What You Need to Know About Seller Concessions and Lease Options

There are a lot of moving parts when it comes to both seller concessions and lease options, but here is what you need to know about them.

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Today I want to answer some questions about two topics I get asked about frequently: seller concessions and lease options. 

Let’s start with seller concessions. What is a seller concession? Is it legal? How is it used?

A seller concession is something that’s used by a purchaser so they have to come up with less cash at closing. Remember—New York state has the highest closing costs in the country. A seller concession also means the seller gets a credit back at the closing. 

Suppose a purchaser was going to buy a house at $200,000 and we grossed the price up to $210,000. At the closing, the purchaser would get a credit for $10,000 and the seller would still get the $200,000 they agreed on. For the purchaser, they’re rolling closing costs into a 30-year mortgage, so in the long term it ends up costing them more. In the short term, however, it’s $10,000 less in cash they need to bring to closing and can use instead for repairs to the home. 

As a seller, it often feels like you’re giving the buyer money to buy the home, but you’re not. It’s completely legal as long as it’s indicated to all parties involved and it’s noted on the HUD-1 Settlement Statement at closing. 

What’s a lease option? How is a lease option used? Can I buy a house with a lease option?

A lease option means putting down option money and leasing the home where a portion of the rent is applied toward the purchase price with an option to buy the home generally within one or two years. 

In my experience, buyers and sellers need to beware of leasing options. Whenever a seller is willing to do a leasing option, they’re usually either upside down on the house or the house has substantial defects. One the flipside, any buyer who wants to do a lease option instead of purchase typically doesn’t have the greatest credit, which is why they’re doing it in the first place. 

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Both buyers and seller need to beware of lease options.

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In my experience, it’s very rare that a leasing option works out perfectly. They do work out occasionally, but many things can go wrong for both the buyer and the seller. 

If you have any more questions about lease options or seller concessions or you’re looking to buy or sell a home, please give me a call anytime. I’d love to help you.