A seller may offer a home buyer concessions as part of the home purchase negotiation. Seller concessions are usually communicated in the offer letter and most commonly accepted when buyers have more control of the market. For buyers, seller concessions can reduce upfront closing costs or make a home purchase more affordable. For sellers, concessions can make their home more attractive to buyers to help close the deal.
The amount offered and what seller concessions can be used for depends on the state of the real estate market, type of mortgage, the condition of the home, and motivations of both the buyer and seller. Whatever seller concessions are agreed upon will get included in the purchase contract and be deducted from the sale proceeds and then applied to the buyer’s closing costs.
What are seller concessions?
Seller concessions are items the seller agrees to pay for on behalf of the buyer at closing. Common examples include a seller agreeing to cover part of a buyer’s closing costs, paying for a home warranty or offering to cover the cost of needed repairs uncovered during the home inspection.
Seller concessions are just one of many negotiating strategies in real estate transactions. While seller concessions are common, they’re not included in every offer. They’re most commonly used in times where buyers have the advantage — meaning, when sellers may be competing for a limited pool of buyers.
What can seller concessions be used for?
Seller concessions can be used to cover a variety of the home buyer’s expenses, except for their down payment and mortgage insurance. Here are a few of the most common contributions sellers make with concessions:
Closing cost assistance: The seller may agree to cover all or part of the buyer’s closing costs, including title insurance, appraisal costs and lender fees. This lowers how much cash the buyer needs to have available at closing.
Rate buydown: Buyers usually have the option to pay for a lower interest rate. Seller concessions can be used to aid the buyer in this process by buying the mortgage discount points for them.
Pre-paids: Seller concessions can be used for other upfront costs at closing, such as prorated property taxes, homeowners insurance premiums or HOA dues.
Home warranty: The seller may offer to pay for a one-year home warranty on behalf of the buyer. This provides peace of mind for buyers worried about having to cover the cost of a failed water heater or other major appliances shortly after purchase.
Moving expenses: The seller may cover the cost of the buyer’s moving expenses, such as hiring movers or a truck rental.
Repairs: If your home inspection uncovered repairs that need to be made, the seller may agree to cover the cost of repairs to ensure the sale goes forward.
Seller concession limits
Depending on the mortgage a buyer uses to purchase the home, there may be limits in how much the seller can provide in concessions. This limit is expressed as a percentage of the purchase price or appraised value, whichever is lower.
A seller may offer a home buyer concessions as part of the home purchase negotiation. Seller concessions are usually communicated in the offer letter and most commonly accepted when buyers have more control of the market. For buyers, seller concessions can reduce upfront closing costs or make a home purchase more affordable. For sellers, concessions can make their home more attractive to buyers to help close the deal.
The amount offered and what seller concessions can be used for depends on the state of the real estate market. Type of mortgage, the condition of the home, and motivations of both the buyer and seller. Whatever seller concessions are agreed upon will get included in the purchase contract and be deducted from the sale proceeds. Then applied to the buyer’s closing costs.
What are seller concessions?
Seller concessions are items the seller agrees to pay for on behalf of the buyer at closing. Common examples include a seller agreeing to cover part of a buyer’s closing costs, paying for a home warranty or offering to cover the cost of needed repairs uncovered during the home inspection.
Seller concessions are just one of many negotiating strategies in real estate transactions. While seller concessions are common, they’re not included in every offer. They’re most commonly used in times where buyers have the advantage. Meaning, when sellers may be competing for a limited pool of buyers.
What can seller concessions be used for?
Seller concessions can be used to cover a variety of the home buyer’s expenses, except for their down payment and mortgage insurance. Here are a few of the most common contributions sellers make with concessions:
Closing cost assistance: The seller may agree to cover all or part of the buyer’s closing costs, including title insurance, appraisal costs and lender fees. This lowers how much cash the buyer needs to have available at closing.
Rate buydown: Buyers usually have the option to pay for a lower interest rate. Seller concessions can be used to aid the buyer in this process by buying the mortgage discount points for them.
Pre-paids: Seller concessions can be used for other upfront costs at closing, such as prorated property taxes, homeowners insurance premiums or HOA dues.
Home warranty: The seller may offer to pay for a one-year home warranty on behalf of the buyer. This provides peace of mind for buyers worried about having to cover the cost of a failed water heater or other major appliances shortly after purchase.
Moving expenses: The seller may cover the cost of the buyer’s moving expenses, such as hiring movers or a truck rental.
Repairs: If your home inspection uncovered repairs that need to be made, the seller may agree to cover the cost of repairs to ensure the sale goes forward.
Seller concession limits
Depending on the mortgage a buyer uses to purchase the home, there may be limits in how much the seller can provide in concessions. This limit is expressed as a percentage of the purchase price or appraised value, whichever is lower.
Conventional loan seller concessions
Conventional loans are the only type where the maximum seller concessions vary depending on the size of the down payment. Only buyers with a down payment of more than 25% can get concessions of up to 9% of the sale price. And if the buyer is purchasing an investment property with a conventional loan, seller concessions are limited to no more than 2% of the purchase price — regardless of the down payment amount.
Benefits of seller concessions
Seller concessions are an important negotiating tool for both buyers and sellers, but for different reasons.
For buyers
Reduce upfront costs: Saving enough money to cover both a down payment and closing costs can be a significant barrier, especially for first-time buyers. Seller concessions can reduce the amount of cash a buyer must have available for closing.
Make the home buying process more affordable overall: In addition to closing costs, seller concessions can be used to pay for repairs. Inspection costs and attorney fees, among other items.
