Homebuyers today often face a lot of financial hurdles – from qualifying for a mortgage to affording the down payment. Fortunately, sellers can make things easier and possibly ensure the sale by agreeing to seller concessions. Indeed, a surefire way to save money is by requesting a concession when buying a house, such as asking the seller to cover closing costs or make repairs.
Whether you are a buyer candidate or a homeowner eager to sell, it’s normal to wonder: What are seller concessions, exactly? Read on to learn more about how seller concessions work, different seller concession examples, advantages and disadvantages of seller concessions, the rules around seller concessions for conventional loans, VA mortgages, USDA loans, and FHA maximum seller concessions, and more.
What are seller concessions?
Seller concessions are financial incentives that sellers offer to assist buyers with their closing expenses or other costs associated with the purchase of the home.
“They are often used to keep deals moving – especially when the buyer is tight on cash or the market is a little soft. Rather than cutting the price outright, sellers agree to cover specific costs to make the purchase more affordable for the buyer,” explains Gary Lanham, a broker associate with Coldwell Banker Real Estate.
Think of seller concessions as credits. The buyer’s lender uses these seller-paid credits to lower the buyer’s cash-to-close requirements, making the purchase more affordable. Sellers are not required to make concessions, but this can be recommended, especially in a buyer’s market or a situation where they need to sell quickly. The seller can offer concessions without being asked, but often these are requested or negotiated by the purchaser, and the seller agrees to them.
Seller concession examples
Common instances of seller concessions include:
— Paying some or all of the buyer’s closing costs – such as title, escrow, or attorney fees.
— Offering a repair credit instead of doing the repair work.
— Buying down the buyer’s mortgage interest rate. “Here, the seller pays points upfront to lower the buyer’s rate, which has been occurring more frequently in high-interest-rate environments,” says Jacob Naig, a real estate agent and investor.
— Adjusting the price, then crediting some of it back. “The seller increases the purchase price to meet the actual value of the home, and then the seller credits a portion of that amount back to the buyer to help cover closing costs,” notes Ralph DiBugnara, president of HomeQualified.
— Providing a home warranty that gives better peace of mind.
— Leaving major appliances behind in the home.
— Covering a portion of the property taxes or a few months of homeowners association (HOA) dues, if applicable.
— Reimbursing the buyer for moving costs.
Who benefits from seller concessions?
Truth is, both parties can benefit from seller concessions, although they’re especially helpful for buyers who have limited funds available upfront.
“That’s because concessions lower their upfront costs without changing how they calculate their down payment,” Dennis Shirshikov, a professor of economics and finance at City University of New York/Queens College, says.
Sellers also stand to gain because making concessions enables them to unload their homes more quickly, attracting a wider pool of buyer candidates – especially those on tight budgets.
“This can help sellers bring in multiple offers without having to discount the price,” continues Naig. “For example, I recently sold a home where, rather than take $5,000 out of the sales price, we gave $6,000 in concessions. The buyer was ecstatic, and the appraisal still sailed high enough to make the deal work.”
However, in markets that heavily favor sellers, where bidding wars abound and most homes sell at the asking price, “seller concessions are less common or desirable,” DiBugnara adds.
Better Mortgage gives you a faster, smarter way to buy a home—offering pre-approvals in as little as 3 minutes, competitive rates, and 100% online convenience. Our tech-driven process helps you close with confidence and save on costs, so you can focus on finding the right home, not chasing paperwork.
...in as little as 3 minutes – no credit impact
How to negotiate seller concessions
If you’re a buyer worried that the deal may fall through because you lack cash, or if you believe you hold more cards than the seller, consider asking for seller concessions. Here are the different steps recommended that can help you determine if and when the time is right to request concessions.
Understand market conditions
“Concessions are less likely to be granted in a seller’s market,” cautions Naig.
However, if the market favors buyers, you hold more leverage and can likely pressure the seller into conceding on certain costs/credits.
Determine your needs
Work closely with your real estate agent to decide which seller concessions would benefit you most. For example, would requesting that the seller pay your closing costs be more helpful than asking for a home warranty?
“Are you cash-strapped? Or are you more concerned about home repairs that are needed? Be aware of where concessions could do the most good,” Naig continues.
Know what your lender will allow in concessions
There are concession limits based on the loan you choose (more on this later). Check and confirm with your lender before proceeding.
State your reasoning
You stand a better chance of receiving concessions if you can support your request with evidence. Have the home professionally inspected and furnish proof that repairs are needed, for example. Indicate if there’s an appraisal shortfall. Present comps (comparable properties in the neighborhood) with similar features but a lower price.
Make it official with your offer
“To be considered and taken seriously, concessions should be explicitly stated in writing within your purchase agreement, which your agent can word appropriately,” says Naig.
Try to keep the rest of your offer clean and compelling.
Explain your ask
“As a listing agent, I always appreciate it when the buyer carefully indicates why they are requesting a concession. It shows honesty and professionalism,” says Lanham.
Be prepared to compromise
You may not get everything you want with your concession request, and there could be some back-and-forth negotiating. Worst-case scenario? The seller says no to any concessions.
In what situations might sellers agree on concessions?
