Skip to Content

Seller Concessions

The closing costs on the purchase of a home are typically the responsibility of the buyer to pay. However, in some instances, the buyer may convince the seller to chip in. These are known as seller concessions and can make a property more affordable and help the deal close faster. Here is a look at everything you need to know about seller concessions.

What Are Seller Concessions?

Seller concessions are closing costs that the seller has agreed to pay to help the buyer. They are typically used to entice a buyer to agree on a specific price that they may not want to pay or otherwise be able to afford.

Sellers’ concessions are more typical in a buyer’s market where there may not be as much demand for a particular property. They are a tactic used to sweeten the deal and encourage a buyer to close, which usually isn’t necessary with a strong seller’s market.

The seller is not required to offer a concession, so it’s up to the homeowner whether or not they are willing to pay a percentage of the closing costs to make a sale faster. But it can be a useful tactic in the right scenario. 

What Closing Costs Do Seller Concessions Cover?

Seller concessions can cover any costs related to the sale’s closing, including inspection fees, appraisal fees, and recording fees. The buyer is still responsible for making the down payment on their own, meaning that seller concessions do not contribute to that payment. 

Also, the seller already pays the broker fees with funds received from the sale, so the seller’s concessions won’t cover that either. But they can go toward any of the other miscellaneous fees buyers typically pay at closing.

Seller concessions could cover any of the following:

  • Loan origination fees
  • Inspection fees
  • Appraisal fees
  • Recording fees
  • Property taxes
  • Legal fees
  • Title insurance
  • Mortgage points

Seller concessions may cover all or just a portion of these costs. The exact amount the seller is willing to pay depends on how you negotiate and the type of loan you’re using.

Who Benefits from Seller Concessions?

The buyer benefits more directly from seller concessions, but it can be mutually advantageous depending on the circumstances. Seller concessions make it easier for buyers to afford a purchase, which may also help the seller if they are looking to close at a specific price. 

Closing costs are typically 3-6% of the home’s final sales price. So, for a $250,000 home, that’s $7,500 – $15,000. After making a down payment, some buyers don’t have that cash on hand. So, seller’s concessions make it easier for buyers to afford a higher listing price. 

Advantages and Disadvantages of Seller Concessions

Advantages of Seller Concessions 

Sellers’ concessions have several advantages for the buyer. It makes the purchase less daunting and can help you afford the home without completely depleting your savings. You can then put that money toward your first few mortgage payments or any moving expenses.

But this arrangement can also be helpful for the seller, as it allows them to stand out from the competition and may lead to a faster close. 

Disadvantages of Seller Concessions

Buyers should be cautious of requesting seller’s concessions in a market where the demand for housing is strong. It may make you look like you can’t afford the home and could lead the seller to deny your offer. Plus, you may be better off making a lower offer and paying less over the life of the loan than asking for a one-time concession if you have the cash to afford it. 

Are There Limits to Seller Concessions?

Yes, there are limits to seller concessions if you are financing the purchase. HUD sets these limits, along with Fannie Mae and Freddie Mac, to prevent the overinflation of housing prices and the limits differ depending on the type of loan you’re using. 

The limit is set at a percentage of the purchase price and can vary depending on how large a down payment the buyer can make. Plus, no matter how much you can negotiate from the homeowner, seller concessions cannot exceed the total amount of the closing costs. So, if you agree to 6% of the sales price and the closing costs only equal 5%, you can’t pocket the additional 1%.

How to Negotiate Seller Concessions 

The best way to negotiate seller concessions is to research the local housing market and understand the current conditions. Find out if there is a lot of available inventory relative to the demand. Also, pay attention to how long the property has been sitting on the market. You can either do this research yourself or enlist the help of your broker. If it’s a strong seller’s market, you may not want to risk asking for any concessions because the seller may feel confident that they can get a better offer. But if you know that you have the leverage, presenting the facts to the seller will help you negotiate the best deal possible.

Seller Concession Limits by Loan Type

Seller Concession Limits for Conventional Loans

The limit on seller’s concessions for a conventional loan is based on the size of the down payment you can make.

  • With a down payment of less than 10%, the limit on seller concessions is 3%
  • With a down payment of 10-25%, the limit on seller concessions is 6%
  • With a down payment of more than 25%, the limit on seller concessions is 9%
  • For investment properties, the limit is 2% no matter how large the down payment

Seller Concession Limits for Conventional Loans FHA Loans

For loans issued by the FHA, seller concessions are limited to 6% of the sales prices of the home, no matter what the size of the down payment. The seller can contribute more than 6% if they so choose. But according to FHA rules, they must also lower the sales price to calculate the loan, so the concessions stay under the limit. 

Seller Concession Limits for USDA Loans 

With a USDA Loan, the limit is based on the buyer’s loan amount, not the home’s final sales price. The limit is 6% of the loan amount price. So, unless you get a mortgage with no down payment (which is possible), the limit will be slightly lower than if it were based on the actual sales price.

Seller Concession Limits for VA Loans

For VA loans, the limit on seller’s concessions is 4% of the sales price. But this concession can also go toward paying off judgments or credit balances on the buyer’s behalf, paying the buyer’s VA funding fee, or even gifts such as a microwave or dishwasher.

Seller Concessions FAQ

What are some examples of seller concessions?

Seller concessions can either go toward a specific expense or be a percentage of the overall closing costs. Common seller concessions include home appraisal fees, inspection fees, title and loan origination fees, attorney fees, and property taxes. Seller concessions can cover any costs the buyer typically pays at closing, besides the down payment or costs associated with the existing home, such as the roof or plumbing.

Are seller concessions common?

Seller’s concessions are relatively common. While they are not typical in every transaction, it’s a fairly routine request, especially in markets where the buyer has more leverage. So, while you shouldn’t necessarily count on seller concessions when budgeting to buy a home, the seller likely won’t be shocked if you bring it up in negotiations.

Do seller concessions come out of pocket?

The seller concessions usually come out of the seller’s profit on the sale. The concessions are typically added to the mortgage in the form of a higher sales price, then taken out of the seller’s profit at closing. So, the buyer may agree to pay $206,000 instead of $200,000 in exchange for a 3% seller concession, meaning the $6,000 would go toward the closing costs, and the seller would still pocket $200,000. It’s rare for the seller to pay any concessions out of pocket.

Is a seller’s concession a good idea?

It depends on the circumstances. If it helps the buyer save money on closing costs and allows the seller to sell the home faster and for a higher price, it’s a win-win situation. But it doesn’t make sense in every scenario. For instance, it wouldn’t make sense for the buyer to agree to pay $20,000 over the asking price just to receive a $5,000 concession. That $20,000 is tacked onto the principal, meaning you’ll pay even more interest on the loan. But if the concession is reasonable, it can be beneficial for everyone involved.  

What is the difference between seller credit and seller concession? 

A seller credit is any amount of money that the seller offers to the buyer to entice them to buy. A seller concession is a type of seller credit explicitly used to pay for the closing costs. In addition to the closing costs, seller credits may go toward financing repairs to the home at the buyer’s request. But seller concessions typically don’t cover repairs because it’s not a cost paid at the sale’s closing.