5 Facts Home Buyers and Sellers Should Know About Credits

By Briana Frazier

In the realm of real estate transactions, “credits” refer to financial concessions provided by one party to the other during the home buying or selling process. These credits are often negotiated and agreed upon as part of the overall deal to address specific needs or issues that arise during the transaction.

For home buyers, credits can help offset some of the upfront costs associated with purchasing a property. On the other hand, sellers may offer credits to entice potential buyers, address certain property deficiencies, or facilitate a smoother transaction.

Credits can take various forms, including monetary contributions, repairs or improvements to the property, or even paying for certain closing costs. Understanding the nuances of credits and their implications is crucial for both buyers and sellers to make informed decisions and navigate the real estate process more effectively.

Different Types Of Credits In Home Buying And Selling

BUYER’S CLOSING COST CREDITS:

One common type of credit is the buyer’s closing cost credit, wherein the seller agrees to cover a portion or all of the buyer’s closing costs. These costs can include loan origination fees, appraisal fees, title insurance, and other expenses associated with finalizing the purchase.

REPAIR CREDITS:

Another type of credit is the repair credit. In this scenario, the seller agrees to provide the buyer with a credit to address necessary repairs or maintenance issues identified during the home inspection. Instead of the seller making the repairs before closing, they offer a credit to the buyer, who can then handle the repairs themselves after the purchase.

HOME WARRANTY CREDITS:

A home warranty credit is when the seller offers to pay for a home warranty on behalf of the buyer. This warranty typically covers major systems and appliances in the home for a specified period, providing the buyer with added peace of mind.

Understanding Seller Credits And Buyer Credits

SELLER CREDITS:

Seller credits are incentives provided by the seller to the buyer as a way to sweeten the deal and make their property more attractive. By offering credits, the seller can potentially sell the property faster or at a higher price. Seller credits can help offset buyer’s costs, cover repairs, or provide other financial incentives.

BUYER CREDITS:

On the other hand, buyer credits are concessions offered by the buyer to the seller as a bargaining tool during negotiations. A buyer credit might involve offering a higher purchase price in exchange for certain repairs to be made by the seller or other incentives that benefit the seller.

Pros And Cons Of Using Credits In Real Estate Deals

PROS: z Attracting Buyers: Credits can make a property more appealing to potential buyers, especially in a competitive market. z Smoother Negotiations: Utilizing credits can help bridge the gap between buyer and seller expectations, leading to smoother negotiations and quicker closings. z -Flexibility: Credits provide flexibility in dealing with property issues, as they can be tailored to address specific concerns.

CONS: z Potential for Higher Sale Price: Offering credits may result in a higher sale price for the property, as the cost of concessions is often factored into the negotiation. z Overlooking Repairs: Relying on repair credits may lead some buyers to overlook necessary repairs or property issues before closing. z Impact on Appraisal: Excessive credits could impact the property’s appraisal value, potentially affecting the buyer’s ability to secure financing.