What Are Seller Concessions?
Seller concessions are contributions you make toward the buyer's closing costs, prepaid items, or other expenses. They are typically expressed as a dollar amount or percentage of the sale price and are negotiated as part of the offer. The buyer effectively rolls these costs into their mortgage rather than paying them out of pocket.
Seller concessions reduce your net proceeds by the concession amount. However, they can be strategically valuable — a buyer who needs $10,000 in closing cost assistance may offer $10,000 more for the property, resulting in the same net to you while enabling the buyer to close.
Concession Limits by Loan Type
Each loan type limits the amount of seller concessions: conventional loans allow 3 to 9 percent depending on the buyer's down payment (3 percent for less than 10 percent down, 6 percent for 10-25 percent down, 9 percent for more than 25 percent down). FHA allows up to 6 percent. VA allows up to 4 percent plus reasonable and customary costs. USDA allows up to 6 percent.
Exceeding these limits can cause the loan to be denied. If a buyer requests concessions near the limit, ensure the math works within their loan type's parameters. Your agent should verify this with the buyer's lender before you agree.
Strategic Use of Concessions
Concessions are a negotiation tool. In a buyer's market, offering concessions can make your listing more attractive and help buyers who are cash-constrained. In a seller's market, you have less reason to offer them. Consider concessions as part of the overall negotiation — they are one of many levers alongside price, closing date, and contingencies.
One common approach: rather than reducing your asking price, offer a concession. This keeps the sale price higher (which affects comparable sales and appraisals) while providing the buyer the financial assistance they need. Your agent can advise on when this strategy makes sense.