Buying a home is an expensive proposition, but there’s a way to ease some of that financial burden without cutting corners: Enter seller concessions. These are powerful negotiation tools that can help buyers afford more and sellers close faster. Between the down payment, closing costs, inspections, and other fees, the expenses add up fast, so it pays to learn more. Here’s what you should know.
Understanding seller concessions in real estate
Seller concessions are agreements in which the home seller covers some of the buyer’s purchase costs. These costs are typically part of the buyer’s closing costs but may also include other transaction-related fees.
Think of it as the seller offering a financial “boost” to the buyer, a smart move in competitive markets or when a home has been on the market a little too long.
How do seller concessions work?
Seller concessions are negotiated as part of the purchase agreement between the buyer and the seller. The concession can be a fixed dollar amount or a percentage of the home’s sale price.
For example, if a home is listed for $350,000 and the seller agrees to a 3% concession, that’s $10,500 the seller contributes toward the buyer’s closing costs, a significant help for a buyer trying to conserve cash.
The funds usually go toward closing costs, including appraisal fees, title insurance, search fees, loan origination fees, home inspections, HOA transfer fees, and real estate taxes. These concessions reduce the buyer’s out-of-pocket expenses at closing, making homeownership more accessible.
Who benefits from seller concessions?
Seller concessions benefit both buyers and sellers in meaningful ways. For buyers, especially first-time purchasers or those with limited cash reserves, concessions can significantly reduce upfront costs and make homeownership more attainable.
On the flip side, sellers can use concessions as a strategic tool to make their property more appealing and competitive in the market, particularly in a buyer’s market or when a quick sale is needed.
In some situations, offering concessions can even help salvage a deal that might otherwise fall through due to repair concerns or appraisal shortfalls.
Examples of common concessions
Not all concessions look the same. Here are a few real-world examples of how they can be used:
Covering closing costs: The most common use of concessions is to help buyers pay for required fees, such as appraisal, title, and lender fees.
Home warranty: Sellers may include a home warranty as part of the deal, providing the buyer with peace of mind regarding potential repairs after move-in.
Price adjustments for repairs: If an inspection reveals needed repairs, a seller might instead offer a price reduction or credit to cover the costs, effectively making another form of concession.
Limits on seller concessions by loan type
Before you ask for (or offer) seller concessions, it’s essential to know that limits apply, and they vary by mortgage type:
Conventional loans: Seller concessions range from 3% to 6%, depending on the buyer’s down payment amount.
FHA loans: The Federal Housing Administration allows concessions up to 6% of the purchase price or appraised value (whichever is lower).
VA loans (for veterans): The Department of Veterans Affairs caps concessions at 4% of the home’s price.
USDA loans: Buyers using a USDA loan may receive up to 6% in concessions.
Real estate agents and lenders can advise you on the amount you’re eligible for based on your financing and circumstances.
When should buyers ask for seller concessions?
Buyers should consider requesting seller concessions when the market favors buyers, an inspection uncovers repair needs, cash is tight, or the home appraises below the contract price. While not guaranteed, especially in competitive markets, concessions can be a valuable way to align buyer affordability with seller goals. A skilled real estate agent can help navigate these negotiations and determine when concessions are most likely to be successful.
Related – What Must You Disclose When Selling Your Home?
