Prorations, Concessions, and Two Offers on the Table
The Kesslers accepted $412,000 from the Nguyen buyers, closing June 18. Contract terms: 6% gross commission, split 3.5% to the listing brokerage and 2.5% to the cooperating brokerage; seller credits up to 2.5% of price toward buyer closing costs; a $1,850 credit for a well repair found in inspection; taxes prorated on a 365-day basis with the seller responsible through the day before closing, using last year's bill of $4,380 as the estimate; existing loan payoff $238,400 plus per-diem interest of $41.23 for 12 days; seller pays the owner's title policy of $1,450. A second buyer had offered $398,000 with no concession and no repair credit, same closing date. The Kesslers ask their agent which offer nets more and whether the concession is hurting them.
1. Compute the Kesslers' estimated net proceeds on the $412,000 contract. Show every line and the tax proration arithmetic.
Read the worked answer
Tax proration first. $4,380 ÷ 365 = $12.00 per day. Seller owns January 1 through June 17 inclusive: 31 + 28 + 31 + 30 + 31 + 17 = 168 days. Buyer bears 197 days. Seller's share = 168 × $12 = $2,016 (credited to the buyer at closing); buyer's share = 197 × $12 = $2,364. The two add back to $4,380.
Estimated seller's statement
| Line | Amount |
|---|---|
| Contract sales price | $412,000.00 |
| Seller concession to buyer (2.5% × $412,000) | −$10,300.00 |
| Inspection repair credit (well) | −$1,850.00 |
| Total commission (6% × $412,000) | −$24,720.00 |
| Payoff of existing loan | −$238,400.00 |
| Per-diem interest (12 × $41.23) | −$494.76 |
| Property tax proration credit to buyer (168 days × $12.00) | −$2,016.00 |
| Owner's title policy | −$1,450.00 |
| Estimated net to seller | $132,769.24 |
Checks worth doing out loud: commission is computed on the gross price, not on the price net of concessions; the concession and the repair credit are separate lines and both reduce the seller; the loan interest per diem accrues to the payoff date, which is not always the closing date.
Closing-document note: the concession appears on the Closing Disclosure as a credit to the buyer and a debit to the seller, and it is capped by the buyer's lender - under typical conventional guidelines, interested-party contributions are limited to 3% of the price when the loan-to-value exceeds 90%, so 2.5% fits a 5%-down conventional loan. Concessions may not be applied to the down payment or exceed the buyer's actual closing costs.
2. Which offer nets more, and should the Kesslers try to switch to the other buyer?
Read the worked answer
Net on the $398,000 offer
| Line | Amount |
|---|---|
| Price | $398,000.00 |
| Concession (none) | $0 |
| Repair credit (none) | $0 |
| Commission (6%) | −$23,880.00 |
| Payoff | −$238,400.00 |
| Per-diem interest (same 12 days) | −$494.76 |
| Tax proration (same date, same $2,016) | −$2,016.00 |
| Title policy | −$1,450.00 |
| Net | $131,759.24 |
Difference: $132,769.24 − $131,759.24 = $1,010.00 in favor of the accepted $412,000 contract. The general rule: a dollar of price is worth only 94 cents to the seller once a 6% commission is paid, so $14,000 more price beats $10,300 of concession plus $1,850 of repairs - but barely.
The judgment call the clients are missing: the $412,000 contract is already accepted and binding. The Kesslers cannot shop it. The $398,000 offer is a backup at most - to be negotiated as a written backup offer with a defined trigger, not as a replacement. The correct advice is: stay with the accepted contract and keep the second buyer warm.
Second-order risk that matters more than $1,010: the higher price carries a concession, which raises appraisal risk (appraisers may or may not adjust for concessions, and lenders review them). A $412,000 appraisal that comes in at $405,000 costs far more than $1,010 in renegotiation leverage. If the Kesslers want certainty over pennies, the concession-free backup has real option value - but it is a backup, not a switch.
3. The appraisal comes back at $405,000. Walk through the seller's realistic options and quantify the cost of the most likely one.
Read the worked answer
Why the appraisal binds the deal: the lender will lend against the lower of price or appraised value. At $405,000 the buyer's 95% loan drops from $391,400 to $384,750, so the buyer must produce roughly $6,650 more cash plus any change in closing costs - cash the buyer may not have after paying the down payment.
Options, ranked by what sellers usually do
- Reduce the price to $405,000 (often split, e.g., $408,500). Cost to seller if reduced to $405,000:
| Line | Amount |
|---|---|
| Price | $405,000.00 |
| Concession (2.5%) | −$10,125.00 |
| Repair credit | −$1,850.00 |
| Commission (6%) | −$24,300.00 |
| Payoff | −$238,400.00 |
| Per-diem interest | −$494.76 |
| Tax proration | −$2,016.00 |
| Title policy | −$1,450.00 |
| Net | $126,364.24 |
That is $6,405 less than at $412,000 (the $7,000 price reduction, less $420 of saved commission and $175 of saved concession). 2. Buyer brings the gap in cash - the cleanest outcome for the seller; the concession stays but must not exceed the buyer's actual closing costs. 3. Reduce or eliminate the concession so the buyer's cash goes to the price gap instead - this can rescue the deal where the concession was inflating the buyer's cash needs. 4. Challenge the appraisal with the licensee's own CMA and the three best closed sales; the lender decides whether to reconsider. 5. Convert to a lower-LTV structure - a larger down payment or a different loan program - which is a buyer-side fix, not a seller concession.
Do not quietly raise the price to absorb a concession, and do not let the buyer use the concession for down payment. Both are lender red flags.
Advice to deliver: the appraisal is evidence about the market, not an insult. The $6,405 spread is small relative to the risk of losing the buyer in a market where the backup offer is $14,000 lower and concession-free.