Seller Concessions: Strategy Guide
Seller concessions are contributions the seller makes toward the buyer's closing costs, prepaid items, or other expenses as part of a real estate transaction. Instead of reducing the purchase price, the seller agrees to pay a portion of the buyer's costs at closing, effectively reducing the buyer's cash needed to close. Seller concessions are a negotiation tool used by both residential and investment property buyers.
How seller concessions work
The buyer and seller agree to a purchase price with the seller contributing a specified amount toward the buyer's closing costs. For example, a $200,000 purchase with $6,000 in seller concessions means the buyer pays $200,000 for the property but the seller covers $6,000 of the buyer's closing costs from their sale proceeds. The seller nets $6,000 less; the buyer needs $6,000 less cash at closing.
Concession limits by loan type
| Loan type | Max concession |
|---|---|
| Conventional (primary, >25% down) | 9% of sale price |
| Conventional (primary, 10-25% down) | 6% of sale price |
| Conventional (primary, <10% down) | 3% of sale price |
| Conventional (investment property) | 2% of sale price |
| FHA | 6% of sale price |
| VA | 4% of sale price |
Strategic uses for investors
As a buyer: Request seller concessions to reduce your out-of-pocket closing costs, preserving capital for repairs or other investments. This is especially useful when buying with financing where cash at closing is a constraint.
As a seller/flipper: Offering seller concessions can broaden your buyer pool by reducing cash-to-close requirements for financed buyers. A property listed at $215,000 with $6,000 in seller concessions may attract more offers than the same property listed at $209,000 with no concessions, because the higher price supports the buyer's appraisal while reducing their cash needs.
Appraisal considerations
The property must appraise at or above the contract price including any concessions. If the property does not appraise, the concession amount may need to be reduced or the deal renegotiated. Excessive concessions can also raise appraisal concerns -- if the concession inflates the price beyond market value, the appraiser will flag it.