Are you a homebuyer looking to save money on the purchase of your home? Or are you a home seller looking to speed up the sale? Either way, seller concessions (sometimes called a “seller assist”) may be just the tool you need for a successful real estate transaction.

In this article, you’ll learn all about seller concessions: what they are, how they can benefit you, and tips for negotiating concessions.

What Are Seller Concessions?

Seller concessions are financial incentives a seller offers to make the deal more appealing to the buyer. These concessions are typically used to pay a portion of the buyer’s closing costs (the fees necessary to facilitate the purchase of a property).[1]

Concessions are negotiable. They can be a flat amount or a percentage of the buyer’s total closing costs.

Examples Of Seller Concessions

Seller concessions can be used to cover part, or all, of a buyer’s closing costs, including expenses such as:

  • Title insurance. Title insurance protects the homebuyer and their lender if another party comes forward with a claim of ownership on the property. This type of insurance policy is typically paid as a one-time, upfront fee rather than an ongoing expense.[2]
  • Recording fees. Local governments require that the transaction be formally recorded. Recording fees cover the expense of filing the transfer documents with the local authorities.
  • Property taxes. Property taxes are commonly split between sellers and buyers based on the transfer date, with the buyer pre-paying the tax amount due through the end of the fiscal or calendar year. However, sellers may be willing to pay the tax bill for the entire year.
  • Inspection fees. Home inspections are used to document the condition of a property. Sometimes, any number of specialty inspections, such as pest inspections, are required by the state or the lender before the deal can close. The fee covers the inspector’s service in evaluating and documenting the property's condition.
  • Appraisal fee. The appraisal fee covers the cost of having a licensed third party confirm the market value of the property. This is particularly important for lenders who want to be sure that the home is worth the amount the buyer is paying.
  • Attorney’s fees. Some states require buyers to have a real estate lawyer review the closing documents.[3] Attorney’s fees cover the cost of this service.
  • Mortgage fees. These origination fees cover the mortgage lender’s charges for processing a home loan.
  • Mortgage Discount Points. Mortgage discount points are upfront fees that allow buyers to reduce the interest rate, potentially saving a lot of money in interest expense over the loan term. However, before buying mortgage points, crunch the numbers with PNC Bank’s Mortgage Points Calculator to see if the savings will be worth the upfront expense.

Potential Benefits For Buyers and Sellers

For buyers, the primary benefit of seller concessions is the reduced upfront expense of buying a home. This seller assistance can make homeownership more accessible, particularly for first-time buyers who may struggle to cover closing costs in addition to the down payment.

Even buyers who can comfortably afford the down payment and closing costs can benefit from seller concessions. Every dollar paid in concessions is a dollar the buyer can put toward home furnishings or renovation projects.

For sellers, offering concessions can potentially help the home sell more quickly. Advertising closing cost assistance can increase buyer interest in the real estate listing. And accepting an offer with concessions may be favorable compared to waiting for another offer without concessions.

Are There Any Downsides To Seller Concessions?

For buyers, asking for seller concessions can make your offer less appealing. If sellers have a competing offer without concessions, they may choose that offer instead of yours. There is also a chance that the sellers may want a higher purchase price to offset the cost of the concessions.

For sellers, the downside to concessions is the potential reduction in proceeds from the sale. However, if offering concessions can save money or reduce stress by minimizing the time your house sits on the market, those concessions may be well worth it.

Concession Limits By Loan Type

There are limits to seller concessions. Mortgage authorities like Fannie Mae (https://www.fanniemae.com/) and the Department of Housing and Urban Development (https://www.hud.gov/) set these limits.

To begin, seller concessions cannot exceed the amount of the buyer’s closing costs. This limit is in place to prevent artificially inflating real estate prices.

This is best illustrated with an example: Suppose a buyer wants to purchase a home for the fair market value of $400,000. The seller suggests making the price $450,000 and giving $50,000 in concessions, even though the closing costs might only come to $25,000. In this case, the inflated sales price of $450,000 would be recorded. And, because real estate values are largely determined by the sales prices of comparable properties, this sale could unfairly drive property values up in the area.

After this basic rule, concession limits vary by mortgage loan type.

Conventional Loans

Concession limits for conventional loans depend on the buyer’s down payment:[4]

  • For down payments of less than 10%, concessions are capped at 3% of the purchase price.
  • For down payments between 10% and 25%, concessions are capped at 6% of the purchase price.
  • For down payments of more than 25%, concessions are capped at 9% of the purchase price.
  • For investment properties, concessions are limited to 2%, regardless of the down payment amount.

FHA Loans

For Federal Housing Administration (FHA) loans, the seller can contribute concessions of up to 6% of the purchase price.[5]

USDA Loans

For specialized home loans for rural areas, backed by the Department of Agriculture (USDA loans), the seller can contribute concessions of up to 6% of the purchase price.[6]

VA Loans

VA loans, which are backed by the Department of Veterans Affairs, allow for seller concessions of up to 4% of the purchase price.[7] In addition to traditional closing costs, seller concessions on VA loans can also include payments toward the VA funding fee or the buyer’s judgments and debts.

Tips For Negotiating Seller Concessions

Whether you’re buying or selling your home, here are three tips to help you negotiate seller concessions.

  1. Understand your local market conditions. Seller concessions are more likely to be used in a slower housing market when sellers are forced to compete for buyers. In a hot market, when buyers are competing for accepted offers, sellers are less likely to grant concessions.
  2. Get assistance from a licensed real estate agent. Real estate agents are an excellent resource for market knowledge. They are also skilled negotiators. Having a professional represent you in your purchase or sale can make a notable difference in the outcome of your deal. If you don’t already have an agent, contact a PNC Mortgage Loan Officer for a referral to a local agent.
  3. Look for the win-win. Successful real estate deals are about finding terms that work for both the buyer and the seller. Pushing too hard to get the best possible terms can result in losing the deal completely.

PNC Bank Is Here To Help

PNC Bank offers a range of home loan products to suit both homebuyers and homeowners. From first-time buyer mortgage loans to home equity lines of credit, our loan products can provide the funding needed to make the most of your homeownership journey. Take the guesswork out of mortgage financing with our useful mortgage calculators and knowledgeable mortgage loan officers. Call us at 855-744-2668 or contact us online today!