Seller Concessions: How They Work and What They Cost You
A seller concession is money the seller agrees, in the purchase contract, to put toward the buyer’s costs of buying the home. Most often it covers part of the buyer’s closing costs. The buyer brings less cash to closing, and the seller receives less from the sale. If you are selling a house in Metro Detroit, it helps to know exactly how this works before a buyer asks for one.
This guide explains what concessions are, what they can and cannot pay for, the limits each loan type sets, how they change your take-home amount, and what to do if you would rather not negotiate them at all.
TL;DR
- A seller concession is a contract term where the seller pays certain buyer costs at closing, usually closing costs, prepaid items or discount points. It is not a check handed to the buyer.
- Limits depend on the loan. Conventional loans allow 3%, 6% or 9% of the price depending on the down payment, FHA allows up to 6%, VA typically up to 4%, and USDA up to 6%.
- Every dollar of concession lowers your net proceeds by a dollar, so work out your bottom line before you say yes.
- A seller credit is one kind of concession. A price cut is different, because it changes the recorded sale price.
- A cash sale to a direct buyer has no lender limits and no buyer closing-cost negotiation. You agree on one number and a closing date.
Table of Contents
- What seller concessions are
- How a concession works at closing
- What a percentage means in dollars
- Loan limits on seller concessions
- Why sellers agree to concessions
- What concessions cost you
- How to negotiate concessions
- Perspective
- Concessions vs. a direct cash sale
- Selling as-is without negotiating credits
- Get a cash offer from Sell Dave Your House
- FAQ
- Sources
What seller concessions are
Seller concessions are costs a seller agrees to pay on behalf of a buyer as part of the purchase agreement. They reduce the cash the buyer needs at the closing table. According to the National Association of Realtors, they can be written as a percentage of the purchase price or as a fixed dollar amount.
Common examples include:
- A share of the buyer’s closing costs, such as lender fees, title charges and appraisal fees
- Prepaid items like property taxes and homeowners insurance set aside at closing
- Discount points, which lower the buyer’s mortgage rate
- A home warranty, or the cost of repairs found during the inspection
Zillow’s guide lists closing costs, a home warranty and inspection repairs as typical items a seller agrees to pay.
Seller concession vs. seller credit
People use the two terms almost interchangeably, and that is mostly fine. Rocket Mortgage explains that a seller credit is a type of seller concession. The seller can offer a lump-sum credit, or pay certain fees directly. Either way, the money moves through closing.
Seller concession vs. price reduction
A concession is not a discount. Inman reports that the seller covers expenses that would normally come out of the buyer’s pocket while the contract price stays intact, which protects the neighborhood’s comparable sales.
A price reduction does the opposite. It changes the recorded sale price and what the appraiser sees. A concession leaves the headline price alone and helps the buyer’s cash-to-close. For you, both reduce what you walk away with, but they affect your buyer, the appraisal and your neighbors’ comparables differently.
How a concession works at closing
The concession is written into the purchase agreement. NAR’s consumer guide notes that these terms generally are not binding until they are in a signed contract.
At closing, the title or closing agent handles the money. As Zillow describes it, the amount is deducted from the seller’s proceeds and applied to the buyer’s costs. The seller never hands the buyer a check.
Here is a simple example. Say you agree to sell for $250,000 and give a 3% concession:
| Item | Amount |
|---|---|
| Contract price | $250,000 |
| 3% seller concession | $7,500 |
| Price you are paid before your other costs | $242,500 |
Your agent commission, payoff of your mortgage, and other seller closing costs come out of that as usual. For a closer look at those, see our guide to seller closing costs in Michigan.
What a percentage means in dollars
The quickest way to read “3% concession” is to multiply. NAR gives this example: on a $300,000 home, 3% is $9,000 toward the buyer’s closing costs and related expenses.
Using the same math:
- 3% of $200,000 is $6,000
- 3% of $350,000 is $10,500
- 6% of $350,000 is $21,000
A buyer can ask for any number. What matters is how much the buyer’s loan program allows, which is the next section.
