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What is Seller Concessions?

Seller concessions are an agreement within a real estate contract whereby the home seller agrees to pay for some or all of a home buyer’s closing costs.

TABLE OF CONTENTS

A Longer Definition: Seller Concessions

Seller concessions refer to a clause added to a home purchase contract in which the seller agrees to pay for certain home-buying expenses on behalf of the buyer.

Mortgage lenders allow seller concessions up to dollar limits listed in mortgage guidelines, which vary by loan type:

Seller concessions can be used to pay for closing costs, title insurance fees, inspection fees, property taxes, and more. They are particularly helpful for home buyers with limited savings who want to save extra cash for home repair and furniture.

Seller concessions must be negotiated in advance. They cannot be added to a contract while mortgage underwriting is underway.

Seller Concessions: A Real World Example

First-Time Home Buyer Stories: Seller Concessions

Imagine a scenario where a first-time home buyer finds their dream home. The house is priced within the home buyer’s budget but, after setting aside money for a small down payment, the buyer is concerned they won’t have enough money left over after paying closing costs to furnish their new home and make small repairs.

So, the buyer asks their real estate agent to negotiate seller concessions into the contract, which will pay for the closing costs associated with the purchase, including mortgage origination fees, mortgage discount points, title insurance fees, and more.

The seller agrees to pay the buyer’s costs and the purchase contract is ratified.

Common Questions About Seller Concessions

What types of costs can seller concessions pay for?

Seller concessions can cover various costs, including closing costs, prepaid interest, home inspection fees, and property taxes or homeowner’s insurance.

Are there limits to seller concessions?

Yes, lenders limit seller concessions based on the home buyer’s mortgage loan type. Concessions can range up to 9% of the purchase price.

Can seller concessions be denied by a mortgage company?

Yes, if the appraised value of the home is less than the contract’s sale price, a lender may disallow seller concessions.

Can seller concessions be used for a down payment?

No, seller concessions cannot be used for cash toward a down payment. Seller concessions can only be used for closing costs and prepaid items linked to a purchase.

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       Seller concessions are an agreement within a real estate contract whereby the home seller agrees to pay for some or all of a home buyer's closing costs.

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