What are seller concessions?

When you buy a home, you’re responsible for more than just the purchase price. You’ll also pay closing costs and lender fees tied to securing your mortgage, which typically total about 3% – 6% of the home’s purchase price.

In some cases, you can negotiate for the seller to cover part of these upfront expenses. These contributions are known as seller concessions, and they can meaningfully reduce the amount of cash you need to bring to closing. Because closing costs are often negotiable, seller concessions are one strategy buyers use to make a home purchase more affordable  – especially in markets where sellers are motivated to close a deal.

Before you close on your mortgage, learn how to use seller concessions to your advantage.

Seller concessions in real estate, defined

Seller concessions are closing costs that the seller agrees to pay on the buyer’s behalf as part of the purchase agreement. In some cases, buyers request help with specific fees  – such as loan origination or recording fees. In others, the seller may agree to contribute a set percentage of the total closing costs, giving the buyer more flexibility in how the funds are applied.

You’ll also hear the term seller credit used in these negotiations. At a high level, a seller credit is a type of seller concession. All seller credits are concessions, but not all concessions come in the form of a credit. For example, a seller might agree to directly pay certain fees at closing rather than offering a lump-sum credit for the buyer to allocate across expenses.

An example of seller concessions

Imagine a buyer is looking to purchase a home listed at $400,000. During the negotiation process, the seller agrees to offer seller concessions amounting to 5%. This means the seller will contribute 5% of the home’s purchase price  –  $20,000 — toward the buyer’s closing costs and related expenses.

Often, buyers request concessions after a home inspection reveals necessary repairs or updates. For example, the inspection might uncover that the roof needs repairs or the HVAC system is nearing the end of its lifespan. Rather than paying for these costs out of pocket, the buyer can ask the seller to cover a portion of their closing costs to help offset the unexpected expenses.

In this scenario, the $20,000 concession could cover loan origination fees, title insurance, prepaid property taxes, or inspection costs. By negotiating concessions at this point in the home-buying process  – after the inspection but before closing  – the buyer reduces their upfront expenses and can move forward with the purchase more comfortably.

What closing costs do seller concessions cover?

Seller concessions can be applied to many of the fees you’ll pay at closing, but what a seller agrees to cover is always negotiable. Some sellers may be open to paying a percentage of your total closing costs, while others may prefer to cover specific line items. If you’re requesting concessions, it helps to prioritize the fees that will make the biggest difference to your upfront cash needs and that are most likely to be accepted in negotiations.

The seller may be able to cover part or all of these closing costs:

• Property taxes: At closing, buyers are often required to prepay a portion of the property taxes, such as taxes owed through the end of the current tax period or year. Depending on when you close and how your local tax schedule works, this amount can be significant. Seller concessions may help offset these prepaid taxes, reducing the cash you need to bring to closing.
• Title insurance: Title insurance protects both you and your lender if someone later challenges the home’s ownership or claims there’s an issue with the title. This one-time cost is typically paid at closing and can vary based on the home’s price and location. Covering this fee through a concession can meaningfully reduce your upfront expenses.
• Loan origination fees: Origination fees cover the lender’s costs for processing, underwriting, and approving your mortgage. Because these fees are tied directly to your loan, they can be one of the larger line items on your closing disclosure. Having the seller cover some or all of these fees can lower the amount of cash you need at settlement.
• Inspection fees: Many loans and local regulations require certain inspections before a sale can move forward, such as general home inspections or pest inspections in some states. These inspections help uncover potential issues with the property, but they add to your out-of-pocket costs. Seller concessions may be used to help offset these required inspection fees.
• Recording fees: Recording fees cover the cost of officially documenting the sale with your local government. This process updates public records to reflect the change in ownership and secures your legal claim to the property. While these fees are usually smaller than other closing costs, they’re still eligible to be included in concession negotiations.
• Appraisal fee: While not always required by lenders, inspections are strongly recommended and sometimes required depending on loan type and location. This protects both you and the lender from overpaying for the property. Appraisal fees are typically due around closing and can be covered, in part or in full, through seller concessions.
• Attorney’s fees: In some states, a real estate attorney must review contracts and closing documents or even attend the closing. These legal services can add to your total closing costs. Seller concessions may be applied to attorney’s fees where allowed by state law and lender guidelines.
• Points: Mortgage points, also called discount points, are upfront fees you can pay to lower your interest rate over the life of the loan. In certain situations, seller concessions can be used to help cover the cost of points, which may reduce your monthly payment in exchange for higher upfront costs covered by the seller.

