not need to offer or agree to concessions because another buyer may come along who is willing to purchase the property without additional incentives.
On the flip side, in a slower buyer’s market, there is more supply than demand, so buyers have the upper hand. Under these market conditions, you might ask for more concessions when buying, or you might have to offer more concessions when selling.
Types of Concessions for Real Estate Investors When Buying or Selling Property
Whether you’re on the buy side or the sell side of a real estate transaction, consider the following types of concessions to help you achieve your goals for the deal:
Closing costs. On top of the down payment, buyers typically pay closing costs of 2-5% of the purchase price for fees related to items like loan origination, title search, and appraisal. Sellers who offer to assist buyers with closing costs might get a faster and/or higher-priced sale, while buyers benefit from upfront savings.
Real estate agent fees. Since the 2024 NAR Settlement, buyers have been responsible for paying their real estate agent. However, since there is a long-standing history of sellers paying all real estate commissions, many sellers are still willing to help buyers cover their agent’s fees today.
Repairs or repair credits. If there are known defects, the seller could make the repairs or offer a credit to give the buyers funding to take care of repairs after closing.
Home warranties. A seller might include a one-year home warranty to cover home systems (electrical, HVAC, plumbing, etc.) and appliances, giving the buyer additional peace of mind.
Interest rate buydowns. In an interest rate buydown, the seller buys discount points upfront to lower the buyer’s mortgage interest rate (typically for 1-3 years).
HOA fee credits. Sellers may offer to cover a few months of homeowner association dues when selling a residential unit in an HOA.
Furnishings/appliances. Buyers might ask for specific furnishings, light fixtures, or appliances to be included in the deal.
Flexible closing timelines. Accommodating the other party’s timeline by closing quickly or allowing for a long contract period can help cement the deal.
Waived contingencies. To incentivize a seller to choose their offer, buyers might waive contingencies(stipulations on the deal) to remove potential hurdles to closing. For example, rather than including the standard inspection contingencies, buyers in a competitive seller’s market might bring a home inspector to the showing to confirm the condition of the property, which would allow them to waive the contingency.
Early possession. Sellers might allow buyers to take possession of the property before closing (possibly charging rent during this period). This can be valuable to homebuyers who need to get out of their current place and don’t want to worry about temporary housing or moving twice.
Offering a leaseback to the seller. Buyers might be willing to let the seller retain possession for a period after closing, which can be helpful when sellers need more time before moving (perhaps as their new home is being built, for example).
Covering an appraisal gap. In a fast market where properties are appreciating by the month, we sometimes see a gap between the appraised value and the agreed-upon purchase price. Lukewarm buyers might ask the seller to reduce the price to match the appraisal, while committed buyers might be willing to cover the gap (out of pocket, since lenders are not likely to finance the gap).
Types of Concessions for Real Estate Investors When Managing Rentals
Attracting qualified tenants, retaining residents, and reducing vacancy losses are top priorities for competent landlords. If you invest in rental properties, you can use these concession types to help meet your residency goals:
Free rent. You might offer a month free to new tenants, particularly in new multi-family developments where you have many units to lease up.
Waived fees. Waived application fees can serve to remove a small hurdle for new renters.
Lower security deposit. A lower security deposit helps renters save on upfront costs. However, it’s important to maintain high enough deposits to offer reasonable financial protection for your unit.
Free utilities or Wi-Fi. Including utilities in the rental rate gives tenants fewer bills to manage.
Flexible lease terms. Some renters prefer the flexibility of short-term leases or month-to-month rentals.
Discounted rates for longer lease terms. If your goal is stability, you might offer lower rental rates for longer lease periods. Just double-check local limits on residential leases before making the offer.
Free parking or storage. If you have parking or storage spaces available, you can use them to incentivize renters to choose your property.
Furnishings or appliances. In some local markets, furnished rentals earn a premium. There are also local markets in which appliances are not necessarily included, so offering them can entice prospective tenants.
Access to amenities. If your property doesn’t have in-demand amenities, like a pool or fitness center, you might consider providing membership to a nearby facility where your tenants can swim or work out.
Real Estate Investor Concession FAQs
What’s the difference between a concession and a discount?
A concession is any incentive that adds value or offsets costs, while a discount typically refers to a direct reduction in price.
Are there limits on concessions with mortgage-backed purchases?
Yes. Conventional, FHA, and VA loans each have limits on how much a seller can contribute toward buyer concessions, usually based on the down payment size. It’s a good idea to check lender guidelines before negotiating concessions.
Are concessions legally binding once offered?
Concessions only become legally binding once written into the contract and acknowledged by both parties’ signatures. Verbal offers are not enforceable, so be sure all concessions are clearly documented in the purchase agreement or lease.
Skip the Negotiation Hassle with Pre-Vetted Real Estate Investments
Some real estate investors love hammering out the details of deals, angling for the best negotiation positions, and going back and forth to secure the most favorable possible terms. Others don’t have the time, patience, or local market experience to tackle complex negotiations. And some investors like to outsource this work on some of their deals so they can apply their time and energy to their priority projects.
If you’re looking for hassle-free real estate investments for your portfolio, consider pre-vetted real estate syndicationdeals from Gatsby Investment.
Gatsby Investment is a California-based real estate investment company that analyzes dozens of potential deals to bring only the investments with the highest return potential to our clients.
We specialize in leveraging Los Angeles’ zoning law changes to replace neglected single-family homes with more functional multi-family developments. By pooling funds from multiple investors, we can offer equity stakes in these deals for as little as $25k. Our existing relationships with local property owners, real estate agents, builders, designers, and lenders help us find high-potential properties and negotiate favorable economies-of-scale discounts to reduce expenses and increase returns for our investors.
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