A seller concession is money the seller agrees to pay toward the buyer's costs at closing. That is it. You will also hear it called seller assist, seller paid costs, or seller contributions. It is negotiated as part of the offer, it shows up on the settlement statement, and it comes straight out of the seller's proceeds.
It is one of the most useful tools in a Central Arkansas transaction and one of the most misunderstood, so here is the plain version for both sides of the table.
What a concession can pay for
Buyers have closing costs on top of their down payment, and those costs are not small. Depending on the loan and the price point, a buyer is often looking at several percent of the purchase price in lender fees, title work, prepaid taxes and insurance, and escrow setup.
A concession can be applied to things like:
- Loan origination and lender fees
- Appraisal and inspection fees
- Title insurance and closing fees
- Prepaid property taxes and homeowners insurance
- Prepaid HOA or POA dues
- Discount points, including a rate buydown
- A home warranty for the buyer
Concessions are not always cash, either. Leaving the refrigerator, the washer and dryer, the mounted TVs, or the riding mower is a concession in everything but name, and sometimes it is the one that closes the gap.
One thing a concession generally cannot do is pay the buyer's down payment. That comes from the buyer's own qualifying funds.
The limits are set by the loan
This is where buyers get themselves in trouble by asking for a number the loan will not allow. The caps are set by the loan program, not by the seller's generosity, and anything over the cap is simply lost.
As a general framework:
- Conventional loans tie the cap to the down payment. Less money down means a lower allowed contribution, and the cap steps up as the down payment grows.
- FHA and USDA loans cap contributions as a percentage of the purchase price.
- VA loans have their own rules, with a separate allowance for certain concessions beyond standard closing costs.
Do not build an offer on a percentage you read somewhere. Have your lender confirm the exact cap for your program and your down payment before you write it, because these guidelines change and they vary by investor. Your Realtor should be talking to your lender about this before the offer goes out, not after the contract is signed.
There is also a second ceiling nobody mentions: the appraisal. A concession usually gets built into the contract price, and the house still has to appraise. Ask for a large concession on a house that is already priced at the top of the market and you may create an appraisal problem for yourself.
When sellers say yes
Sellers offer concessions when there is a reason to. The common ones in our market:
- The house has been sitting. Days on market is a number buyers read as a signal. A concession can get a contract without a price reduction that resets that clock.
- The inspection turned up work. Instead of scrambling for a contractor two weeks before closing, the seller credits the buyer and lets them handle it after they own it. This is often the cleanest fix for both sides.
- The seller needs certainty. If they have already bought in Conway or Benton and are staring at two payments, getting to a Closing on schedule can be worth more than squeezing out the last bit of price.
- The price is ahead of the market. Rather than reprice, some sellers would rather contribute.
The honest tradeoffs
For buyers, the upside is obvious: less cash out of pocket at closing, which for many first-time buyers is the actual barrier, not the monthly payment. Points bought with a concession can also lower your payment for as long as you hold the loan.
The downside is that a concession weakens your offer. If a seller is choosing between two contracts at the same price and yours requires them to write a check, yours is the weaker one. And if the concession is absorbed into a higher purchase price, you are financing it over thirty years.
For sellers, the upside is a larger buyer pool, faster movement, and a path to keep a contract together. The downside is that it reduces your proceeds, and it is real money whether it shows up as a credit or a price reduction.
Which brings up the comparison that actually matters: a concession and a price cut are not the same thing even when the dollars are identical. A price cut lowers the buyer's loan amount and monthly payment slightly. A concession puts cash in the buyer's pocket at the closing table. For a buyer who is tight on cash and fine on payment, the concession is worth far more. For a buyer who is fine on cash, the price cut wins. Figuring out which buyer you are dealing with is the job.
How we handle it
We negotiate concessions constantly, and we do it with the lender on the phone. Sellers should see exactly what a concession does to their net before they agree to it, which is what our net proceeds calculator is for. Buyers should know their cap and their appraisal risk before they ask.
Chase says it this way: "Certainty is worth more than a little better deal." A concession that gets everyone to the closing table on time is usually the better outcome for both sides, even when it does not look that way in the moment.
New to all of this? Our first-time home buyer guide for Central Arkansas covers what to expect from offer to keys, and the FAQ answers the questions we get most.
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