Once you apply for your loan, your lender will give you a Loan Estimate, which shows all your estimated closing costs. You can then work with your real estate agent to decide which ones to ask the seller to pay for.

Who benefits from seller concessions?

Seller concessions can help both the buyer and the seller. For the seller, offering concessions can make their home more attractive to potential buyers, especially in a buyer’s market.

Seller concessions also help buyers who don’t have the cash on hand to cover all their closing costs. First-time home buyers often underestimate the costs associated with buying a home, so seller concessions are a way to help offset some of those costs and make the home more affordable.

Advantages and disadvantages of seller concessions

For buyers, there are both pros and cons to asking for seller concessions. Before you make your decision one way or the other, it’s important to make sure you fully understand what it is you’re asking and what it could cost you.

Advantages

Seller concessions can make buying a home more manageable by reducing the cash you need at closing. Typically, buyers must bring several thousand dollars to cover both their down payment and closing costs. With concessions, a portion of these upfront costs is covered by the seller, freeing up savings for other expenses, such as moving costs or home improvements.

Concessions can also benefit sellers. In a slower market or when a seller is eager to close quickly, offering concessions can make a property more appealing and help it sell faster. This flexibility may give the seller a competitive edge in attracting serious buyers.

Disadvantages

On the flip side, asking for seller concessions might make you appear to be a less –competitive buyer. Most sellers are looking for offers that don’t have a lot of strings attached, especially in a seller’s market.

If a home has multiple bids, the seller will probably disregard offers that include concession requests. In this instance, it may be better to put in a lower offer for the home and cover the closing costs yourself. This option is easier for the seller and may increase the chance your offer will get accepted.

How to negotiate seller concessions

You know that you want to ask for concessions, but how do you convince the seller to help you pay? Asking for concessions is all about negotiating and understanding the current housing market.

1. Know the market you’re in

First, you’ll need to figure out whether you’re in a buyer’s market or a seller’s market. This will heavily influence your ability to negotiate for concessions. Sellers are much more motivated to offer concessions when their home has been sitting on the market for a while, or when it’s a buyer’s market.

2. Limit your demands

If you decide to ask for concessions, limit your other demands. Sellers like to take the offer that’s the least complicated for them. If you ask for concessions as well as repairs, replacements and services, the seller is more likely to pass on your offer. If repairs are an absolute must for you, consider offering a lower price and covering closing costs yourself.

3. Work with a real estate agent

If you know you want to ask for concessions, we recommend working with a real estate agent. Your real estate agent can help you:

• Research local sales and inform you about your area’s housing market
• Decide whether to ask for closing costs or make a lower offer if you’re in a seller’s market
• \Find similar properties that were recently sold with concessions to show to the seller

Seller concession limits

Seller concessions can lower your upfront costs, but a seller can’t pay all of your closing costs. How much a seller is allowed to contribute depends on the type of loan you use, as well as rules set by mortgage investors and government agencies.

Organizations like Fannie Mae and the Department of Housing and Urban Development (HUD) place limits on seller concessions to help prevent artificial inflation in home prices. These rules were created to discourage deals where the purchase price is intentionally inflated to fund buyer incentives, rather than reflecting the home’s true market value or legitimate improvements to the property or neighborhood.

Without these limits, buyers and sellers could structure deals that distort local home values. For example, imagine you’re buying a home worth $150,000. The seller agrees to raise the sale price to $175,000 and offers you $25,000 in concessions to cover your closing costs, telling you to keep anything left over.

While this might seem like a win for you as the buyer, it creates an artificially high sales price. When other sellers and agents look at recent sales, they may price similar homes higher to match the inflated number, which can push prices up across the neighborhood – even though the underlying value of the homes hasn’t actually increased.

To prevent this kind of market distortion, lender guidelines cap how much sellers can contribute toward buyer costs. These limits are designed to keep sale prices aligned with true property values and ensure that concessions are used to support legitimate closing expenses rather than to manipulate home prices.

Seller concession limits by loan type

The restrictions on seller concessions vary by loan type. The lesser of the sale price or the appraised value usually dictates how much your seller can pay in concessions.

