What is a Concession in Real Estate?

In real estate, a concession refers to a cost or financial benefit that a seller offers to help reduce a buyer’s upfront costs and make the deal more appealing. These seller concessions often cover part of the closing costs, such as loan origination fees, title insurance, property taxes, or even home warranty expenses. Essentially, they are incentives that can make a home purchase more affordable—especially in a buyer’s market, where sellers use them to attract buyers and encourage a quicker sale. The amount and type of concession depend on the loan type, purchase price, and limits set by lenders, like those for conventional loans, FHA loans, VA loans, and USDA loans.

In a typical real estate transaction, the buyer is responsible for several upfront expenses, including down payment, inspections, and closing costs that can total anywhere from 2% to 6% of the home’s purchase price. To make the purchase easier, the seller offers concessions that effectively lessen those costs and make the purchase agreement more appealing to potential buyers.

These concessions in real estate can be structured in a few ways:

• A fixed dollar amount credited at closing.

• A percentage of the purchase price.

• A specific offer concession, like the seller covering major home systems repairs or including personal property such as appliances.

For both parties, concessions can be a win-win: the buyer faces fewer upfront expenses, and the seller may secure a quicker sale at or near the asking price.

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How Seller Concessions Work in Real Estate Transactions

Understanding how seller concessions work helps both the buyer and seller navigate the negotiation process effectively. When buyers request concessions, they are essentially asking the seller to pay part of the costs typically associated with the buyer’s closing costs.

The concession amount is generally negotiated during the offer stage, when the buyer’s agent presents the buyer’s offer to the seller. The terms are then documented in the purchase agreement, specifying exactly what expenses the seller pays.

Common seller concessions cover:

• Loan origination fees charged by the lender.

• Title insurance and related closing costs.

• Property taxes or homeowner association fees due at settlement.

• Home warranty coverage for the buyer.

• Repairs after a home inspection reveals necessary fixes.

In most cases, these concessions are used as financial tools to make a deal more feasible for the buyer without lowering the property’s listing price. For example, a seller might keep the sale price the same but offer $5,000 in concessions to help offset the buyer’s closing costs.

When Seller Concessions Make Sense

• In a buyer’s market, where inventory is high and competition is low.

• When the home inspection shows potential repairs that need addressing.

• If the buyer’s financial situation is tight and they need help with upfront costs.

This strategy benefits sellers alike, as providing concessions may prevent a price reduction and maintain the perceived value of the property.

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Seller Concession Limits and Loan Type Guidelines

While seller concessions can be negotiated, they aren’t unlimited. Most lenders impose caps on how much a seller can contribute toward a buyer’s closing costs—these are called seller concession limits. The limit varies based on the loan type and loan-to-value ratio (LTV).

Here’s a breakdown of how seller concession limits work:

Loan Type

Maximum Seller Concessions

Example/Details

Conventional Loans

Typically 3%–9% depending on LTV

Conventional loans typically range from 3% for low down payments to 9% for higher equity borrowers.

FHA Loans

Up to 6%

Sellers can cover closing costs, prepaid taxes, or other relevant expenses, but not the down payment.

VA Loans

Up to 4%

Can include loan origination fees, property taxes, and home warranty.

USDA Loans

Up to 6%

Often used for rural properties, concessions can help cover closing costs and upfront expenses.

The maximum seller concessions set by lenders exist to prevent inflation of the appraised value. If a seller offers too much, it might artificially raise the home’s purchase price, which could lead to appraisal issues. Lenders want to ensure that the purchase price reflects the true market value of the property.

When negotiating, your real estate agent and buyer’s agent will review your loan type and financial situation to determine how much of your buyer’s closing costs can reasonably be covered without affecting your mortgage approval.

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Common Types of Concessions in Real Estate

There are several categories of concessions offered in real estate, each designed to make a transaction more attractive to buyers and sellers alike. Below are the most common examples and how they typically apply in practice.

1. Closing Cost Concessions

The most familiar form of seller concessions covers closing costs. These may include loan origination fees, title insurance, property taxes, and other relevant expenses that a buyer would normally pay. Covering these costs can significantly reduce a buyer’s upfront expenses.

2. Repair Concessions

If a home inspection reveals issues with major home systems—such as HVAC, plumbing, or electrical components—the buyer’s agent may request concessions to cover the cost of necessary repairs. Instead of the seller doing the repairs themselves, they can offer a fixed dollar amount at closing.

3. Home Warranty Concessions

A home warranty is often included as a concession to provide buyers peace of mind about major home systems or appliances. It’s a practical way for a seller to sweeten the deal without adjusting the asking price.

4. Concessions Toward Interest Rate Buydowns

Sometimes sellers provide funds that the buyer can use to reduce their mortgage rate temporarily or permanently. This makes monthly payments more affordable and can encourage a quicker sale.

5. Personal Property or Furniture Concessions

In some cases, the seller offers concessions in the form of personal property—like including appliances, outdoor furniture, or equipment in the sale. This is typically negotiated when these items add tangible value and help the buyer avoid additional upfront costs.

By combining multiple types of concessions in real estate, the buyer can ease their financial stress, and the seller can close faster without lowering the property’s listing price or sale price.

If you’re planning to move to Western New York, or if you’re already a local resident navigating the home buying process, understanding how seller concessions reduce upfront costs is just one part of getting the best deal. For more helpful tips on buying and selling homes, visit Carol Klein WNY Homes, where you’ll find guidance on local pricing, offer strategy, and what to watch for in a real estate transaction.

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How to Negotiate Seller Concessions Effectively

Negotiating seller concessions is one of the most strategic parts of a real estate transaction. Whether you’re a buyer trying to reduce upfront costs or a seller aiming to maintain the purchase price, understanding the negotiation process helps both sides find common ground.

Step 1: Understand Market Conditions

In a buyer’s market, when homes sit longer and competition among sellers increases, buyers are in a stronger position to request concessions. Conversely, in a seller’s market, concessions are less common, as potential buyers are already competing for limited inventory.

A skilled real estate agent or buyer’s agent can help analyze local trends, such as average sale price, appraised value, and how often offer concessions are accepted in the area. Knowing the market context prevents unrealistic expectations.

Step 2: Present a Reasonable Offer

When submitting a buyer’s offer, it’s best to remain competitive while still including your request for concessions. For example, instead of lowering the purchase price, you might propose a full-price offer with a concession for closing costs.

This allows both the buyer and seller to benefit: the buyer saves money on upfront expenses, while the seller maintains the property’s listing price.

Step 3: Use the Home Inspection Strategically

After the home inspection, if the report identifies necessary repairs or major home systems in need of replacement, you can request concessions instead of asking the seller to fix them directly. This saves time and gives you flexibility to handle repairs after closing.

For instance, if the home inspection reveals a $4,000 HVAC repair, you can negotiate a fixed dollar amount concession at closing to offset that cost.

Step 4: Consider the Loan Type and Limits

When negotiating, always remember the maximum seller concessions set by your loan type. For example, FHA loans and USDA loans have limits around 6%, while VA loans cap at 4%, and conventional loans typically range from 3% to 9% depending on your loan-to-value ratio.

A professional real estate agent or mortgage lender can ensure your concession amount fits within these limits and won’t affect appraised value or mortgage approval.