Seller Concessions: A Win-Win for Buyers and Sellers

When buying or selling a home everyone wants to get the best deal. As a buyer, you want to keep your costs down—and as a seller, you aim to sell quickly and at a good price. One way to make both sides happy is through seller concessions—an incentive that sellers offer to help ease some of the costs for buyers. These concessions can make a big difference in closing the deal. Let’s explore everything you need to know about seller concessions: what they are, who they benefit, how they work, and when to use them. 

What Are Seller Concessions?

Seller concessions are essentially financial incentives that the home seller offers to the buyer to help cover some of the costs associated with purchasing the property. Think of it as a little extra help from the seller to make the home more affordable.  

These concessions can cover expenses such as: 

• Closing Costs: Fees related to finalizing the mortgage, such as appraisal fees, title insurance, and attorney fees.
   
  
• Repairs: Fixing issues found during the home inspection. 
  
  
• Interest Rate Buy-Downs: Money used to reduce the buyer’s interest rate, which can lower monthly mortgage payments. 
  
  
• Home Warranties: Coverage for certain repairs or replacements of home systems and appliances. 
  
  

Who Benefits from Seller Concessions?

Both buyers and sellers can benefit from seller concessions, but in different ways. For buyers, concessions can lower upfront costs, making homeownership more accessible. If you’re a first-time home buyer or are tight on cash, seller concessions can be a game-changer, helping you cover some of those intimidating fees and costs. 

For sellers, offering concessions can make your property stand out in a competitive market. If the house has been on the market for a while or needs some updates, concessions can be the nudge that encourages buyers to make an offer. 

Changes in Rules: The NAR Settlement Impact

Recent changes in the real estate world have slightly altered how seller concessions can be used, particularly following the National Association of Realtors (NAR) settlement. One critical update is that "seller concessions cannot be limited to or conditioned upon the retention or payment to a cooperating broker, buyer, broker, or other buyer representative." 

This means that concessions are meant solely for the buyer's benefit and can't be used as a backdoor way to compensate agents or brokers involved in the deal. It’s a reminder that the focus of these concessions should always be on making the home purchase easier for the buyer. 

Loan-Specific Limits on Seller Concessions

Seller concessions are great, but they aren’t unlimited. Different loan types have specific caps on how much sellers can contribute: 

Conventional Loans: 

Primary Residences & Second Homes: If the buyer puts down less than 10%, the seller can contribute up to 3% of the purchase price. If the down payment is between 10% and 25%, the limit goes up to 6%. For down payments over 25%, the seller can contribute up to 9%. 

For investment properties, the limit is capped at 2%, regardless of the down payment. 

FHA Loans: 

The seller can contribute up to 6% of the home’s purchase price toward the buyer’s costs. 

VA Loans:

Seller concessions are capped at 4% of the purchase price but can be used in a broader way, such as paying off the buyer’s credit card debt to qualify for the loan.  

USDA Loans:

There’s no set percentage limit, but the concessions must be “reasonable” and cannot exceed the actual costs. 

Understanding these limits is crucial so you don’t end up asking for or offering more than the loan guidelines allow. 

Smart Ways to Use Seller Concessions

Here are some strategic ways to use seller concessions: 

• Interest Rate Buy Down: Sellers can offer to pay points on the buyer’s mortgage, reducing your rate and saving you money in the long run.
  
  
• Cover Closing Costs: Use the seller’s contribution to pay off closing costs, which can help buyers save cash for things like moving expenses or home improvements.
  
  
• Address Repairs: If a home inspection reveals needed repairs, buyers can negotiate concessions instead of asking the seller to fix everything themselves.
  
  
• Get a Home Warranty: Sellers can provide a home warranty to cover certain repairs in the first year of ownership. 
  
  

Seller concessions are a valuable tool for buyers to make homeownership more affordable and for sellers to attract buyers in a competitive market. Knowing the limits and recent rule changes can help both sides use concessions to their advantage. Ready to see how seller concessions can work for you? Talk to a Churchill Mortgage Home Loan Specialist today to explore your options!