Loan limits on seller concessions
Lenders cap how much a seller can contribute, so a concession that is too large can be rejected at closing. Confirm the limit for the buyer’s loan type before you counter.
Conventional loans
For a primary residence or second home, Fannie Mae’s Selling Guide sets the cap by loan-to-value (LTV) ratio, using the lower of the sale price or appraised value:
| Buyer’s LTV | Maximum contribution |
|---|---|
| Above 90% (down payment under 10%) | 3% |
| 75.01% to 90% | 6% |
| 75% or less | 9% |
| Investment property | 2% |
Credible’s guide lists the same tiers.
FHA, VA and USDA loans
NAR’s overview gives these limits:
- FHA: up to 6% of the lower of the purchase price or appraised value
- VA: typically up to 4% of the purchase price
- USDA: up to 6% of the purchase price
A buyer using an FHA loan on a $200,000 house could therefore ask for up to $12,000. A VA buyer could ask for around $8,000.
What a concession cannot do
Two rules prevent most surprises:
- It cannot exceed the buyer’s real costs. Inman reports that any contribution above allowable closing costs is not returned to the buyer as cash. It is forfeited.
- It cannot fund a conventional down payment. Commerce Bank explains that concessions are limited to closing costs, prepaid items and discount points where the loan program permits.
If your contract promises more than the lender allows, expect a renegotiation days before closing. That is stressful when you have already lined up your next move.
Why sellers agree to concessions
Sellers usually agree for one of two reasons: the buyer is qualified but short on cash, or the house is sitting on the market.
- Protecting the price. A concession lets you keep the contract price where comparable sales will record it.
- Keeping a deal alive. When an otherwise qualified buyer is short on closing cash, a credit can save the sale.
- Market conditions. Concessions come up most in buyer’s markets, where sellers offer incentives to attract offers.
- Rate buydowns. A concession can fund a temporary buydown. One agent’s example describes how a $10,000 credit toward a 2-1 buydown can lower a buyer’s first-year payment by roughly $300 to $346 a month while the recorded price stays the same.
Michigan sellers see the same pattern. One local brokerage notes that sellers use concessions to keep a deal moving without lowering the headline price.
What concessions cost you
Concessions reduce your net proceeds dollar for dollar. One Maryland agent’s example makes the point: a $500,000 sale with a $10,000 concession is effectively a $490,000 sale. The question to ask is whether your contract price is high enough to absorb the credit and still hold up at appraisal.
If an appraisal raises condition issues, such as an aging roof, you may face a second round of negotiation. A roof appraisal checklist can help you understand what an appraiser and insurer look at, so a roof does not catch you off guard at the worst time.
Work out your floor first
Before you counter, run the numbers:
- Start with the contract price.
- Subtract your mortgage payoff.
- Subtract commissions, title fees, prorated taxes and other seller costs.
- Subtract the concession you are considering.
- Check what is left against the amount you need to buy your next home or settle an estate.
Our guides on what net proceeds are and home sale proceeds planning walk through this step by step.
How to negotiate concessions
A few habits keep the process smooth:
- Ask the buyer’s lender for the limit. Get the loan type and LTV in writing before you answer a request.
- Trade, do not just give. A concession can be paired with a higher price, a firmer closing date or fewer repair requests.
- Name the purpose. Specify closing costs, prepaids or points in the contract so the closing agent can apply it correctly.
- Compare a concession with a repair credit. If the inspection finds issues, you can fix them, credit the buyer, or adjust the price. Each option changes your net differently.
- Keep the appraisal in mind. If the appraised value comes in under the price, the lender’s cap is based on the lower figure.
Perspective
We buy houses directly in Metro Detroit, so we see what happens when sellers go the traditional route and the deal gets complicated by buyer financing. A lender cap, an appraisal that comes in low or a buyer short on cash can reopen a price you thought was settled.
That is why many of the homeowners we meet choose a different path. When we make a written cash offer, there is no buyer’s loan, so there are no lender concession limits and no closing-cost credit to negotiate. We buy as-is, so there are no repair requests or inspection credits either.