You stand a better chance of getting the seller to say yes to seller concessions under certain circumstances, including if:
The market favors buyers
“When homes have been sitting unsold in your desired neighborhood for longer than expected, you have the advantage,” Lanham says.
This is also true if there is greater inventory and less competition from rival buyers.
The asking price is too high
Overpricing a home based on comparable sales and what the market can bear could lead to the home languishing on the market, putting extra pressure on the seller to compromise. While the seller may not be willing to budge on price, they could incentivize you to purchase by agreeing to one or more concessions, such as paying the tab on your closing costs.
The seller needs a quick sale
If the seller needs to move quickly – which can be the case in scenarios like a job relocation, divorce, or estate sale after the death of a loved one – you have more leverage to request concessions. Have your agent learn more about the seller’s desired timetable and urgency to find a buyer.
The home needs updates or repairs
A fixer-upper or property with outdated or non-functioning amenities will be less desirable to buyers. Here, the seller may be willing to offer a repair credit.
Pros and cons of seller concessions
As with many real estate decisions, receiving or offering seller concessions has its good and bad points. Here’s a breakdown:
Pros of seller concessions
— They lower the buyer’s out-of-pocket expenses at closing.
— Concessions make the purchase more affordable and easier for buyers to qualify for a mortgage.
— They help the seller keep their price firm while still being flexible, allowing them to stand out in a competitive market.
— They serve as a useful tool to close the gap if a lender’s appraisal comes in slightly low.
— Making the offer more attractive to purchasers can speed up the sale.
— They assist buyers by making needed upgrades or repairs affordable after closing.
Cons of seller concessions
— They decrease the seller’s profit potential.
— A higher list price could turn off buyer candidates if it is artificially inflated to cover the concessions.
— A higher contract price with concessions included could cause appraisal issues. “If the final credit-adjusted price of the home is higher than similar prices in the area, it will be hard to appraise,” cautions Shirshikov.
— There may be a negative perception from the buyer, who could view the seller as desperate.
— Buyer financing is at risk if seller concessions exceed certain loan limits allowed.
— They could limit future comps if the seller inflates the contract price to offset the concession.
Seller concession limits
As previously mentioned, each type of mortgage loan has different rules when it comes to seller concessions, including caps on amounts allowed.
“These limits protect lenders by making sure buyers have enough equity and that the home’s value isn’t inflated by too many credits,” Shirshikov notes.
Let’s take a closer look at the various caps by loan type.
Conventional loans
On conventional loans backed by Fannie Mae or Freddie Mac, seller concessions are limited to:
— 3% of the home’s value if the buyer has a down payment of less than 10%
— 6% if the buyer has put down between 10% and 25%
— 9% if the buyer has put down more than 25%
Note that the cap for investment properties is generally 2%, regardless of down payment size. Additionally, concessions can’t be applied to the buyer’s down payment, and some lenders may have stricter rules or exceptions for particular credits like required repairs.
FHA loans
For FHA home loans insured by the Federal Housing Administration, seller concessions are allowed up to 6% of the purchase price, which can be used toward the buyer’s closing costs, prepaid expenses, discount points, and other financing costs. However, seller concessions cannot be used toward the buyer’s required down payment, and if the seller exceeds the 6% limit, it may reduce the loan amount the FHA will insure.
VA loans
For mortgage loans offered to veterans, active-duty military members, and surviving spouses, seller concessions are capped at 4% of the home’s value. But the 4% limit here only applies to specific items, such as prepaid expenses, the VA funding fee, or extras like paying off the buyer’s debt or providing appliances. Standard closing costs are not included in this cap, and the seller can cover them entirely without affecting the 4% allowance.
USDA loans
As with FHA loans, USDA loans restrict seller concessions to 6% of the home’s price. But again, these concessions can’t be applied to the buyer’s down payment or any prepaid escrow items. Also, any amount exceeding 6% can decrease the loan eligibility. Keep in mind that USDA guidelines can differ slightly from lender to lender, and sellers are not allowed to pay for some fees at all.
Jumbo or portfolio loans
Portfolio and jumbo mortgages are not backed by Fannie Mae, Freddie Mac, FHA, VA, or USDA. Hence, there are no standardized rules for seller concessions. With these loans, different lenders have different rules, which are often stricter or negotiated on a case-by-case basis.
Seller concessions FAQs
Can sellers decline a concession that contributes to buyer closing costs?
Yes. Concessions are negotiable terms in an offer, and sellers can agree to them or not – just like any other term. In a strong seller’s market, sellers will typically say no outright unless there’s a good reason – such as a low appraisal or repair problem.
Do seller concessions come out of the seller’s pocket?
Yes. Concessions are paid out of the seller’s proceeds at closing, making them more like a funded credit than a lender grant. Sellers need to have enough equity to cover the concession without putting their payoff at risk.
Are seller concessions considered taxable income?
No. They are considered a deduction from the sales price, not income, so they are typically not taxable for the seller. This could change how capital gains are calculated, but not how ordinary income is calculated. Sellers should always seek the advice of a tax professional to learn how it will impact their capital gains calculations.
...in as little as 3 minutes – no credit impact