Seller concessions explained

You and the buyer agree that you'll pay a set amount, or a percentage of the price, toward the buyer's closing costs. The amount is written into the contract and credited to the buyer at closing.

Your net proceeds go down by the concession. For the buyer, it means less cash needed at closing, which can make the difference for someone with a solid income but limited savings.

• Lender and third-party closing costs
• Prepaid interest and escrow deposits
• Discount points or a temporary rate buydown, within program rules
• Generally not the down payment, and not the buyer's other debts

Loan programs cap concessions so the price reflects the home's real value. Common limits are:

• Conventional: 3% to 9% of the price, depending on the buyer's down payment
• FHA: up to 6%
• VA: up to 4%, plus normal closing costs
• Any amount above the buyer's actual costs generally can't be used

Hypothetical example. A $5,000 concession and a $5,000 price cut both reduce your net by about $5,000.

The difference is who it helps and how. A concession helps a buyer who is short on cash for closing. A price cut lowers the buyer's loan amount slightly, lowers what the home has to appraise for, and may matter more to a buyer focused on monthly payments. Your agent can help you decide which a buyer is really asking for.

Concessions are more common in a buyer's market, or when a home has sat on the market. They can also come up after an inspection, as a way to handle repairs without fixing them before closing.

If your buyer is financing with a lender that pays most closing costs, the request may be smaller and focused on prepaids and escrow. Ask your agent to review the buyer's request so you only agree to what's needed.

Appraisers may look at whether comparable sales included concessions and adjust their values. Large concessions on top of a high price can raise questions, so keep the price and the concession in line with the market.