Dave Joseph has bought homes in Southeast Michigan for 16+ years, and the sellers who contact us are often dealing with an inherited house, foreclosure pressure, a vacant property or a rental. They want a clear number and a closing date they control. Our process is designed to give them that: an offer within 24 hours, and closing in as little as 7 days if that is what you need.
If you plan to list, understanding concessions will make you a stronger negotiator. If certainty matters more than the last few thousand dollars of negotiation, a direct cash sale deserves a comparison.
Real Estate Team
Concessions vs. a direct cash sale
In a traditional listing, concessions are one piece of a longer list of moving parts. Here is how the two paths compare on the points that matter most to concessions:
| Traditional sale with a financed buyer | Direct cash sale to Sell Dave Your House | |
|---|---|---|
| Buyer closing-cost credits | Often requested, capped by loan type | Not part of the offer |
| Lender rules on the contract | Yes | No buyer loan involved |
| Repairs and inspection credits | Commonly negotiated | We buy as-is |
| Showings and open houses | Yes | No |
| Agent commissions | Typically paid by the seller | None with us |
| Timeline | Set by the buyer’s loan process | Closing as soon as 7 days, on a date you choose |
To see how the paperwork differs, read our traditional vs. cash sale closing guide. For a view of who pays what in a cash deal, see cash buyer closing costs in Michigan, and for Detroit specifics, seller closing costs in Detroit.
Selling as-is without negotiating credits
If your house needs work, the concession conversation often turns into a repair conversation. Buyers ask for credits to cover a roof, a furnace or a foundation. You can read how a cash sale handles this in costly home repairs avoided with a cash sale, and what else a direct sale offers in cash home sale benefits.
We cover standard closing costs for sellers, and our offer is a single, written number. If you are facing foreclosure, settling an inherited property or managing a vacant house, that clarity can take real pressure off.
Get a cash offer from Sell Dave Your House
If you would rather skip buyer credits, repairs and showings, we can help. We are a local cash buyer serving Wayne, Oakland and Macomb Counties. You receive a fair all-cash offer within 24 hours, and you choose the closing date, often as soon as 7 days.
There are no agent commissions and no hidden fees. Tell us about your house at our cash offer page and we will respond with a written offer, with no obligation to accept it.
FAQ
What are seller concessions in simple terms?
They are costs the seller agrees to pay for the buyer, written into the purchase contract. They usually cover closing costs, prepaid items or discount points. The money is deducted from your proceeds at closing and applied to the buyer’s costs.
What is a 3% seller concession?
It means the seller contributes up to 3% of the purchase price toward the buyer’s costs. On a $300,000 home, that is $9,000. Three percent is also the conventional loan cap when the buyer puts down less than 10%.
Can a buyer keep leftover concession money?
No. Inman reports that a seller cannot credit more than the buyer’s actual allowable costs, and the extra is not paid to the buyer. Lenders treat it as a fraud red flag.
Do seller concessions apply to cash sales?
Not in the way they do with financed buyers. The lender caps and closing-cost credits come from a buyer’s mortgage. With a direct cash purchase, you negotiate one price and a closing date. Our guide to estimating cash sale closing costs shows what to expect.
Is a concession better than lowering the price?
It depends on your goals. A concession keeps the recorded price intact, which protects comparable sales, while a price cut changes the appraisal baseline. Both lower your net, so compare each against your minimum.
Sources
- NAR: What Are Seller Concessions?
- NAR consumer guide to seller concessions (PDF)
- Fannie Mae Selling Guide: Interested Party Contributions
- Credible: What Are Seller Concessions?
- Inman: Seller Concessions Explained
- Commerce Bank: Lender Credits, Buy-Down Points & Seller Concessions
- Zillow: Seller Concessions
- Rocket Mortgage: A guide to seller concessions
- Homes in Triad NC: Seller concessions vs. price cuts
- Kime Realty: Seller Concessions in Michigan
- Porchlight Property Group: How Concessions Actually Work
- Roof Appraisal Checklist