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Seller Concessions: What Are They And How Do They Work?

Erica Gellerman4-Minute Read
November 21, 2020

When you’re about to buy or sell a home, there are a lot of things that you need to learn about. One of those things that can really affect your final price – and be a key element of your negotiation – are seller concessions.

Exactly what are seller concessions? We’ll take you through what they are, how to use them, and when they are a good (or bad) idea for both the seller and the buyer.

What Are Seller Concessions?

A seller concession is an agreement made between the seller of a home and an interested buyer in which the seller agrees to cover a portion of the buyer’s expenses in the transaction. Seller concessions typically apply to closing costs, and the seller can either cover specific fees included within those closing costs or pay for a percentage of the closing costs as a whole.

Other things that can be covered by seller concessions include offsetting known repair costs, title insurance, fees for the home inspection/home appraisal, loan origination fees, and more.

How Do Seller Concessions Work?

Buyers can ask for seller concessions during different times in the home buying process. If it’s a buyer’s market and there aren’t multiple offers on a home, a buyer can ask for concessions when making their offer on the property. 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.

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.

Pros And Cons Of Concessions For Buyers

This sounds pretty amazing, right? You can negotiate with a seller to cover some of the costs that you would normally have to pay. Well, it’s not all rosy. There are advantages and drawbacks to using seller concessions when you’re a buyer.

Pros

A big advantage of a seller concession is that you have fewer up-front costs to pay. This can help you potentially free up more money to put toward your down payment. You can make a higher offer while having some of your closing costs covered, making your offer price look more alluring.

You can also negotiate with a seller to have repairs covered, so if something pops up during the inspection period that will cost a lot to fix, you know you won’t be out a lot of money to make the repairs.

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

Cons

Just because a seller concession offers you the opportunity to save money, doesn’t mean it’s an all-around good idea. In a seller’s market, asking for seller concessions could mean that you end up losing out on a home. The seller may decide to go with an offer that doesn’t include any seller concessions.

Another drawback is if you’re using seller concessions to decrease your closing costs so you can offer an even larger purchase price. You’re paying less upfront (in closing costs), but you’re taking on a larger loan. That’s just going to make your home purchase more expensive over the life of the loan. 

Pros And Cons Of Concessions For Sellers

What if you’re the seller? How should you feel about accepting seller concessions when you’re selling your home? There are some positives but also some drawbacks you’ll want to consider.

Pros

If you’re trying to get your 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.

If during the home inspection process, some major repairs come up, instead of making the repairs yourself, you can negotiate seller concessions for the repairs. That way you’re not stuck making the repairs and your closing process isn’t delayed.

Cons

If you’re trying to sell a home in a hot market, seller concessions may be selling your home value short. While the purchase price may look enticing, with seller concessions, you may walk away with less money than you expected. Don’t get surprised by the seller concessions – when comparing offers, make sure you’re looking at more than just the purchase price. It may turn out that a deal with a high purchase price but a lot of seller concessions is less lucrative than an offer with a lower purchase price but no seller concessions.

Restrictions On Seller Concessions

Depending on your loan type, there may be restrictions as to the amount or type of seller concessions. For FHA loans, seller concessions are limited to 6% of the purchase price of the home. And don’t try to use these concessions to help pad your down payment – you can’t use seller concessions toward your down payment when you have an FHA loan.

There are also restrictions for VA loans and seller concessions. Seller concessions can be used for a number of different fees – including the VA funding fee. But the total seller concessions can’t be more than 4% of the total loan value.

When in doubt, check with your lender before you negotiate seller concessions.

Are Seller Concessions Worth It?

Seller concessions can be a great negotiating tool for both the buyer and the seller. But you’ll want to do your homework to ensure that even with seller concessions, you’re getting the deal you want.

If you’re in the process of purchasing a home, speaking with a Rocket HomesSM Verified Partner Agent about any questions you may have. They can help you navigate the pros and cons of seller concessions for your specific situation.

And don’t forget to check out more home selling tips and advice on the Rocket HomesSM blog.

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    Erica Gellerman

    Erica Gellerman is a CPA, MBA, personal finance writer, and founder of The Worth Project. Her work has been featured on Forbes, Money, Business Insider, The Everygirl, The Everymom and more.