What Is a Seller Concession?

Short answer

A seller concession (or seller credit) is an amount the seller agrees to pay toward the buyer's closing costs, prepaid taxes and insurance, discount points or a temporary buydown. It is written into the contract and shows up on the Closing Disclosure as a credit. Each loan program caps concessions as a percentage of the price, and the credit cannot exceed your actual costs or be used to cover the down payment.

Definition

A seller concession shifts part of the buyer's cash-to-close burden onto the seller, usually in exchange for a full-price or higher offer. Lenders call them interested-party contributions and limit them so the price is not inflated.

Worked example

A buyer in Pembroke Pines offers $420,000 on a townhouse listed at $415,000 and asks for a $12,000 seller concession. The seller nets $408,000, slightly less than list, but the buyer's cash to close drops by $12,000. The buyer's closing costs and prepaids total $13,500, so the full $12,000 can be used. With a conventional loan at 10% down, suppose the program cap is 6% of price: $420,000 x 0.06 = $25,200, well above $12,000. Had the costs totaled only $10,000, the extra $2,000 would be lost unless used for discount points, so the buyer applies it to buy down the rate.

What a concession can pay for

• Lender fees, title fees, appraisal, recording and Florida doc stamps and intangible tax.
• Prepaid interest, the first year of homeowners and windstorm insurance, and escrow deposits.
• Discount points to lower the rate, or a temporary 2-1 buydown.
• On VA loans, the funding fee.
• Not allowed: the down payment, or cash back to the buyer.

Program limits

Each program sets a maximum as a percentage of the price, which usually decreases as the down payment gets smaller, and investment properties have the tightest caps. Your loan officer will confirm the cap for your loan before you write the offer. If the concession exceeds the cap or your actual costs, the excess is forfeited, so size it to your real Loan Estimate figures.

In South Florida

Concessions are a practical tool in South Florida because closing costs here are high: Florida doc stamps and intangible tax on the loan, the first year of windstorm and flood insurance paid at closing, and escrow deposits for high property taxes. In a balanced or slow condo market, sellers routinely agree to credits; in a bidding war for a single-family home, asking for one weakens your offer. On new construction, builders often prefer giving a concession through their lender rather than cutting price; you can usually use the same credit with QMS Lending.