Seller Concessions: Meaning, How They Work And FAQs

Why should you know about seller concessions? Seller concessions can create a win-win in a real estate transaction because they can benefit both sides of the deal in many cases. Be sure to educate yourself on seller concessions whether you’re buying, going to sell a house or both.

Perusing the homes online and shopping for new furniture are the fun parts of home buying. Learning all the steps and intricacies of getting a deal done might not be quite as exciting, but it’s critical to your success.

What Are Seller Concessions?

One term you may have heard or seen during your research might be “seller concessions.”

Seller concessions are closing costs a seller agrees to pay for a buyer in a home sale. Seller concessions can help buyers avoid some upfront home buying fees that they can instead put toward a down payment. Sellers can also use concessions to sweeten the deal for a buyer, or get their home sold faster in a buyer’s market.

Seller concessions constitute an agreement between the seller of a property and an interested buyer in which the seller covers a portion of the buyer’s expenses in the transaction. Seller concessions most often apply to closing costs. Within these closing costs, seller concessions can either cover specific fees or pay for a percentage of the total closing costs.

Seller concessions aren't limited to closing costs. They can also include paying for known repair costs, title insurance, fees for the home inspection/home appraisal, loan origination fees and more. They can even result in a higher purchase price for the home, enabling the buyer to roll more of the total home purchase costs into their loan.

Examples Of Seller Concessions In Real Estate Transactions

It depends on each specific deal, but some of the most common fees that could be paid for by the seller include:

• Appraisal fees: As part of loan approval, a buyer’s lender will usually order a home appraisal to determine the value of the home. There is a fee associated with this and seller concessions can cover it.
• Inspection fees: Before you purchase a house, it’s important to pay home inspection fees to make sure you know what you’re getting into. These fees typically cover a general house inspection, well and septic inspection, sewer line inspection and radon inspection. Each of these inspections has fees that can be paid by seller concessions.
• Origination fees: If you’re a buyer, your lender will charge a fee to originate your loan. In some cases, you can convince the seller to foot the bill with seller concessions.
• Title search fees: Seller concessions can cover the fees the title company charges to search for and examine the title of the home. They do this to make sure the property can transfer hands without any issues like liens or pending legal proceedings.
• Repair costs: The cost of renovations can vary wildly depending on several factors. They can vary by project type, square footage, location, materials, labor and complexity.
• Property taxes: Property taxes are a levy placed on real estate, typically paid annually to local governments. They're based on the assessed value of your property.
• Recording fees: Recording fees are costs charged by government agencies for officially registering legal documents, primarily related to real estate transactions. These fees act to cover the expense of maintaining accurate public records.
• Discount points: Mortgage discount points, also known as origination points, are a prepaid fee you can pay to a lender in exchange for a lower interest rate on your mortgage. Essentially, you're buying down the rate upfront.

How Do Seller Concessions Work?

Seller concessions are financial contributions a seller makes toward a buyer's closing costs or other expenses associated with purchasing a property. This can provide relief for the buyer by lowering their upfront costs and increasing their purchasing power.

In a buyer's market, where there's more competition for sellers, buyers have more leverage to request concessions. Homes with less desirable features or that have been lingering on the market are more likely to prompt concession requests.

Understand the average closing costs in your area, the seller's asking price and comparable properties to gauge reasonable concession requests. Clearly state your request for concessions within the offer, along with justification based on market conditions or property reasons.

Sellers might not concede to your full request, so be prepared to negotiate and find a middle ground. Clearly communicate your needs and reasoning, emphasizing the mutual benefit of a faster sale for the seller.

Often, the seller simply deducts the agreed-upon concession amount from the final purchase price. In some cases, the seller might directly pay the closing cost provider or vendor for the negotiated amount.

Pros And Cons Of Seller Concessions

Here are some pros and cons of seller concessions:

For Buyers

Here is a chart of the pros and cons of seller concessions for buyers:

For Sellers

Here is a chart of the pros and cons of seller concessions for sellers:

Limits On Seller Concessions By Loan Type

Depending on your type of home loan, there may be restrictions as to the amount or type of seller concessions you can negotiate.

Seller Concessions: FAQs

Here are some frequently asked questions about seller concessions:

How do I ask for seller concessions?

Research the current market conditions and whether you're in a buyer's or seller's market. Consider the seller's financial situation and their motivation for selling. If you've discovered repair work during an inspection, provide bids and the inspection report to the seller. Clearly state your request for concessions within the offer, along with justification based on market conditions or property reasons.

Is it normal to ask for seller concessions?

Yes, it's normal to ask for seller concessions. Seller concessions are common, but not always part of a real estate transaction. It all depends on several factors, the two most critical being the seller’s preference and the state of the overall real estate market. Negotiating seller concessions usually requires a willing homeowner as well as a real estate market that isn't too slanted toward sellers.

How do I negotiate seller concessions?

Ask your real estate agent whether negotiating for seller concessions is a good idea. They should have a good understanding about how seller concessions might benefit you and if the people on the other side of the transaction may be open to it. When the time is right, your real estate agent will be the one doing the negotiating. For example, in a buyer’s market, where inventory is high and demand is low, your agent might encourage asking for seller concessions because the seller may be more open to it.

Do seller concessions come out of pocket?

Seller concessions are not directly paid by the seller out of pocket. They come from the profit of the sale.

Are seller concessions taxed?

Seller concessions are considered sales expenses and therefore tax-deductible. There aren't negative tax implications if you accept seller concessions. 

Does my lender need to approve seller concessions?

Yes, your lender needs to make sure the seller concessions you’re negotiating will fit within the limitations on your loan. Check with them before beginning the seller concessions negotiation process.

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

Deciding whether to ask for a lower asking price or seller concessions depends on several factors. A lower asking price can be simpler, be less risky and lower monthly payments. However, seller concessions offer flexibility, reduce upfront costs and may make your offer more competitive.  

The Bottom Line

Buying a home can be a complicated endeavor. Seller concessions can help save you money as a buyer and might be the difference between getting the home you want or settling for less.

Seller concessions can also, perhaps surprisingly, benefit you as a seller. Settling disputes over repairs and speeding up the home sale process by incentivizing buyers with seller concessions can ease some of the stress of selling your home. 

Take what you’ve learned here and continue to research the buying and selling process to prepare for your future home purchase. Ready to get started on selling your home? Sell with Rocket Homes today!