Seller concessions can be an effective negotiation tool for sellers in real estate transactions–when done strategically, of course. You don’t want to over-offer or make the mistake of trying to cover an expense that doesn’t qualify. Please keep reading to learn more about how to use seller concessions to benefit both yourself and the buyer when looking to sell a property quickly and at a fair price.
What Is Their Purpose Of Seller Concessions?
Seller concessions are costs that a home seller agrees to pay on behalf of the buyer at closing. Instead of lowering the total purchase price of the home, the seller contributes toward specific expenses the buyer would normally pay out of pocket.
The primary purpose of seller concessions is to make the transaction more affordable and appealing, especially for buyers who may qualify for a mortgage but don’t have a lot of extra cash available after their down payment.
From a strategic standpoint, seller concessions are used to:
Reduce the buyer’s upfront costs: The buyers already, presumably, have a loan in place to cover the cost of the home, so lowering the price won’t necessarily help them in the short-term. Concessions have an immediate impact by lowering out-of-pocket costs due at closing.
Attract more potential buyers: You’ll automatically pique the interest of more buyers by offering concessions that competitors don’t have.
Help keep deals moving forward: A potential buyer who is on the fence might be swayed by an attractive concession offer.
What Can Be Covered by Seller Concessions?
Seller concessions can cover a wide range of expenses tied directly to the home purchase and closing process. In most cases, they are applied as a credit on the buyer’s closing statement and reduce the cash the buyer must bring to closing.
Common costs covered by seller concessions include closing costs and prepaid expenses, such as:
Loan origination fees
Appraisal fees
Title insurance
Lender charges
Property taxes
Homeowner’s insurance premiums
HOA dues
In addition, seller concessions may be used to fund a mortgage rate buydown by covering discount points, which can help reduce the buyer’s monthly payment over time. Some sellers also offer concessions for repair credits instead of completing repairs themselves, or even contribute toward a home warranty or moving costs.
What Cannot Be Covered by Seller Concessions?
While seller concessions are flexible, they are not unlimited. There are clear restrictions on how they can be used. These restrictions are primarily dictated by lenders and loan programs.
Most importantly, seller concessions cannot be used to cover the buyer’s down payment.** **
They also cannot be taken as cash by the buyer. Any unused portion of the concession must be removed or adjusted.
Additionally, concessions must align with actual closing costs and approved expenses. If the seller offers more than the buyer’s total allowable costs, the excess is typically treated as a price reduction rather than a credit.
Loan guidelines may impose further restrictions.
Conventional loans usually cap somewhere between 3-6 percent of the home’s purchase price.
VA loans allow concessions of up to 4 percent of the purchase price.
Seller concessions in FHA loans
USDA loans allow concessions of 6 percent of the purchase price.
Seller Concessions vs. Lowering The Asking Price
As a seller, you may be wondering if it’s better to offer seller concessions or simply reduce the home’s price.
The key comes down to how each option impacts the buyer. A price reduction lowers the overall purchase price, which may slightly reduce the buyer’s monthly mortgage payment-maybe by $60 or $70 for every $10,000 you shave off. $70 per month isn’t nothing, but it does little to help with upfront costs in the thousands.
Seller concessions, on the other hand, directly reduce the amount of cash the buyer needs at closing. This can have a much bigger impact on affordability in the short term and often makes it easier for buyers to move forward with the purchase.
In many cases, buyers actually prefer concessions over price reductions because immediate cash savings can be more valuable than marginal monthly savings. Meanwhile, sellers may prefer concessions because they can keep the sales price higher and protect market comps.
Do You Have to Offer Seller Concessions to Sell a Home?
No, seller concessions are not required to sell a home. They are simply a negotiation tool.
Whether concessions are necessary depends heavily on market conditions. In a seller’s market, where demand is high and inventory is low, many homes sell without any concessions at all. In a buyer’s market, concessions are far more common because sellers need to compete for a smaller pool of buyers.
Ultimately, concessions are situational. Sellers may choose to offer them if:
The home has been sitting on the market
Inspection issues arise
Buyers need help covering closing costs
The seller wants to speed up the transaction
But again, in strong markets, many sellers can sell successfully without offering any concessions at all.
FAQ: Seller Concessions in Real Estate
What is a typical seller concession amount?** **Seller concessions typically range from about 2% to 6% of the purchase price, depending on the loan type and negotiation.
Can seller concessions exceed closing costs?** **No. Seller concessions cannot exceed the buyer’s actual closing costs, and any excess is usually treated as a price adjustment.
Do seller concessions affect the loan amount?** **No. The loan is still based on the full purchase price, even if concessions are included.
Are seller concessions more common in certain markets?** **Yes. They are more common in buyer’s markets, where sellers need to offer incentives to attract buyers.
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