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Home buyers and sellers, take note: Seller concessions could be a powerful tool for achieving your real estate goals.
A seller concession occurs when sellers agree to cover a portion of a buyer’s closing costs. While this might seem like a boon for buyers alone, sellers also stand to gain from this exchange. Knowing how this powerful negotiating tool works could help you craft a win-win for everyone the next time you have an eye on buying or selling a home.
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With seller concessions, a seller agrees to pay some of a home buyer’s expenses at the closing table. If you’re wondering why on earth a seller would agree to such a move, the answer is simple: Seller concessions benefit everyone in a real estate transaction.
For home buyers (especially first-time home buyers), seller concessions can reduce the buyer’s cash required to close. For sellers, concessions can translate to higher offers or a faster path to finalizing a sale.
Typically, you’ll find seller concessions more common in buyer’s markets versus seller’s markets. In a buyer’s market, housing inventory exceeds the number of buyers, so a seller may need to sweeten the deal to make their home stand out. In seller’s markets, buyers outnumber the homes for sale, so sellers tend to have the upper hand.
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Seller credits and seller concessions are related terms, but they don’t mean the same thing.
A seller concession is any contribution from the seller that goes to the buyer at closing to offset costs of the purchase. They can be monetary (like cash toward closing costs) or non-monetary (like prepaid HOA fees or a seller-paid home warranty).
A seller credit is a type of seller concession, but it’s exclusively a cash contribution toward the buyer’s closing costs. A credit could be a percentage of the home’s sale price (e.g., 3%) or seller-paid costs like appraisal and inspection fees.
Seller concessions generally come into play at two phases during a real estate transaction: in the home listing itself or during the offer and inspection phase. No matter the timing, however, the outcome is the same: reduced costs for buyers at the closing table.
Sellers sometimes offer concessions in the home listing itself to help their home stand out to potential buyers. While it might seem counterintuitive to offer this type of discount before someone’s stepped foot into the house, the move can make perfect sense in several scenarios.
Say a homeowner is ready to sell but knows the roof or carpet needs replacing. Instead of making the repair, the seller may offer a flat-rate concession to cover the repair cost — say $6,000 for carpeting or $30,000 to replace the roof.
If it’s a buyer’s market and sellers want to make their home stand out, they may offer a percentage of the sale price as an up-front concession. For instance, let’s say the house has a $500,000 list price, and the seller wants to entice buyers with a 3% seller concession. In this case, the seller would contribute $15,000 to the buyer’s closing costs — a move that could speed the path to better offers and a faster closing.
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Concessions in the offer and inspection phase
If you don’t see an advertised seller concession, all isn’t lost. Buyers and sellers can also agree to concessions at the offer and home inspection phase.
For example, a home for sale has lime green paint in all the bathrooms. Here, a buyer may make a full-price offer and propose a seller concession to cover the costs of repainting the rooms. On the other hand, maybe you have an accepted offer, but the inspection reveals termite damage to a shed in the backyard. In this case, you can negotiate a seller concession to cover the exterminating costs or removal of the shed.
No matter how seller concessions come about, they all work the same. At closing, the concession amount gets deducted from the seller’s proceeds and applied to the buyer’s closing costs. Buyers pay less at the closing table, and sellers don’t have to come up with cash to cover the negotiated amounts.
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First things first: Seller concessions can’t be used to cover your down payment. However, concession can cover various expenses and mortgage lender fees.
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Appraisal fees. An appraisal assesses a home’s fair market value and is generally required by lenders.
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Attorney’s fees. Some real estate markets require an attorney to draft documents during the closing process.
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Discount points. Mortgage discount points are up-front fees that lower the interest rate on your loan.
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Home repairs. If your inspection finds items that need repair, you may be able to negotiate with the seller to receive a cash credit at closing for the cost.
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Home warranty. To offer buyers peace of mind, a seller may agree to pay for a home warranty as part of the deal.
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Inspection fees. Most buyers will want a professional to assess a home’s general condition before proceeding with the purchase.
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Origination fees. If your lender charges a loan origination fee for your mortgage, you could ask the seller to cover those costs.
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Property taxes. Property taxes may need to be paid through the year-end at closing.
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Recording fees. These fees may be required to record the sale with your local government.
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Title insurance. Title insurance protects your lender from financial loss if someone makes a legal claim against your property.
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Whether you’re a buyer or seller, you can benefit from seller concessions in your next real estate transaction. However, there’s an art to crafting a deal that benefits both parties. Here’s how both parties can negotiate concessions that make sense in any housing market.
Your real estate agent is your partner throughout your real estate journey. A seasoned agent can help you navigate your budget, listing price, and every facet of your transaction to strike a fair and affordable deal for buyers and sellers alike.
Your agent can also help you get a clear picture of what the real estate market looks like in your local area. By gathering data on average sale prices, seller concession trends, and housing inventory, an agent can help you establish reasonable expectations for current market conditions.
For instance, your agent knows and works with other agents. Through conversations with other agents, yours might have the inside track on motivated sellers whose homes require a little TLC. These properties could be a chance for you to score some seller concessions and serious savings.
Whether buying or selling, seller concessions must balance what both parties need. There can’t be just one winner in the negotiating process — which is why it’s called “negotiating” and not “conquering” a sale.
With your real estate agent as your guide, discuss what each party wants from the sale. Be prepared to compromise, but also know your limits. If you can’t come to a fair agreement on reasonable and justifiable seller concessions, either party can walk away.
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Yes, there are limits on seller concessions on FHA loans. Concessions can only total 6% of a home’s sale price or appraised value, whichever figure is lower.
If you want to ask for seller concessions, it’s essential to work with a real estate agent. An agent can help you understand local market conditions, make a reasonable offer, and get everything in writing to protect both parties.
Unfortunately, seller concessions can’t be used for a down payment. However, you can use concessions to pay closing costs, including expenses like loan origination, inspection, and appraisal fees. Ultimately, seller concessions typically reduce a buyer’s out-of-pocket costs at the closing table, which translates to savings that can make buying a home more affordable.
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