A Guide to Sellers Concessions

A Guide to Seller Concessions

The final stages of buying a home bring on a bevy of fees that increase your final purchase price. Generally speaking, closing fees range from 2% to 5% of your home’s price. On a 2023 median-priced home of $387,600, that’s $7,752 to $19,380. Those closing fees are on top of your down payment and moving costs. However, there’s a silver lining: the seller can help alleviate some of these closing costs. This is where seller concessions come into play. Learn about seller concessions, how they work, and the benefits for home buyers in a real estate transaction.

What Are Seller Concessions?

Seller concessions are not like home sale contingencies. Those typically cover the buyer’s due diligence. However, the resulting reports, like the home inspection findings and appraisal, can lead to the potential buyers asking for a seller concession.

These concessions reduce the buyer’s upfront cost of buying the home. For example, a buyer may ask a seller for concessions to cover some home repairs or reduce the sale price. This flexibility can empower buyers and sellers in the negotiation process, as both can tailor the concessions to their specific needs for the optimal outcome.

Types of Seller Concessions

Home Warranty

Sellers may offer a home warranty for the buyer, or the potential buyer can ask them to purchase one. A home warranty covers certain repairs or replacements of major home systems and appliances for up to one year after the buyer moves in. It provides some peace of mind if the buyer is concerned about the condition of the HVAC, water heater, or furnace. The cost of repairs for these essential appliances runs into the thousands of dollars. That’s the last thing a potential home buyer wants to do in the year after buying the home.

Home Repairs

After the home inspection report, the buyer may ask the seller to repair the property. This can include fixing structural issues, plumbing problems, or electrical issues. Alternatively, the seller and buyer can re-negotiate the purchase price to reflect the buyer taking on the cost of repairs themselves.

Home Improvements

In some cases, sellers may agree to make certain home improvements or renovations before closing to meet the buyer’s requests or to enhance the property’s value. This could be removing old carpets and replacing with wood floors or finishing a kitchen renovation with the buyer’s chosen design elements. A home improvement concession may change the sales price and delay the closing date.

Seller Concessions Vs Seller Credit

Sometimes, you may see a seller credit listed. This is money the seller offers as an incentive to buy the home. The property description often acknowledges the home may need some repairs. It could be for a cosmetic item, like the floors or paint, or a repair to a roof or siding. But rather than the homeowner taking on the repair and delaying the closing, the seller credit is there for the new owner to select the materials for the repair to match their personal tastes.

Fees and Taxes

The sellers agree to pay a portion of the property taxes owed at closing, usually covering the duration of their property ownership. Many states have this as a regulated or standard practice. Any homes inside an HOA with fees or condo associations with pending special assessments may do the same, especially if the fees are due soon.

Closing Costs

Sellers assist with the buyer closing costs in several ways. Under the first option, covers specific closing costs they would not typically pay. The second option has the seller covering a certain percentage of your closing costs. Under that guideline, you can apply that money toward whichever costs you’d like. Finally, the seller can contribute a set amount towards the closing costs. Like the second option, you can apply it where you like.

Note that sellers can never pay 100% of the closing costs. The amount of concessions that a seller can pay will be determined by the type of loan you’re using to buy your home. For example, conventional mortgage loans where the buyer contributes less than 10% for a down payment cap seller contributions at 3%. Government-backed loans may have different rules. The home buyer should consult with their loan officer if they are considering having the seller contribute to closing.

Specific closing fees that may covered by seller assistance are:

Appraisal costs
Inspection fees
Attorney fees
Property taxes
Title insurance
Recording fees
Loan origination fees
Discount points (aka mortgage points)
Homeowner association fees

The Pros and Cons of Seller Concessions

Seller concessions are significant because they cut down on the buyer’s purchase costs. There are already many costs associated with buying a home that every little bit helps, especially for a first-time buyer.

Adding in a concession reduces the cash to close for buyers, making the purchase more affordable. By having the seller cover more costs, the buyer can shift more of their funds towards the down payment. That lowers the overall mortgage payment.

These concessions, like repairs or credits, also make the home more move-in-ready. The buyer will have less to fix once the home is theirs.

For sellers, agreeing to assist the buyers or to offer a seller credit can help the home sell faster. Getting locked up on details like repair concessions drags out the purchase process. It may also attract more home buyers if they see a seller credit or an included home warranty.

If a property has been on the market for a while, the buyer has more negotiating power with concessions. A seller is less likely to have a problem assisting with closing costs if it means they can finally sell their house.

That being said, there are drawbacks to asking for seller concessions.

Turn Off Home Sellers

Some could immediately turn off the seller. In a competitive market, sellers with multiple offers on their home are less likely to take the bid with a closing cost concession.

If seller concessions are essential to you, limiting your other demands increases your chances of getting your desired home. Ask a real estate agent for advice on other ways to make your purchase offer more attractive so they will accept your concessions. For example, coming in at list price or waiving some contingencies could sweeten the deal.

Higher Mortgage Payments

In addition, sometimes closing costs will be included in your mortgage if there are seller concessions. It goes back to your type of mortgage and the loan rules. Because of this, concessions could actually raise your monthly mortgage payment. However, if you’re willing to pay more in the long run for a bit of a financial break right now, seller concessions still might be the best choice. It will just depend on your individual circumstances.

Concession Loan Limits

Specific loan products restrict the amount of seller concessions a home buyer can request. These depend on the purchase price, but generally fall in the 3-6% range. Ask your loan officer to point out the concession limits in your settlement statement. Additionally, some limits on concessions by loan type:

Conventional loans: Depends on the down payment and purchase price, but usually 3-9%. The higher the down payment, the higher the concession limit. Investment property purchases are limited at 2%.
FHA loans: Up to 6% of the lower between the purchase price and home appraisal.
USDA loan: Up to 6% of the home purchase price.
VA loans: Up 4% of the home purchase price.

When you apply for your loan, the mortgage lender provides a sheet with estimated closing costs. Use that information to weigh the pros and cons of seller concessions and decide whether you want to ask the seller for them.

Negotiating Seller Concessions

Your real estate agent and loan officer can help you determine what fees you might ask the sellers to cover. Which levers to pull depend on a combination of factors, like:

What is your local real estate market like? It could be a seller’s or buyer’s market. With sellers in the driver’s seat, prospective buyers have less negotiating power.
What are the terms of your loan? That limits how much you can ask for seller assistance.
What is the condition of the home? To keep the sale moving forward, it may make more sense to ask for a home warranty and use it when necessary. You may also prefer to repair the home yourself.
What is a reasonable request? In the case of seller repairs, most owners will agree to items that improve the structure’s safety. They may not agree to cosmetic updates. Ask your real estate agent.