"HOW CLOSING CONCESSIONS IMPACT THE BIRMINGHAM REAL ESTATE MARKET- Early 2023"

by Jeremy Galloway

Real estate seller’s closing concessions rise from 12 to 21% in over a year in Birmingham, AL

Real estate sellers in Birmingham, Alabama have seen an increase in the use of closing concessions with the concession rate rising from 12% to 21% in just over a year. Closing concessions are a common practice in real estate transactions where the seller offers to cover some of the buyer’s closing costs, typically 3% of the purchase price. (Note: 3% can vary depending on the number of funds being put down payment, and the type of loan)

The rise in closing concessions in Birmingham can be attributed to a number of factors, including a competitive market, increased supply, and changing buyer demographics. In this article, we will explore the reasons behind this increase and the potential implications for buyers and sellers in the Birmingham real estate market.

What are closing concessions and why are they used?

Closing concessions are an agreement between the buyer and seller of a property that allows the seller to cover some or all of the buyer’s closing costs. These costs can include loans:

Origination fees
Appraisal fees
Buying down the interest rates
Title/attorney fees
Resources to go to renovations (lenders don’t prefer to see that on a contract)

Closing concessions are used for a number of reasons, including making the property more attractive to buyers by lowering the upfront costs, helping buyers who may not have the cash on hand to cover these expenses, and allowing sellers to close deals more quickly by removing potential barriers to the sale

What has caused the rise in closing concessions in Birmingham?

The rise in closing concessions in Birmingham can be attributed to several factors. First, growing interest rates being above 6% in late Feb has caused buyers to try to find any way to make the new real estate “normal” workable with the monthly mortgage.

Second, the changing demographics of buyers in Birmingham have also contributed to the rise in closing concessions. Younger buyers, who may be less established in their careers and have less cash on hand, are increasingly entering the market and may be more likely to require closing concessions to make a purchase.

Finally, the COVID-19 pandemic has also played a role in the increase in closing concessions. The pandemic has caused economic uncertainty and financial strain for many people, making closing costs a more significant burden for some buyers

What are the potential implications of the rise in closing concessions for buyers and sellers?

For buyers, the rise in closing concessions can be a positive development, as it may make it easier to afford a property and reduce the upfront costs associated with buying a home. However, buyers should be aware that closing concessions can also impact the purchase price of a property and may ultimately result in paying more over the life of the loan.

For sellers, offering closing concessions can be an effective way to attract more buyers and close deals more quickly. However, sellers should also be aware that offering concessions can impact the net proceeds from the sale and may result in a lower overall profit.

How can buyers and sellers navigate the use of closing concessions?

Since we have seen this uptick in the last few months, it’s likely that it may not change while rates are high and buyers are still trying to be either first-time homebuyers or move up to the next size home. There are some great strategies surrounding being a buyer’s agent that we use on getting to the closing table with not having to dip into the savings fund to purchase the new property.