Seller concessions are a great negotiating point on both the buying and selling side of any home sale. They are exciting for buyers as they mean lower costs, while also helping out sellers who want to close quickly.
But, what exactly are seller concessions and how can you make the most of them? We’ll help you discover all you need to know about seller concessions, including what they are, why they exist, limitations on common loan types, and ways to negotiate.
What Are Seller Concessions?
Seller concessions, aka seller credits, are closing costs and prepaid expenses that the seller agrees to concede to the buyer. In other words, they are added incentives for the buyer to get them to close on the sale.
Seller concessions can either contribute to specific costs, or be given as a percentage of the sale. Typically, closing costs range from 3-5% of the home price, and seller concessions may cover part or all of these, helping buyers save money. Use our online calculator to estimate your closing costs.
Examples of Concessions
- Property taxesÂ
- Appraisal fees
- HOA transfer fees
- Inspection fees
- Recording fees
- Attorney’s fees
- Loan origination feesÂ
- Home warranty
- Repairs and renovations
- Personal property
- Title insurance
How to Negotiate Higher Seller Concessions
As a buyer, follow these steps to help you get the max seller concessions possible during closing:
- Know the market. Is it a buyer’s or seller’s market? During a buyer’s market, seller concessions are more likely to be accepted due to the abundance of homes available. Sellers will want to entice buyers to their homes and will be more likely to offer concessions. Take advantage of this time to make higher requests. Keep in mind that the opposite is true during a seller’s market, where sellers might receive multiple offers on a home.
- Consider the home’s history. If a home has been sitting on the market for a long time, you will have a better chance of being awarded seller concessions.
- Prioritize the concessions and limit other requests. Asking for too much upfront will overwhelm the seller and make it less likely for them to accept concessions. Instead, limit or frame your ask.
- Show examples of similar homes that recently closed with concessions. This might encourage the seller to accept your request.
- Work with a real estate agent. Let an expert answer questions before making an offer. A qualified agent will help guide you through negotiations to get the max seller concessions possible.Â
Seller Concession Limits By Loan Type
Depending on the loan type, there are different restrictions on seller concessions. Here’s a quick breakdown of seller concession limits for common loans:
Conventional Loans
- Seller concession limits on conventional loans vary based on the amount of the down payment made, explained here:
- If you make less than a 10% downpayment: Up to 3% seller concession
- If you make between a 10 – 25% downpayment: Up to 6% seller concession
- If you make a greater than 25% downpayment: Up to 9% seller concession
- Note, the exception is with an investment property, where the total seller concession limit is 2% regardless of the downpayment amount.
FHA Loans
- For FHA, or Federal Housing Administration loans, seller concession limits are capped at 6% of the purchase price or appraised value of the home (whichever is lower).
VA Loans
- For VA, or Department of Veterans Affairs loans, seller concession limits are capped at 4% of the purchase price or appraised value of the home (whichever is lower). These concessions may go toward a buyer’s judgments and debts or VA funding fees, rather than closing costs.
USDA Loans
- For USDA, or U.S. Department of Agriculture loans, seller concession limits are capped at 6% of the sales price of a home.
Using Seller Concessions to Buy Down Interest Rates
Instead of covering specific costs, buyers can put seller concessions toward lowering interest rates and monthly mortgage payments. The two types of buy-downs are:
Permanent
A permanent buy-down is where the seller buys the interest on a buyer’s home loan, called mortgage points. This type of concession lasts for the entirety of the loan and makes sense for homebuyers looking to stay in their property long-term. This buy-down may also include reconveyance fees.
Temporary
The other option is a temporary buy-down, which lasts for the first few years of a loan. These are ideal for buyers looking to refinance or sell their property in the near future. The most common arrangements for a temporary buy-down are:
- 1-0 buy-down: The mortgage rate is reduced by 1% for the first year.
- 2-1 buy-down: The mortgage rate is reduced by 2% for the first year, and 1% for the second year, reaching the regular rate in the third year.
- 3-2-1 buy-down: The mortgage rate is reduced by 3% in the first year, 2% in the second, and 1% in the third, returning to the regular rate in the fourth.
Pros and Cons of Seller ConcessionsÂ
Pros for the Buyer
- The buyer benefits the most from a seller concession as they will receive a reduction in the total closing price. A concession can result in thousands of dollars saved, making the upfront costs of home buying less intimidating.
- Another benefit is that with the possibility of seller concessions, buyers feel more confident putting in higher offers. This can help them stand out against competition in a tough market.
Cons for the Buyer
- The downside of seller concessions is that not every seller will be amenable to them. In a multiple-offer situation, the seller may be more inclined to choose an offer without strings attached.Â
Pros for the Seller
- Seller concessions can help attract buyers and make a home sell more quickly, which will save the seller money in the long run. No one wants their home to sit on the market for months!
Cons for the Seller
- Of course, concessions also mean that the seller makes less on the sale. These costs, which are often significant, will reduce the total profit made.
Recap: Making the Most of Seller ConcessionsÂ
A common method of sweetening the deal for buyers while helping sellers make a quicker sale, seller concessions are worth exploring when closing on a home. There are rules to concessions and they aren’t always given, but during the right market, they benefit both sides.
Whether you’re on the buying or selling side, be sure to explore all the resources on Movoto to prep you for your big move. Far beyond the closing table, we want you to feel confident as you navigate the ups and downs of homeownership.
