Seller concessions are closing costs and other homebuying-related expenses that the seller agrees to pay on behalf of the buyer. The seller can either pay a percentage of the total closing costs or contribute toward specific line items in the loan estimate (at the lender’s discretion.)
Since closing costs are typically 3-6% of the total home value, these are significant expenses for the buyer. When a buyer is looking for a new home, the seller offering concessions or throwing in a credit for repairs can be extremely helpful in improving affordability.
Seller concessions are more common with open market transactions and not typical of distressed property purchases.
Also, we’d like to give a special thanks to one of Marketplace Homes’ Real Estate Sales Experts, Christina Ishigami, who contributed valuable insights about the most common seller concessions in today’s market. Without her, this article would not be complete!
Who benefits the most from seller concessions?
The buyer benefits the most from seller concessions. Not only do they get a portion or all of their closing costs covered, they can also negotiate extra perks like new appliances or get a rate buy down to reduce their mortgage loan payment. However, sellers also benefit by improving the relationship with the buyer and making it easier to get to the closing table.
Are there limits to seller concessions?
Yes, there are limits to seller concessions for closing costs, and it depends on the type of loan that you have. Here are the limits
- FHA Loan: Maximum closing cost concessions at 6%.
- USDA Loan: Maximum concessions at 6%.
- Fannie Mae/Freddie Mac conventional loans have limits based on the down payment:
- For 10% or less down, the maximum the seller can pay is 3%.
- For down payments between 10% and 25%, the seller concession limit is 6%.
- For down payments 25% or above, the limit is 9%.
- VA Loan: Has varied limits, including a 4% limit on costs like the VA funding fee and escrow prepayment. Ask your lender for more details.
To understand exactly what the seller concessions will cover for any loan type, talk to the lender to check for limits with mortgage discount points, loan origination costs, credit report fees, and other loan related costs.
What are examples of seller concessions?
Examples of seller concessions include any fee on the final mortgage loan estimate. Home sellers can choose to pay a percentage of all the closing costs or pay for specific fees. However, whether a flat sum pays for a bit of everything or specific line items depends on the lender. This is why the seller’s intention to pay closing costs should be made clear upon contract ratification. Typical seller concessions include but are not limited to:
1. Loan Origination Fees
The loan origination is what the lender charges to process the loan, which ends up being around 0.5%-1% of the price of the home.
2. Recording Fees
These are standard upfront costs for registering your home purchase and its transfer of ownership.
3. Property Taxes
Typically, the buyer and seller are responsible for different portions of the house’s property taxes. The seller pays for the taxes for the time they own the house and the buyer pays for the remaining portion toward the end of the year. When taxes become a seller concession, the seller can pay the entire year’s worth of taxes at closing.
4. Mortgage Insurance
If the buyer doesn’t have a large enough down payment, they can roll the mortgage insurance fees into their loan or pay the entire premium upfront. As a seller concession, the buyer can request the seller pay for mortgage insurance at closing.
5. Title Insurance
This is standard protection to protect the buyer in case anyone tries to make a claim for the home’s title.
6. Discount Points
Also known as mortgage points, the buyer typically pays these to lower their loan interest rate. However, in a buyer’s market, the seller can be motivated to pay toward this to make the deal good for the buyer.
7. Credits For Repairs
If a home inspection reveals costly flaws, the seller can agree to cover repairs and/or upgrades. In a buyer’s housing market, the seller can end up paying a credit for a future roof repair to not lose the deal. Appliance credits are more common as these elements are not too expensive but a convenience for the buyer.
When a seller wants to really make a potential buyer happy, seller concessions can also include making some desirable possessions in the home convey, such as a pool table, set of valuable china, or a piece of furniture the buyer likes.
9. Price Reduction
A big “ouch” for the seller, but a big win for the buyer, sometimes slashing the price is the only way to make it to the closing table. In some cases, homeowners list their property too high, but the purchase price doesn’t figure in its flaws or condition. A price reduction gives the buyer the peace of mind that they can afford the repairs post purchase.
10. Specialty Inspection Fees
While the overall home inspection is the buyer’s responsibility, there are different speciality inspections buyers can get during the due diligence phase. Among these are pest, well, septic, and radon inspections. In most cases, the buyer pays for these, but it is possible to negotiate that the seller pays for these in the contract. However, many realtors don’t recommend this as it is so rarely done that it may not be worth it to request.
When do you negotiate seller concessions?
Negotiations usually start during the due diligence phase after data from the home inspection is available. This is when the buyer knows what the house needs regarding repairs and understands its future expenses.