For example, say you offer $155,000 for a home. The home appraises for $150,000. If the seller concessions max out at 3%, the seller can contribute up to 3% of $150,000, or $4,500, to help with closing costs.

Here are the seller concession limits for some common loans.

Conventional loans

The limit for conventional loans depends on how much you’re putting down:

• If your down payment is less than 10%, the seller can contribute up to 3%.
• If your down payment is 10% – 25%, the seller can contribute up to 6%.
• If your down payment is more than 25%, the seller can contribute up to 9%.
• If you’re buying an investment property, the seller’s contribution is limited to 2%, no matter what your down payment is.

FHA loans

For all Federal Housing Administration (FHA) loans, the seller can contribute up to 6% of the purchase price. Concessions on FHA loans can be put toward closing costs, appraisal fees, and other expenses related to this real estate purchase.

USDA loans

For U.S. Department of Agriculture (USDA) loans, the seller can contribute up to 6% of the buyer’s loan amount. This is the one loan type where the seller concessions are not based on the home price or appraised value. Rocket Mortgage does not offer USDA loans at this time.

VA loans

Department of Veterans Affairs (VA) loan rules dictate that the seller can contribute up to 4% of the purchase price. Seller concessions on VA loans may include payments toward a buyer’s judgments and debts, as well as VA funding fees.

Seller concession FAQ

Seller concessions can be a helpful negotiation tool, but they often come with rules, limits, and trade-offs. Here are answers to some of the most common questions buyers and sellers have about how concessions work.

Can sellers refuse to contribute toward my closing costs?

Yes. Sellers do not have to contribute to your closing costs. Any seller concessions must be negotiated into your purchase contract and agreed to by both parties. A seller may refuse to offer concessions if they have multiple competing offers, if their home is already priced aggressively, or if another buyer is willing to cover their own closing costs without asking for concessions.

Are seller concessions paid out of pocket?

No. Seller concessions come out of the seller’s profit for the sale, so they’re not directly paid by the seller out of pocket.

Are seller concessions taxable?

Seller concessions generally reduce the seller’s net proceeds and may affect capital gains calculations. In most cases, seller concessions won’t have a huge impact on your taxes as the buyer.

For the seller, they may have some capital improvement tax considerations if they pay for repairs or upgrades as part of their concessions. It’s always a good idea for both buyers and sellers to consult with a tax professional before proceeding with seller concessions.

Is it better to ask for seller concessions or a lower sales price?

It depends on your financial priorities and long-term goals. If your main concern is minimizing the amount of cash you need upfront, seller concessions can be the better option because they directly reduce your closing costs.

However, in some cases, a lower purchase price may make more sense. For example, if you plan to stay in the home long term, a lower sales price could reduce your monthly mortgage payment and the total interest you pay over the life of the loan. A lower price may also help with appraisal issues in competitive markets, where homes are selling close to their maximum appraised value.

How do seller concessions differ for investment properties vs. primary residences?

Seller concessions are a great way to reduce the amount of cash you need to bring to the closing table, but they have a limit. On a conventional loan used to purchase your primary residence, seller concessions cannot be more than 6% of the sales price. This is assuming your down payment is between 10% and 25%. For investment properties, seller concessions can never be more than 2%.

Can seller concessions cover down payment costs?

Seller concessions can be used toward the costs and fees associated with closing, but they can’t be used toward your down payment on your mortgage. They can help with your down payment indirectly, though, as they free up cash you would have needed for closing costs that can then be used for your down payment.

The bottom line: Reduce your closing costs with seller concessions

Seller concessions can be a smart way to reduce your upfront costs when buying a home, especially if you’re short on cash for closing or navigating a buyer’s market. While concessions can’t cover everything and are subject to loan-type limits, they can help offset major expenses like origination fees, title insurance, and prepaid costs. The key is knowing when to ask, what to prioritize, and how market conditions affect your negotiating power.

When you’re ready to explore your mortgage options, you can start your application with Rocket Mortgage to see what you qualify for.

This article is for informational purposes only and is not intended to provide financial, investment, or tax advice. You should consult a qualified financial or tax professional before making decisions regarding your retirement funds or mortgage.

Rocket Mortgage is a VA-approved lender, not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency.

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