What are seller concessions?
Purchasing your first home is exciting, but at times, it can feel like you’re learning a new language. A term like “seller concessions” can be frustrating if you don’t know what it means.
Not every property purchase involves seller concessions, but they are common, so understanding the lingo is important. Seller concessionsec-national-mortgage-concessions-buyers could lower your costs as a homebuyer, while also making the buying process smoother.
What are concessions in real estate?
Seller concessions are incentives offered by sellers to potential homebuyers. They can cover various closing costs associated with purchasing a home. Often, seller concessions are negotiated during the offer phase and can significantly reduce the amount of money needed upfront for first-time buyers.
Concessions can cover a wide range of expenses, from repairs to appraisal fees, making it easier to manage your finances. They can also motivate sellers to close deals faster, especially in a competitive market. They can provide both financial relief and peace of mind as you prepare to move into your new home.
Seller concessions vary depending on the loan type and the current local market. They offer significant flexibility by allowing buyers to focus their financial resources on other aspects of buying a home, like furnishing their new home or paying down other debts.
How do seller concessions work?
Seller concessions work by reducing the overall cost burden on the buyer. Essentially, the seller agrees to pay certain expenses the buyer typically pays.
The process usually starts with the initial offer. Buyers can request specific concessions—like funding repairs, for example—before they finalize the deal. The seller will review the request and can agree to all, some or none of the concessions. The agreed-upon concessions are written into the purchase agreement so everything is crystal-clear for both parties involved.
Once both parties agree on concessions, they’re rolled into the closing costs. The seller covers the specified costs directly, reducing the amount the buyer needs to bring to the table without affecting the home’s final sale price.
Seller concession examples
Technically, as a homebuyer, you could request any kind of seller concession you want (although, that doesn’t guarantee you’ll get it). However, there are a few common types of seller concessions in real estate sales:
Appraisal fees
Appraisal fees can be substantial, usually from $300 – $500.ec-angi-home-appraisal-cost Sellers may cover this expense to help buyers qualify for a home loan, as many lenders require an appraisal for approval.
Home purchase price reduction to cover repairs
Sometimes, sellers offer a price reduction to account for necessary repairs. This benefits buyers who may not have the immediate funds to make improvements by reducing the upfront cost of buying a home. That said, buyers will then have to coordinate the repairs themselves. They will also need to ensure this won’t impact their eligibility for certain loans, like Federal Housing Administration (FHA) loans.
Home warranty
A home warranty can provide peace of mind to a homebuyer by covering major systems and appliances. A seller offering this concession can assure buyers they won’t have to face unexpected repair costs shortly after moving in.
Home inspection fees
Home inspections ensure a property is in good condition before purchase, and like appraisals, their fees can be lofty. Home inspection fees usually range from $200 to $400, depending on the square footage.ec-angi-home-inspection-cost Again, when a seller agrees to cover this cost, it reduces the buyer’s upfront expenses and provides reassurance that the home is free from any major issues.
Real estate taxes
Some sellers offer to pay a portion of the real estate taxes for buyers, which can significantly decrease the amount of cash a buyer needs to bring to closing.
Recording fees
Recording fees are small but necessary expenses for documenting the change of ownership with a local government. Covering these fees can simplify the closing process, removing one more financial burden from the buyer.
Attorney fees
In some states, attorney settlement fees are required for closing. Sellers covering these fees can save buyers anywhere from $500–$1,000.ec-business-insider-average-closing-costs This concession makes the homebuying process smoother and more affordable.
Mortgage discount fees
Points, or prepaid interest fees, can lower the buyer's mortgage interest rate. When sellers pay these fees, buyers benefit by paying less interest over the life of their loan, which could result in substantial savings.
Seller concession limits
Concessions in real estate aren’t entirely clear-cut. There are limits for each type of home loan, as each has its own set of rules or limits on seller concessions.
Conventional loans
With conventional loans (those guaranteed by private lenders or government-sponsored enterprises, like Fannie Mae), seller concessions are limited based on the down payment. Seller concession limits for conventional loans typically range from 3%–6% of the home's purchase price.ec-nar-seller-concession
VA loans
U.S. Department of Veterans Affairs (VA) loans typically allows sellers to pay up to 4% of the home's price in concessions.ec-nar-seller-concession This is in addition to covering customary closing costs. The VA's rules are designed to help veterans afford homes and eliminate financial barriers.
USDA loans
U.S. Department of Agriculture (USDA) loans cap seller concessions at 6% of the purchase price.ec-nar-seller-concession This generous allowance helps buyers in rural areas access homes without excessive upfront costs. Chase does not offer USDA loans at this time.
FHA loans
FHA loans also permit seller concessions of up to 6% of the home's purchase price.ec-nar-seller-concession This flexibility makes FHA loans appealing to first-time homebuyers, who may have limited savings.
How to negotiate seller concessions
Asking for a concession isn’t as simple as writing down a list of demands and sliding them across the table to the seller. Instead, you need to be strategic in your approach to make sure everyone gets the best deal possible.
Understand the real estate market
Knowing whether you're in a buyer's or seller's market can inform your approach. In a buyer's market, sellers may be more willing to offer concessions due to decreased demand. However, a seller's market might require a more strategic approach, since the demand is higher.
Familiarizing yourself with local trends and recent sales data can help you when negotiating concessions.
Consider asking for a lower sales price
Negotiating a lower sale price could be beneficial if your main goal isn't minimizing closing costs. A lower purchase price can reduce your mortgage balance, possibly leading to significant savings over time. Work with your real estate agent to evaluate the property's condition and compare it with similar homes in the area. If the asking price seems high, discuss the possibility of a price reduction with your agent.
Limit the list of demands
By limiting the number of your requests, you can strengthen your negotiating position. Focus on a few key concessions instead of a lengthy list to show the seller you’re serious about closing the deal.
To do this, identify your top priorities before the negotiations begin. Having a sense of what’s most important to you will make it easier to stay in line with your financial goals.
Talk to your real estate agent
During negotiations, your real estate agent will be a valuable resource. Real estate agents understand housing market conditions and can guide you through securing seller concessions.
What sellers should know about agreeing to concessions
As a seller, recognize that offering concessions can help finalize a sale quickly. By addressing potential buyer concerns early on, you can make your property more appealing and help streamline the process.
In the long run, concessions may save you time and money. Rather than waiting for the perfect buyer, offering concessions can attract more motivated buyers ready to close right now.
Weigh the costs and benefits of offering concessions. While they can undoubtedly expedite the sale, you’ll want to ensure they align with your financial goals when selling your home.
In summary
Seller concessions can significantly impact buyers and sellers by facilitating smoother and potentially faster real estate transactions.
By exploring all your options and staying open to compromise, you can confidently navigate the negotiation process and secure the best possible deal for your new home. Take the next step toward purchasing a home and connect with a home lending advisor.
Seller concession FAQ
What is the meaning of selling concessions?
Selling concessions refer to any incentives or benefits a seller offers to a buyer during a real estate transaction. These concessions can include financial contributions, repairs or other accommodations that make the purchase more appealing for the buyer.
What is the difference between seller concessions and seller contributions?
Seller concessions and seller contributions are the same thing, with both referring to a way sellers can help buyers pay some of their closing costs.
Are seller concessions tax deductible?
Seller concessions may be tax deductible in certain cases, but it's important to consult with a tax professional for specific guidance. Generally, seller concessions that are considered repairs or improvements to the property may be deductible as business expenses for the seller.