Is it common to ask for seller concessions?
It is common to ask for seller concessions in a buyer’s market. This is a real estate market in which there is an abundance of housing inventory in which buyers can call the shots. Since the buyer can easily walk away and find another house, the seller is more motivated to offer help with the buyer’s closing costs and other repairs before the home purchase.
On the other hand, it is not common to ask for seller concessions in a seller’s market. In this market, there is a low inventory of houses and high competition among buyers, so sellers have the option to not agree to concessions.
Whether you are a first-time home buyer or buying a move-up home, seller concessions can boost your bottom line. Don’t miss out on your opportunity to ask for some help to make your home purchase more affordable, especially when many sellers have gained considerable equity.
How do you negotiate seller concessions?
To negotiate seller concessions, rely on your real estate agent to do the talking. Let your realtor know what you want after looking at the home inspection, whether it’s new kitchen appliances, a new water heater, or HVAC. Have your list of non-negotiables vs. “nice-to-haves” so you can be as flexible as you can be as the seller’s agent works out negotiations with your agent.
For example, if you don’t really need closing cost help with your conventional loan, then don’t ask for it. Instead, focus on upgrades that can make life easier after your move-in like new appliances or a roof replacement credit.
Under no circumstances should a buyer contact the seller directly to negotiate. Agents must talk to agents to keep things professional and running smoothly.
What to do if a seller won’t negotiate?
If a seller won’t negotiate, first find out what the seller wants out of the deal. Get your agent to contact the listing agent and have a conversation about the seller’s goals. Do they need to break even at a certain price point?
If so, you can compromise on some concession requests that aren’t deal breakers for you. You can also sweeten the deal by offering a free rent-back period to give them more time to move.
What is the number one rule of negotiations?
The number one rule of negotiations is to never promise to do anything beyond your limit. If you need a degree of closing cost help to meet your financial goals, do not waive the concessions entirely. If the seller won’t budge, then this probably isn’t the right deal for you. Once you set a limit in terms of offer price or negotiation terms, do not go beyond them or bend the limits.
Advantages and Disadvantages of Allowing Seller Concessions
Allowing seller concessions during negotiations has advantages and disadvantages. With the guidance of a real estate agent who has a good understanding of the market and the right seller concession limits, you can get the best deal in the home buying process regardless of what side of the transaction you are on.
Advantages of Seller Concessions
The advantages of seller concessions are considerable, especially if you are a loan borrower or a homeowner who is ready to secure a sale in a buyer’s market.
- Improves rapport between buyer and seller.
- Motivates the buyer to close instead of back out of the deal.
- The IRS considers seller concessions “sales expenses” which are tax deductible- helping you owe less during tax time!
Disadvantages of Seller Concessions
There are some disadvantages to giving seller concessions, especially when you are the seller. Here are some of them:
- You can lose profit from the home sale.
- You can end up spending time fixing parts of your house that would be left as-is in a seller’s market.
- If you’re unwilling to give seller concessions, you can lose a deal in a buyer’s market.
What Concessions Can Buyers Ask For?
Buyers can ask for closing cost assistance up to the loan’s limits and other conveyances regarding the home, but it will be up to the listing agent to temper the requests. The buyer must be mindful about what they really need to make it to closing and when they are crossing the line into taking advantage and affecting the relationship with the home seller.
For example, if paying down points on the home loan amount is the most important thing to you as a buyer, stick to that as your “non negotiable” and forgo the new refrigerator. During negotiations, concession requests are crossed out, new terms are written in, and initials are signed back and forth until all parties are in full agreement of the concessions.
Best of Luck With Seller Concessions!
Seller concessions are any arrangement where closing costs and other deal sweeteners are made regarding a home purchase and paid by the seller. If you would like to work with a real estate agent who can get you the best deal with seller contributions, regardless of what side of the transaction you are on, contact Marketplace Homes today.
Alicia Persson is a real estate content/SEO writer at Marketplace Homes. She has several years of experience working in real estate teams that specialized in investments and property management. Before she joined Marketplace, she was a freelance writer for 7 years, leading to a specialization in real estate and home living content for boutique digital marketing agencies. During her writing years, she learned the basics of SEO and gained experience writing for many different clients, making her highly versatile at creating diverse content.
She is a proud University of Virginia master’s graduate and enjoyed her undergraduate years at the University of Mary Washington. When Alicia is not writing, she plays keytar and sings in a local 90’s rock cover band, or she spends time with her amazing family.