What are seller concessions?

Will your seller pay your closing costs?

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The mortgage process isn’t cheap — among the fees you can expect to pay upfront are closing costs, which are typically 2% to 5% of a home’s purchase price. One way to lower these costs is to ask for seller concessions, which is when the seller agrees to pay some of the upfront costs on behalf of the buyer. You can use seller concessions as a tool in the negotiation process, but there are some drawbacks.

Key insights

  • Seller concessions can save a homebuyer thousands of dollars upfront.
  • Seller concessions are more typical in a buyer’s market.
  • When done right, these concessions benefit both the buyer and the seller.

Concessions in real estate

Seller concessions are incentives from the seller to make the home purchase a better deal for the buyer. For instance, the seller may agree to cover the origination fee on the mortgage, which is typically 0.5% to 1% of the loan amount.

Depending on the type of loan, there are limits to how much the seller can offer in concessions. There are also other limitations, like which costs the seller can cover — usually these are attorney fees, appraisal costs, inspection fees, origination fees or prepaid property taxes (all part of the closing costs).

Seller concessions for conventional loans

Conventional mortgages are nongovernment-backed loans offered by private lenders, such as banks and credit unions. Allowable seller concessions for conventional loans depend on the down payment. For down payments below 10%, seller concessions are limited to 3%; for down payments between 10% and 25%, seller concessions may increase to 6%. For down payments higher than 25%, up to 9% in seller concessions are allowed.

With conventional loans, sellers may offer between 3% and 9% of the purchase price in concessions, depending on the buyer’s down payment.

So, if you plan to buy a $250,000 house with a 5% down payment ($12,500), the seller can offer concessions up to $7,500 (3% of the purchase price).

FHA seller concessions

FHA loans are backed by the federal government through the Federal Housing Administration and offered by FHA-approved lenders. Regardless of the down payment amount, the seller can contribute up to 6% of the purchase price in concessions if the borrower uses an FHA loan for financing.

VA seller concessions

VA loans are mortgage loans for active-duty and veteran military service members and their surviving spouses. With a VA loan, the buyer may receive seller concessions up to 4% of the total loan amount (not the purchase price), but those concessions cannot cover loan discount points. These concessions can cover the VA funding fee (based on your down payment amount), appraisal fee and title insurance.

Mortgage concessions: Benefits and drawbacks

Mortgage concessions can benefit both the buyer and the seller in a real estate transaction. The seller may be able to sell the home to a preferred buyer if they offer specific concessions, which can make a deal much more enticing.

Seller concessions are more common in a buyer’s market, which is when the supply of homes available is greater than the demand. In these cases, homes could sit on the market for weeks or months before selling. If a seller offers concessions to make a home more appealing, however, it could result in a quicker sale — and the buyer saves money (sometimes thousands of dollars).

Some buyers ask for concessions to reduce the cash they must bring to the table at closing. They may offer a higher purchase price in exchange for a portion of the closing costs. But this could mean taking out a larger loan amount, which translates to paying more interest in the long run. Another drawback to asking for seller concessions: It could make your offer less attractive to sellers, especially in a competitive seller’s market.

According to real estate agent Jonathan Key of eXp Realty, paying a higher purchase price in exchange for concessions has some disadvantages for the seller: They have to pay real estate commissions on the higher purchase price, and if the home doesn’t appraise at a higher price, the deal could fall through.

» MORE: How much are closing costs?

Negotiating seller concessions

The prevailing housing market plays a big part in the choice to negotiate seller concessions. As a general rule, sellers are less likely to consider concessions in a seller’s market.

In most cases, you’ll want to request seller concessions upfront, before your purchase offer is accepted.

The timing of your request is also important. Most concessions have to be written into the offer and presented upfront before the seller accepts the offer. Your real estate agent can help you decide if concessions are appropriate given the circumstances — for example, if the home has been listed for months with no offers, you may decide to ask for concessions.

However, it’s possible to ask for a seller credit later, after your offer is accepted and you begin the closing process. If the home inspector finds several costly issues (e.g., home needs a new roof, HVAC needs repair), you can still ask for a seller credit to cover part of the costs you’ll incur by getting those items repaired or replaced after the sale.

A seller credit essentially reduces the amount of cash you have to bring to closing but does not lower the purchase price.

In some cases, requesting concessions after the closing process has begun works out — the seller may be willing to do what it takes to seal the deal at this point. They could worry $10,000 worth of repairs will result in your backing out, so they might be willing to offer some kind of credit. And relisting a home isn’t only a hassle; it can also affect future offers. Potential buyers may see a sale falling through as a red flag.

Broadly speaking, when you negotiate seller concessions, you’ll want to keep in mind what’s fair for both parties.

» MORE: How much to offer on a house

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    Bottom line

    Seller concessions can offer a mutual benefit for buyers and sellers in a real estate transaction. However, it’s essential to consider your particular circumstances when asking for a concession. Your agent may not recommend asking for concessions if you’re in a seller’s market and there’s a lot of competition.

    On the other hand, it may be appropriate to ask for a concession if the home is overpriced compared with similar homes. Overall, concessions could make or break a deal, so make sure to be strategic with your requests.

    Article sources
    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
    1. U.S. Department of Veterans Affairs, “ VA funding fee and loan closing costs .” Accessed April 22, 2022.
    2. Consumer Financial Protection Bureau, “ What fees or charges are paid when closing on a mortgage and who pays them? ” Accessed May 3, 2022.
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