Get a move-in ready home: Since seller concession can be used for repairs, seller concessions can help shorten the repair to-do list for new homeowners.
Afford a more expensive house: When some of the upfront costs are covered by seller concessions A buyer may be able to make a larger down payment, allowing their home budget to stretch further.
For sellers
Sell faster: If a seller is having a hard time selling a home, offering concessions can sweeten the deal and help attract a qualified buyer.
Attract more buyers: With appealing seller concession in place, a home may attract multiple offers. Which can boost the purchase price or allow the seller to choose the offer with the best terms.
Drawbacks of seller concessions
While there are many benefits of using seller concessions, there are some downsides, for both buyers and sellers.
For buyers
Higher purchase price: If a seller is willing to offer concessions, they may be less likely to also negotiate on the price of the home. In some cases, the buyer may agree to a slightly higher purchase price in order to access upfront cash for closing costs. A higher purchase price increases the amount the buyer has to borrow, leading to higher monthly mortgage payments over the life of the loan.
Negotiations can be challenging: Seller concession aren’t always easy to negotiate, especially when the buyer is competing against other buyers.
Your offer may be less competitive: If you’re requesting seller concessions and the seller receives another offer without concessions, your offer may be seen as less desirable — especially if the other offer is higher.
Delayed closing: The more complicated the transaction, the longer the closing process can take. Extra documentation is sometimes required to ensure the correct party is paying what they’ve promised.
For sellers
Less profit: If a seller offers concession, the sale proceeds will be used to cover the cost. This means the seller will walk away with less profit than if they sold without concessions.
Higher closing costs: If the home sells above asking price because of seller concessions The seller will also pay more in closing costs — since closing costs are based on a percentage of the purchase price.
Fraud risk: Sellers are required to disclose concessions to the lender on the closing statement. Not disclosing them can be fraudulent.
How to ask for seller concessions
As a buyer, it can feel intimidating to request seller concession. Here are a few things to keep in mind.
1. Rely on your agent:
The real estate agent representing you should be well versed in requesting concessions. They can help you craft an offer that gets you the concessions you need, without offending the seller.
2. Factor in market conditions
If the seller has their pick from multiple offers, you’re unlikely to get much in terms of seller concessions. But, if the market is slow and the home has been listed for a while, you may have a better chance of getting what you want.
3. Get everything in writing
Like everything else in a real estate transaction, it’s important to have all negotiations documented in writing.
4. Be prepared to negotiate or walk away
Negotiating is tricky, and it can be hard to predict what a seller will go for. Be ready to receive a counter-offer, but also be prepared to walk away if you and the seller can’t come to an agreement.
How much should you offer in seller concessions?
As a seller, the amount of concessions you offer will likely depend on how long your house has been on the market. The condition of your home and the buyer’s offer. Be prepared to negotiate the amount until you reach a fair agreement with the buyer. Your agent can be a helpful resource when negotiating the amount of seller concession.
How to negotiate seller concessions
For both buyers and sellers, there are a few best practices you should follow.
Do your research: Take the time to understand the market value of the home. This will help you determine the amount of seller concessions that might be reasonable.
Be prepared to walk away: Not all real estate deals go through. If the seller and buyer can’t agree on terms, it’s possible that the deal will fall apart. Be prepared to pursue other options.
Be willing to compromise: If you don’t want to risk the deal getting canceled, consider compromising. Perhaps you can meet the other party in the middle in order to keep the deal moving forward.
Be polite and professional: Don’t let your emotions get the best of you. Keep a cool head when negotiating concessions.
FAQs about seller concessions
When should you ask for seller concessions?
Seller concessions are most commonly used when market conditions are favorable to buyers. This means that there are more homes for sale than there are buyers. In this type of market, sellers may be more likely to offer concessions to lock in a buyer.
Are sellers obligated to pay for concessions?
No, sellers aren’t obligated to pay for concessions. Concessions are simply a part of the negotiations between buyer and seller, much like the purchase price. The buyer may request that the seller pay for closing costs. But it’s up to the seller to accept or reject the offer.
Sellers may choose to pay for concessions in order to sell their home more quickly. Or, they may decline to pay for concessions for financial reasons. Such as if they are already selling the home for a loss.
How are seller concessions paid?
Seller concessions are paid at closing from the proceeds made on the sale of the home. The seller won’t directly be handing a check to the buyer at closing. Rather, the closing agent facilitates the moving of funds to pay for whatever’s been agreed upon. Whether that’s the seller covering some or all of the closing costs or covering specific items, like the appraisal fee.
Can seller concessions be used towards a down payment?
Seller concessions can’t be used toward a down payment. They also can’t be used to pay for mortgage insurance.
Are seller concessions taxable?
Seller concessions may have tax implications for both buyers and sellers. Consult a tax professional about the potential tax consequences of offering or receiving seller concessions.
Is it better to ask for seller concessions or a lower sale price?
Whether you should ask for seller concessions or a lower purchase price depends on market conditions and your financial situation. If you have less cash on hand for closing, it may be worth asking for seller concession. But if you have cash for closing, it may save you money over the long term to have a lower sale price, which leads to lower monthly payments and less overall interest.
Are there other ways to get closing costs paid for?
If you’re buying a home and you need more money for closing than what’s available through seller concessions, you can ask your lender for a lender credit. Lender credits allow you to roll your closing costs into your loan. You’ll end up with a larger loan amount and potentially a higher interest rate, but you won’t need as much cash at closing.