Sellers concessions are contributions from home sellers to help their buyer offset the costs of buying a home. Often, concessions come in the form of credits towards the buyer’s closing costs.
Buyers ask for seller concessions to reduce the amount of money they have to pay at closing. Remember: buyers have to bring cash to pay for their closing costs — typically 2-5% of the home’s sale price — in addition to their down payment.
There are limits to how much buyers can receive. Seller concessions are typically capped at 6%, but the exact amount depends on what kind of mortgage the buyer is getting and how much they're putting down.
If you're buying a home and hope to get a concession from the seller, you should know that you'll likely have to make a strong all-around offer to get them to accept. Seller concessions aren't required, and sellers don't have to grant them to their buyers. Depending on the situation, your offer may have to include a strong sale price to be accepted.
What is a seller concession?
A seller concession can be anything that a seller gives to their buyer during the home sale process.
Most commonly, seller concessions are something that sellers grant at a buyer's request; they are conceding something to get the deal to go through. Seller concessions can also be offered preemptively by some sellers, but this is less common. After all, why would they give up more than they have to when selling their home?
Buyers usually ask for seller concessions to help pay for closing costs. Buyer closing costs — which include fees from their mortgage lender and title company — typically range from 2-5% of the home’s total purchase price.
For buyers who are short on cash — especially first-time home buyers — getting the seller to cover some of their closing costs may be the only way the buyer can afford to purchase the home without totally depleting their savings.
While concessions most often pay for buyer’s closing costs, they can also take other forms:
- Payments for the home and pest inspections
- Repairs or credits for repairs to address issues revealed during the inspection process
- A home warranty policy purchased for the buyer
How seller concessions can enable buyers to offer higher prices while saving money
Buyers sometimes negotiate seller concessions as a way of enabling them to be able to make offers with more competitive prices. This can let buyers effectively roll a portion of their closing costs into their mortgage. This saves them money upfront with the tradeoff that they have to pay interest on the higher loan balance.
It's typically a good deal for home buyers to use seller concessions as a way to reduce their initial out of pocket expenses, even if it means an increased mortgage payment. You'd have to own your home for a long time before the increased monthly payments exceeded the upfront savings you get by having the seller cover your closing costs.
Consider the following example where instead of offering $100,000 for a home listed for $105,000, a buyer presents an offer that matches the listing price but includes a $5,000 seller concession:
Without seller concessions | With seller concessions | |
|---|---|---|
Purchase price | $100,000 | $105,000 |
Upfront costs* | $25,000 | $26,250 |
Seller concession amount | $0 | $5,000 |
Cash required at closing | $25,000 | $21,250 |
Total cost for the lifetime of the loan** | $137,496 | $144,370 |
Monthly mortgage payment** | $382 | $401 |
Monthly cost of the seller concession** | $0 | $19 |
* Assumes a 20% down payment and closing costs amounting to 5% of the home's sale price ** Assumes a 30 year fixed-rate mortgage with a 4% interest rate | ||
In this example, the buyer would have to own their home for about 17 years before the increased mortgage cost exceeded the upfront savings that resulted from the concession.
What costs can a seller concession cover?
When a seller agrees to pay for their buyer’s closing costs, their concessions can come in two forms: as a lump sum credited towards the buyer at closing or as a payment towards specific closing costs.
The closing costs that seller concessions can cover include:
- Home inspection and appraisal fees
- Mortgage points (a.k.a. “discount points”)
- Settlement fees
- Title insurance
- Prepaid property taxes and homeowners insurance
» MORE: Who Pays Closing Costs?
Seller concessions cannot cover a buyer's down payment. Furthermore, the total amount that the buyer can receive will be capped based on their loan type (more on that in the following section).
Maximum amount of seller concessions by loan type
The maximum amount a buyer can receive in seller concessions is capped based on their loan type and how much money they put down.
Below, we've listed the maximum seller concessions amounts for conventional, FHA, VA, and USDA loans:
Loan type | Down payment | Maximum seller concession |
|---|---|---|
Conventional mortgage* | <10% | 3% |
10-24.99% | 6% | |
>25% | 9% | |
FHA loan | Any | 6% |
VA loan | Any | 4% |
USDA loan | Any | 6% |
* Seller concessions on all investment properties are capped at 2%. | ||
Note that if the home appraises for less than the sale price of the home, the seller concessions limits will be capped based on the appraised valuerather than the home's purchase price.
When should I ask for seller concessions?
When buying a home, whether you should ask for seller concessions will largely depend on your financial situation, the housing market in your area, and the specific home you're interested in.
It may seem like a no-brainer to ask for a seller concession whenever you buy a home. However, in some cases asking for a seller concessions could sour your deal; you only want to make this request if it's the only way you can afford to buy a home or if you think the seller has a good chance of granting you a concession.
Some common scenarios where you should ask for a seller concession include:
- You're short on cash: If you don't have enough cash on hand to cover your closing costs, there's no harm in requesting a seller concession. You wouldn't be able to afford the home otherwise.
- You’re in a buyer’s market: If there are few interested buyers or an abundance of homes for sale in your area, sellers may be more likely to pay for your closing costs just so they can secure a buyer.
- The home's been listed for a while: If you're making an offer on a home that's been on the market for a while, you may have a greater chance at getting the seller to offer you a credit towards your closing costs. They may be eager to find a buyer and willing to make concessions.
When would a seller agree to concessions?
Agreeing to a seller concession isn't necessarily a bad thing for home sellers.
Sellers consider a variety of factors when evaluating an offer, including price, contingencies, and closing date. Choosing the offer that aligns with their goals and needs is in their own best interest; in some cases, those offers will include seller concessions.
» LEARN: How do home sellers evaluate an offer?
If seller concessions enable the buyer to make a stronger offer on price, they can be a win for both sides:
- The seller may earn as much as they would without offering the concession by getting a price closer to (or even above) asking.
- The buyer brings less money to closing since most of the offer price (unlike closing costs!) is covered by their mortgage.
Can seller concessions exceed closing costs?
Seller concessions typically cannot exceed the closing costs. Mortgage lenders won’t allow home buyers to walk away from the transaction with a cash credit from the seller; they want to make sure you have “skin in the game” in the form of the full down payment you committed to.
If your closing costs end up being less than what you've negotiated in seller concessions, your best option is to buy discount points on the mortgage with whatever funds are left over. For example, if you've negotiated a $5,000 seller concession for a $200,000 home and your closing costs end up being only $3,000, you could use the extra $2,000 to buy one discount point on your mortgage and reduce the interest rate by 0.25%.