Couple discussing options with agent

What are seller concessions?

As a homebuyer, you’re probably aware that you can negotiate your home’s sale price. Did you know you can also negotiate who pays closing costs? When a seller pays some or all of a buyer’s closing costs, these are called seller concessions. Concessions can also be related to payments for necessary repairs that come up during a home inspection. A seller concession is also known as a seller credit.

While seller concessions are optional, nearly half of all sellers offered incentives to attract buyers last year.

How do seller concessions work?

Closing costs are expenses related to obtaining a mortgage loan and closing a home purchase. They’re separate from the sale price of the home. A buyer should expect to pay fees related to their loan. The seller pays fees for the transfer of the property and the real estate agent’s commission.

Buyer closing costs will typically be in the range of 2-5% of the home value. To reduce the amount you owe at the time of purchase, you can propose closing cost credits or seller concessions in your offer letter.

What can seller concessions cover?

As a buyer, seller concessions can help to cover closing costs associated with your loan. While the exact expenses aren’t the same for all home purchases, there are some standard recurring payments and one-time fees a buyer typically pays. These fees can include, but are not limited to:

  • Property tax or homeowner’s insurance payments
  • Appraisal costs
  • Discount points
  • Lender origination fees
  • Loan processing fees
  • Underwriting fees
  • Settlement agent fees
  • Title and recording fees

Example of seller concession

When buying a fixer-upper, you can negotiate with the seller to pay closing costs instead of making necessary repairs. This will save you money out-of-pocket that you can use for your down payment.

In the negotiation process, the seller may ask you for some concessions in return. If they ask you to waive the appraisal or inspection, don’t do it. Those practices are in place to expose any issues with the home prior to its sale. However, it can be to your advantage if you’re flexible regarding what the seller wants, especially if the seller’s requests are non-monetary such as wanting a quick closing. By getting pre-approved for a mortgage before you start home shopping, you’ll be better prepared to close quickly.

Is there a limit to seller concessions?

The seller can’t give you more than your total closing costs. Depending on your loan program, there are other limits to the amount a seller can offer. These limits may be related to the amount of your down payment or a percentage of your home’s appraisal value. Typically, the seller can provide a credit between 3% and 6% of the purchase price, but this will vary by program.

Conventional loans

  • Down payment of 10% or less – up to 3% seller concession
  • Down payment between 10%-25% – up to 6% seller concession
  • Down payment of more than 25% – up to 9% seller concession
  • Investment properties would be limited to a maximum of 2%, regardless of the down payment amount

FHA loans

  • Regardless of the down payment, the seller can pay up to 6%

VA loans

  • Regardless of the down payment, the seller can contribute up to 4% of the borrowers closing costs and can even pay off debt

USDA loans

  • Regardless of the down payment, the seller can pay up to 6%

How to write an offer with seller concessions

Has the home been on the market for a while? Is yours the only offer? Are there more homes on the market in your area than there are buyers? If you’re in a buyer’s market or the seller is highly motivated to sell fast, your offer should reflect that.

Work with your agent to guide your winning real estate offer letter and concession strategy. It’s your agent’s job to negotiate the price and sale conditions to ensure that you get the best deal. Without a real estate professional, you may base your offer on emotions resulting in paying more than necessary.

Calculate your closing costs

If it’s your first time buying a home, and you’re not sure how to estimate closing costs, we’re here to help. Having an estimate upfront will give you more time to have the proper amount of funds available. With the free Guild cash-to-close calculator, you tell us about the home you’re interested in, and we’ll let you know approximately how much money you’ll need to close your real estate purchase.

The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.

By |Published On: August 6th, 2021|Categories: Mortgage 101|Tags: , , |

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About the Author: Guild Mortgage

Founded in 1960 when the modern U.S. mortgage industry was just forming, Guild Mortgage Company is a nationally recognized independent mortgage lender providing residential mortgage products and local in-house origination and servicing. Guild’s collaborative culture and commitment to diversity and inclusion enable it to deliver a personalized experience for each customer. With more than 4,000 employees and over 250 retail branches, Guild has relationships with credit unions, community banks, and other financial institutions and services loans in 49 states and the District of Columbia. Guild’s highly trained loan professionals are experienced in government-sponsored programs such as FHA, VA, USDA, down payment assistance programs and other specialized loan programs. Guild Mortgage Company is a wholly owned subsidiary of Guild Holdings Company, whose shares of Class A common stock trade on the New York Stock Exchange under the symbol GHLD.