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All About Seller Concessions
What home buyers and sellers need to know about this valuable negotiating tool.
When buying or selling a home, it’s easy to put the sole focus on the purchase price. However, price isn’t the only thing up for negotiation. Seller concessions help seal many a deal. Here’s a look at how they work and benefit both buyers and sellers.
What are seller concessions?
Seller concessions are a negotiating tool that can help a buyer and seller reach a deal. A concession means the seller agrees to pay for some of the buyer’s expenses. For example, the seller may cover the buyer’s inspection fees or mortgage discount rates. Any buyer’s cost can become a concession.
Concessions can be either a flat amount or a percentage of a specific cost. Buyers can request concessions and sellers can offer them.
How do concessions benefit buyers and sellers?
Concessions help buyers save money and even though they reduce a seller’s proceeds, the seller benefits too. Home sellers often offer or agree to concessions to create a path towards a faster sale. The sooner they close on the sale, the sooner they can move on with their plans.
For buyers, concessions can mean more money for a down payment or updating the home once it’s theirs. Money-saving concessions can be especially valuable to first-time home buyers. (If you’re new to the home-buying process or it’s been a while since you last bought a home, check out our Mortgage Toolkit.)
Are there drawbacks?
For buyers, there’s a potential disadvantage depending on market conditions. In a seller’s market, an offer requesting concessions is viewed less favorably than one without. Sellers may pass on the offer simply because buyers are abundant and others may not ask for concessions.
For sellers, the downside is walking away with less money. However, sellers have to consider market conditions too. In a buyer’s market, it’s often worthwhile to agree to concessions rather than lose the sale and risk having a stale listing.
Are there limits on concessions?
While there’s a lot of flexibility with concessions, the buyer’s mortgage loan terms may place limits on their maximum value.
A conventional loan may allow concessions of 3% to 9% of the purchase price. Buyers with larger down payments become eligible for concessions at the higher end of this range.
FHA and USDA loans allow concessions of up to 6% of the purchase price, regardless of downpayment.
VA loans cap concessions at 4% of the purchase price for all down payment amounts.
For buyers: Your lender can help you understand the terms of your loan and your real estate agent can help you write a purchase offer that conforms to the loan terms.
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