Closing costs are fees buyers and sellers pay prior to completing a real estate transaction. These fees are in addition to the purchase price of the property and may be rolled into the property loan. When it comes to seller concessions, they are usually decided upon well before the closing.

Buyers can ask for seller concessions during different times in the home buying process. They may ask for help with closing costs if they feel a home is overpriced or if they are concerned that they won’t be able to pay those extra fees. If it’s a buyer’s market and there aren’t multiple offers on a home, a buyer may be more successful asking for concessions when making their offer on the property.

After inspections, buyers can also ask for seller concessions. If during the inspection process, significant issues arise, a buyer can ask for a concession to offset the cost of those repairs. It’s often easier for a seller to agree to concessions for repairs than get the repairs done themselves.

What closing costs are included in seller concessions?

It depends on each specific deal, but some of the most common closing costs that could be paid for by the seller include:

• Appraisal fees: As part of loan approval, a buyer’s lender will usually order a home appraisal to determine the value of the home. There is a fee associated with this and seller concessions can cover it.
• Home inspection fees: Before you purchase a house, it’s important to do a home inspection to make sure you know what you’re getting into. This can include a general house inspection, well and septic inspection, sewer line inspection and radon inspection. Each of these inspections have fees that can be paid by seller concessions.
• Loan origination fees: If you’re a buyer, your lender will charge a fee to originate your loan. In some cases, you can convince the seller to foot the bill with seller concessions.
• Title search fees: Seller concessions can cover the fees the title company charges to search and research the title of the home. They do this to make sure the property can transfer hands without any issues like liens or pending legal proceedings.

Negotiating Seller Concessions

Ask your real estate agent if and when negotiating for seller concessions is a good idea. They should have a good understanding about how seller concessions might benefit you and if the people on the other side of the transaction may be open to it. When the time is right, your real estate agent will be the one doing the negotiating.

For example, in a buyer’s market, where inventory is high and demand is low, your agent might encourage asking for seller concessions because the seller may be more open to it. Afterall, there likely isn't a slew of other potential buyers knocking on their door. In a seller’s market, where inventory is low and demand is high, sellers might not be as open to concessions because they may have other potential buyers lined up around the block.

You may be surprised to know that seller concessions have benefits for both buyers and sellers. Let’s take a look at how they can benefit each side of a transaction.

Benefits For Buyers

Seller concessions present several benefits for buyers, including saving on upfront costs and having more money to put towards a down payment.

Seller concessions for repairs are also a benefit for buyers and are usually a good reason sellers might agree to concessions. Afterall, most people understand that if something is broken, it needs to be fixed.

For buyers, seller concessions can make the total cost of purchasing a home less if they’re used in the right way.

Benefits For Sellers

Seller concessions can present many benefits for sellers as well. This can be especially true if they need to repay the lender more quickly, are in financial trouble or experiencing a sudden life change.

For a seller trying to get their home off the market faster, seller concessions can be a good way to make that happen. By agreeing to pay some of the seller’s closing costs, you may then be in a position to negotiate to make the sale happen faster.

When it comes to repairs, seller concessions can save sellers from getting the work done themselves. Instead of hiring someone or making the repairs, you can negotiate seller concessions. That way you’re not stuck handling the repairs and your closing process isn’t delayed.

Depending on your loan type, there may be restrictions as to the amount or type of seller concessions you can negotiate.

Conventional Loans

Conventional loans are mortgages offered through a private lender without backing from a government agency. Conventional loans can be used to finance the purchase of a new home or to refinance an existing mortgage.

Seller concessions can be negotiated with conventional loans, but there are limitations depending on your down payment amount. If your down payment is less than 10%, seller concession can be up to 3% of the purchase price. If the down payment is between 10% and 25%, seller concessions can be up to 6%. If the down payment is higher than 25%, seller concessions can be up to 9%.

FHA Loans

FHA loans are mortgages backed by the Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development (HUD). This means the government will protect the lender’s investment against default, which can make qualifying easier.

For FHA loans, seller concessions are limited to 6% of the purchase price of the home and cannot be applied to your down payment.

VA Loans

VA loans are mortgages backed by the U.S. Department of Veterans Affairs (VA) and are only available to active military service members, veterans or eligible surviving spouses. For VA loans, seller concessions are limited to 4% of the purchase price.

USDA Loans

A USDA home loan is a competitively priced mortgage option that helps make purchasing a home more affordable for low-income individuals living in designated rural areas. The U.S. Department of Agriculture (USDA) backs these loans in the same way the Department of Veterans Affairs backs VA loans. For USDA loans, seller concessions are limited to 6% of the purchase price of the property.

Asking for seller concessions needs to be evaluated on a case-by-case basis. In most cases, it comes down to weighing the benefit of saving money against the drawback of slowing down the home buying process.

If you’re a buyer that is worried about the cost of closing and need seller concessions to make it affordable, then it might be a good idea to start negotiating right at the start of the transaction. If you’re in a competitive market with a lot of other buyers going after the same house, then seller concessions might not be in the cards for you. 

Are seller concessions common?

Seller concessions are common, but not always part of a real estate transaction. It all depends on several factors, the two most critical being the seller’s preference and the state of the overall real estate market. Negotiating seller concessions usually requires a willing homeowner as well as a real estate market that isn't too slanted toward sellers.

Do seller concessions affect my down payment?

Yes. Seller concessions are all about saving you money, which you can put toward a larger down payment for your new home.

Does the real estate market affect seller concessions?

Yes, a buyer’s market will make it more likely for a seller to agree to concessions. Conversely, a seller’s market will usually make it tougher to negotiate for seller concessions.

Does my lender need to approve seller concessions?

Yes, your lender needs to make sure the seller concessions you’re negotiating will fit within the limitations on your loan. Check with them before beginning the seller concessions negotiation process.

Do seller concessions affect a home's purchase price?

That depends. How seller concessions are paid varies, but two common ways are:

1. The amount is taken from the money the seller makes from the sale of the home. In this case, the purchase price isn’t affected.

2. The amount is added to the purchase price and therefore rolled into the loan amount. In this case, the buyer pays more for the home.

Buying a home can be a complicated and expensive endeavor. Using seller concessions can help save you money as a buyer and might be the difference between getting the home you want or settling for less.

Seller concessions can also, perhaps surprisingly, benefit you as a seller. Settling disputes over repairs and speeding up the home sale process by incentivizing buyers with seller concessions can ease some of the stress of selling your home. 

Take what you’ve learned here and continue to research the buying and selling process to prepare for your future home purchase. Ready to get started on your next move? Apply for a mortgage with Rocket MortgageⓇ today!

Carey Chesney

Carey Chesney brings a wealth of residential and commercial real estate experience to readers as a Realtor® and as a former Marketing Executive in the fields of Health Care, Finance and Wellness. Carey is based in Ann Arbor and attended the University of Wisconsin-Madison, where he majored in English, and Eastern Michigan University, where he recieved his Masters in Integrated Marketing & Communication