The short answer
Seller concessions explained in one line: money the seller agrees to pay toward the buyer's costs at closing. They can cover closing costs, prepaid taxes and insurance, and a rate buydown. They usually can't cover the down payment, and every loan type caps them. The buyer brings less cash; the seller nets less.
Below: the seven steps to ask for them, typical caps by loan type, a worked example where the seller's net stays the same, and the words for both sides.
Step by step: how to ask for seller concessions
- Know the buyer's cash. How much do they have for down payment and closing? If cash is the problem, concessions help.
- Get the lender's estimate. Closing costs and prepaids, in writing. Don't ask for more than the buyer can use.
- Check the cap. The loan program sets the limit. See the table below, then confirm with the lender.
- Read the market. With multiple offers, a big concession ask can lose the deal. On a home that's sat 30+ days, ask.
- Write it as a dollar amount. "Seller to credit buyer $X at closing toward closing costs, prepaids and/or rate buydown." Use your state's approved contract. Check wording with your managing broker.
- Price it in if needed. Sometimes you offer a higher price with a concession so the seller nets the same. The home must still appraise.
- Track it. Make sure the credit shows correctly on the closing disclosure and settlement statement.
What can seller concessions pay for?
- Lender fees and discount points (including a rate buydown)
- Title, escrow and recording fees
- Appraisal and inspection fees, where the loan allows
- Prepaid property taxes, homeowners insurance and interest
- HOA transfer fees and similar closing items
Not usually: the down payment, or cash back to the buyer.
Seller concession limits by loan type
| Loan type | Typical cap (confirm with the lender) | Where to check |
|---|---|---|
| Conventional, under 10% down | 3% | Fannie Mae Selling Guide |
| Conventional, 10% to 25% down | 6% | Same |
| Conventional, more than 25% down | 9% | Same |
| Conventional, investment property | 2% | Same |
| FHA | 6% | HUD Handbook 4000.1 |
| VA | Has its own concession limit, and normal closing costs may be treated separately | VA home loans and the lender |
| USDA | Has its own limit | The lender |
Illustration only. A lender sets the real terms. Caps are usually a percentage of the lower of the price or appraised value. This is not an offer of credit. Program rules change. Check current rules at the official links above.
Seller concessions vs a price reduction
A price cut lowers the price, so it shows up in search and lowers the buyer's loan a little. A concession keeps the price and lowers the cash the buyer brings to closing. For a buyer short on cash, the concession usually helps more. For a seller, the same dollars cost the same either way. Show both. See rate buydown vs price cut.
A worked example (illustration only)
A $420,000 home. Buyer is using FHA with 3.5% down. Estimated closing costs and prepaids: $12,600.
| Offer A | Offer B | |
|---|---|---|
| Price | $420,000 | $428,000 |
| Seller concession | $0 | $8,000 |
| Seller's net before costs | $420,000 | $420,000 |
| Buyer's cash at closing (down payment + costs) | about $27,300 | about $19,600 |
Same net to the seller. The buyer keeps about $7,700 in the bank. The extra $8,000 is financed. Offer B only works if the home appraises at $428,000.
Illustration only. A lender sets the real terms. Down payment shown at 3.5%; FHA mortgage insurance, taxes, insurance and lender fees are not fully shown. The annual percentage rate (APR) would differ from any note rate. This is not an offer of credit. Program rules change. Check current rules at HUD.gov.
How to explain it to your client
To a buyer:
"A seller concession is the seller paying some of your closing costs. You still buy the house. You just bring less cash to closing. Your loan sets a limit on how much the seller can pay, and I'll keep us under it. The trade-off is that sometimes we offer a little more on price so the seller's bottom line stays the same."
To a seller:
"The buyer asked for $8,000 toward closing costs, but they raised the price $8,000 too. Your bottom line is the same. The only risk is the appraisal, and I've checked the comps."
Watch-outs
- Over the cap = lost money. Concessions above the program limit get cut or reduce the price for loan purposes.
- Unused credit. If closing costs come in lower, unused credit usually can't become cash to the buyer. Don't over-ask.
- Appraisal risk. Raising the price to cover a concession only works if the value is there. See the appraisal gap.
- Down payment. Concessions generally can't cover it.
- Fair housing. Base strategy on the home and the money, never on who the buyer or seller is.
- Don't promise taxes or terms. That's the lender's and CPA's job.
Keep going
- All financing pages: Financing and DPA training
- Next: the 3-2-1 buydown, rate buydown vs price cut, how to write a competitive offer, closing costs in Colorado
- Show the offer options side by side: the Buyer's Advantage Report lays out three offer strategies for one home, with the numbers behind each.
- Show the seller's side: the Seller Net Sheet shows what the seller keeps after costs, at three prices.
This is training for real estate agents. It isn't legal, tax or lending advice. A licensed loan officer sets terms. Check with your managing broker.
Questions
What are seller concessions?
Money the seller agrees to pay toward the buyer's closing costs, prepaids or a rate buydown. It's written into the contract and shows up as a credit at closing.
Can seller concessions pay the down payment?
Generally no. They cover closing costs, prepaids and buydowns.
Is it better to ask for concessions or a lower price?
If the buyer is short on cash, concessions usually help more. If the buyer has cash and wants a lower payment or loan, a price cut may fit. Run both with the lender.
Do seller concessions affect the appraisal?
They can. Appraisers look at concessions in comparable sales, and the price still has to be supported.
Can seller concessions be more than closing costs?
The credit can't usually exceed the buyer's actual allowable costs. The extra goes unused. Ask for what the lender's estimate shows.
What's the FHA seller concession limit?
Up to 6% of the price under current HUD guidance. Check with the lender.
Can a builder offer concessions?
Yes, and builder incentives usually count toward the same caps. Read the builder's terms.
Brian Lee Burke is the founder of PadLeaders, a Colorado real estate broker licensed since 2003, team leader of The Kenna Group at Keller Williams DTC (formerly Kenna Real Estate Group) and the author of Mastering Real Estate and The Real Estate Playbook. More about Brian.