Seller Concessions Explained: How They Work and How to Use Them Strategically

Buying a home involves more than just saving for a down payment. Closing costs — which can range from 2% to 5% of the purchase price — often catch buyers off guard. These costs include lender fees, title insurance, escrow, taxes, and other expenses that must be paid before you can get the keys.

If you’re short on cash at closing or want to preserve your savings, seller concessions could be the key to making your home purchase more affordable.

What Are Seller Concessions?

A seller concession (also called a seller credit) is when the seller agrees to pay a portion of the buyer’s closing costs. Instead of reducing the price of the home, the seller provides a credit toward specific expenses associated with the loan or closing.

Typical seller concession is 3%, but it can be higher depending on the loan type and down payment amount. For example, FHA loans allow up to 6% in concessions, while VA loans also permit up to 4%. Conventional loans generally limit concessions to 3% when the buyer puts down less than 10%, and up to 6% with a larger down payment.

These concessions must be agreed upon during contract negotiations and are included in the purchase agreement.

How Seller Concessions Can Help Buyers

  • 1. Reduce Out-of-Pocket Costs: Seller concessions can cover items such as lender fees, title insurance, appraisal, recording fees, and other closing costs. This can save thousands of dollars at the closing table and help buyers retain more cash for moving, furnishing, or building an emergency reserve.
  • 2. Buy Down the Interest Rate: One of the smartest ways to use concessions is to “buy down” your interest rate. A permanent buydown lowers your rate for the entire loan term, while a temporary buydown (like a 2-1 buydown) reduces your payments for the first few years — a great option if you expect income to rise or plan to refinance later.
  • 3. Pay for Prepaid Expenses: Concessions can also be used for prepaid items such as homeowners insurance, property taxes, or escrow setup. These costs are often overlooked but can add up quickly at closing.
  • 4. Fund Repairs or Upgrades: In certain cases, seller concessions may cover needed repairs or updates, such as replacing carpet, painting, or updating appliances — though the work typically must be completed before closing or through approved escrow credits.

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When Are Seller Concessions Most Common?

Seller concessions are more common in a buyer’s market, when homes take longer to sell and sellers are motivated to make their listings more attractive. In a seller’s market, with strong demand and multiple offers, it’s harder to get concessions approved — but not impossible, especially on homes that have been sitting on the market for a while.

Smart buyers work with experienced agents and lenders who understand how to negotiate concessions effectively without jeopardizing the deal.

When Asking for a Seller Concession Might Be a Mistake

While seller concessions can be a powerful way to reduce out-of-pocket costs, they’re not always the right move. In some situations, asking for a concession can weaken your offer, limit your options, or even cost you the deal.

Here are a few cases where seller concessions might hurt more than help:

  • 1. In a Strong Seller’s Market: When demand is high and listings receive multiple offers, asking for concessions can make your offer less competitive. Sellers often prioritize clean offers with minimal conditions. If you ask for closing cost help, your offer may fall behind others — even if your overall price is similar. Tip: In a hot market, it’s often better to offer a higher price or skip the concession request if you can comfortably cover your own costs.
  • 2. When the Home Won’t Appraise High Enough: Remember, the concession amount is part of the total purchase price. If you raise the offer price to include concessions, but the home doesn’t appraise at that value, the lender won’t fund the difference — and you may have to pay out of pocket or renegotiate. Example: You offer $405,000 on a $400,000 listing to include $5,000 in concessions. If the appraisal comes in at $400,000, you’ll need to pay that $5,000 difference yourself.
  • 3. If You’re Tight on the Debt-to-Income Ratio: Increasing the purchase price to cover concessions slightly increases your loan amount. That can affect your DTI (debt-to-income) ratio, in some cases, push you into higher mortgage insurance or pricing adjustments.
  • 4. When the Seller Is Already Offering Incentives: If the seller is already paying for a home warranty, repairs, or price reduction, pushing for additional concessions can strain negotiations or even lead to a rejection. Sometimes it’s better to take the win and close the deal smoothly.
  • 5. When You Plan to Refinance Soon: If you’re using concessions to buy down your rate but plan to refinance within a year or two, you might not recoup the upfront cost of that buydown. In that case, it may be smarter to apply the credit toward regular closing costs instead.

Important Limits and Guidelines

  • Appraisal Matters: The home must still appraise at the agreed-upon price. If concessions push the total cost above market value, the lender may require a price adjustment.
  • Loan Program Rules: Each loan type (Conventional, FHA, VA, USDA) has its own limits on concessions. Your lender will ensure the credit doesn’t exceed what’s allowed.
  • Cannot Cover Down Payment: Seller concessions can’t be used for your down payment or to meet minimum borrower contribution requirements — only allowable closing or prepaid costs.

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Tips for Negotiating Seller Concessions

  1. Work with a Skilled Agent: An experienced real estate agent can identify listings where sellers may be open to concessions and craft a strong offer.
  2. Get Pre-Approved First: Having a pre-approval letter strengthens your negotiating power and shows the seller you’re serious.
  3. Offer Full Price (or Slightly Higher): In some cases, buyers offer a slightly higher price to offset the concession amount — as long as the home appraises.
  4. Coordinate Early with Your Lender: Your lender can calculate the maximum concession allowed and help structure your offer correctly.

Final Thoughts

Seller concessions can be a smart, strategic way to reduce upfront costs and make homeownership more attainable. Whether you use them to lower your closing costs, buy down your interest rate, or cover prepaid expenses, concessions can provide valuable financial breathing room — especially in markets where sellers are motivated to make deals happen.

As with all financing strategies, the key is understanding your loan program’s limits and working with a lender who can guide you through every option. Feel free to reach out to me at 312-296-4175 or email me at connect@borislending.com — I lend in all 50 states and I am never too busy for your referrals!!