Understanding Seller Closing Cost Contributions:

What’s Changing with the New NAR Settlement

If you’ve been following recent developments in the real estate world, you might have heard about the new NAR settlement and how it’s set to change the way seller closing cost contributions work. But what does this mean for sellers and buyers? Let’s break it down.

What Are Seller Closing Cost Contributions?

When you’re selling a home, there are certain costs involved that go beyond the sale price. These costs can include things like title insurance, loan fees, and escrow charges. Often, to make their home more attractive to buyers, sellers will offer to cover some of these costs through what’s called a “seller concession.”

Seller concessions are essentially a way for sellers to sweeten the deal. For example, a seller might agree to pay a portion of the buyer’s closing costs, which can be a big help to buyers who are strapped for cash. 

The Traditional Limits on Seller Contributions

There have always been limits on how much a seller can contribute to a buyer’s closing costs. These limits depend on the type of loan the buyer is using:

• Conventional Loans: Sellers can contribute up to 3% of the home’s purchase price if the buyer is putting down less than 10%. If the buyer’s down payment is between 10% and 25%, the seller can contribute up to 6%.
• FHA Loans: The seller can contribute up to 6% of the purchase price.
• VA Loans: Seller contributions can be as high as 4% of the purchase price.
• USDA Loans:  Like FHA loans, the seller can contribute up to 6%.

These contributions have traditionally been used to cover things like loan origination fees, property taxes, and other closing costs. But one thing sellers couldn’t do was use these contributions to cover the buyer’s agent commission—until now. 

What’s Changing with the NAR Settlement?

The National Association of Realtors (NAR) recently reached a settlement that changes the game for real estate transactions. One of the biggest changes is that sellers will now be able to use their closing cost contributions to cover the buyer’s agent commission.

This is a significant shift because, previously, the buyer’s agent commission was typically paid out of the seller’s proceeds after closing, not as part of the seller concessions. Now, with this new rule, the commission can be wrapped into the overall seller contributions.

Why Does This Matter?

This change can have several impacts:

1. More Flexibility for Sellers: Sellers now have more options for structuring their offers. If they want to attract buyers, they can use concessions to cover not only traditional closing costs but also the buyer’s agent commission.
2. Potential for Lower Buyer Costs: For buyers, this could mean lower out-of-pocket expenses at closing. If the seller is covering the agent’s commission, the buyer might have more funds available for their down payment or other costs.
3. Impact on Negotiations: This change could also shift how negotiations are handled. Buyers may ask for higher concessions, knowing that sellers have the option to cover the agent’s commission as part of the deal.

What Should Sellers Do Now?

If you’re planning to sell your home soon, it’s important to stay informed about these changes and how they could affect your sale. Talk to your real estate agent about how to best leverage these new rules to make your property more appealing to buyers.

Understanding how these changes might impact your sale can help you navigate the market more effectively and ensure that you’re making the most of your seller concessions.