Definition
Seller concessions are financial incentives or contributions that the seller offers to help the buyer cover closing costs, prepaid expenses, or repairs. These concessions make home purchases more affordable by reducing the upfront cash buyers need at closing.
Explanation
Seller concessions are often negotiated as part of the purchase agreement and can include:
✅ Covering Closing Costs – The seller pays for lender fees, appraisal fees, title insurance, or other expenses.
✅ Buying Down the Interest Rate – The seller contributes toward discount points to lower the buyer’s mortgage rate.
✅ Repair Credits – Instead of making repairs before closing, the seller offers a credit for the buyer to handle them.
✅ Paying for HOA Fees or Home Warranties – The seller covers initial HOA dues or provides a home warranty to attract buyers.
Limits on Seller Concessions
Most mortgage programs limit how much a seller can contribute:
| Loan Type | Max Seller Concessions |
|---|---|
| Conventional Loan (≤90% LTV) | 3% of the home’s price |
| Conventional Loan (>90% LTV) | 6% (for buyers with 10–25% down) |
| FHA Loan | 6% |
| VA Loan | 4% |
| USDA Loan | 6% |
If concessions exceed these limits, the loan may need to be restructured or reduced.
Example
A buyer is purchasing a $300,000 home and negotiates $9,000 (3%) in seller concessions to cover:
- $5,000 in closing costs
- $3,000 for buying down the interest rate
- $1,000 for a home warranty
This reduces the buyer’s out-of-pocket expenses, making the purchase more affordable.
Pros & Cons of Seller Concessions
✅ Benefits for Buyers:
- Lower upfront costs at closing.
- Can help qualify for a loan by reducing the cash needed.
- Allows more flexibility in budgeting for future expenses.
❌ Drawbacks for Sellers:
- Reduces total profit from the sale.
- May be less attractive in a competitive market.
- Could cause appraisal issues if the concessions push the final price too high.