“Seller concessions” is a fancy term for contributions a seller makes toward a buyer’s eligible closing expenses. It is a concept every homebuyer should understand! If you are purchasing a home, take the time to learn how seller concessions work and how they could benefit your transaction.
Many sellers receive money at closing after paying off their mortgage and covering their selling expenses. That remaining money is called their net proceeds. Their home equity, by comparison, is the difference between the home’s value and the amount they owe against it.
Equity can build as a homeowner pays down the mortgage or the property increases in value. However, not every seller walks away with a large check. Someone who purchased recently or experienced a decline in their home’s value may have little equity. After selling expenses, they might break even or even need to bring money to closing.
For sellers who have room in their budget, offering a contribution toward the buyer’s closing costs can be a useful strategy, especially in a buyer’s market. This contribution generally appears as a credit toward eligible expenses on the closing statement; it is not unrestricted cash handed to the buyer.
I have had sellers ask me, “Why would I pay someone to buy my house?”
My answer is straightforward: because you want to sell your home, and covering all the upfront expenses can be difficult for buyers. A seller contribution can help bridge that gap and make the transaction financially workable.
Even buyers who have carefully saved may face unexpected expenses during the weeks between signing a contract and closing. Helping reduce their cash needed at closing can give them some breathing room.
When purchasing a home with a mortgage, buyers generally need to plan for three broad categories of expenses:
- The down payment. The amount depends on the loan program and the buyer’s qualifications. Some conventional mortgages allow a down payment as low as 3%; other programs have different requirements. A 20% down payment is not universally required. Source: Consumer Financial Protection Bureau
- Prepaid expenses and initial escrow deposits. These may include prepaid interest, homeowners insurance premiums, and money deposited into an escrow account for future property tax and insurance bills. They are not simply one or two months of mortgage payments collected in advance.
- Loan fees and other closing costs. These may include origination charges, discount points if applicable, appraisal fees, title services, recording fees, and other expenses associated with financing and completing the purchase. Some costs may be paid before closing. The buyer’s Loan Estimate and Closing Disclosure explain these charges. Source: Consumer Financial Protection Bureau
Together, these expenses can add up to a substantial amount.
Seller contributions can help cover eligible closing costs, prepaid expenses, and other permitted charges, subject to the loan program’s rules. They generally cannot replace the buyer’s required down payment. The lender should confirm both the maximum contribution and how it can be used. Source: Fannie Mae
A buyer can request a specific dollar amount or a percentage of the purchase price. That request should reflect the buyer’s estimated eligible expenses and the lender’s limits.
A knowledgeable agent will consider market conditions and help sellers prepare for these requests. In a buyer’s market, discussing possible concessions before listing can help a seller evaluate offers more confidently.
For example, a seller might plan for a possible $5,000 contribution when reviewing their estimated net proceeds. That is a planning example, not a required or standard amount. The appropriate contribution depends on the property, the market, the buyer’s financing, and the negotiated terms.
The goal is to set a realistic asking price and understand how a contribution would affect the seller’s bottom line. Simply increasing the listing price to leave room for concessions does not mean buyers—or an appraiser—will agree that the home is worth that amount.
One approach that deserves particular attention is adding the requested seller contribution to the purchase price. A higher price paired with a seller credit may be workable, but the price must be supported by the property’s value, and the arrangement must meet the lender’s requirements.
Problems can arise when a seller insists on increasing the price by the amount of the requested contribution without first reviewing comparable sales. If the appraisal comes in below the contract price, the lender may reduce the amount it is willing to lend.
That can leave a financing gap. A buyer who needs closing-cost assistance may not have additional cash available to cover it. The parties may need to renegotiate the price, the contribution, or other terms. If they cannot reach an agreement, the transaction could fall through, depending on the contract.
This is why seller contributions should be discussed early and evaluated as part of the entire offer. The purchase price, the requested credit, the buyer’s financing, and the seller’s expected net proceeds all matter.
Review recent comparable sales with your agent before agreeing to a contract price. Do not assume you can simply add the buyer’s requested contribution to the price and receive the same net proceeds without any complications.
If the appraisal does not support that price, the buyer could lose money spent on inspections or other services, and the seller could lose valuable time on the market. Planning ahead can help both parties negotiate a realistic agreement and improve their chances of reaching closing.
