What seller concessions are and how they work toward your down payment

A seller concession is money the seller contributes toward your closing costs or down payment as part of the sale agreement. Instead of you paying these amounts out of pocket, the seller writes a check at closing that reduces what you owe. The seller concession appears on your purchase agreement and closing disclosure as a credit against your total costs.

The mechanics are straightforward: you negotiate the concession amount when you make an offer, the seller agrees (or counters with a different amount), and that dollar figure gets written into the contract. At closing, the title company or escrow agent subtracts the concession from your bill. If you negotiated a $10,000 seller concession and your down payment is $15,000, you pay $5,000 and the seller's concession covers the other $10,000.

Seller concessions are legal in all 50 states and are common in buyer's markets—when inventory is high and sellers need to sweeten the deal to move a property. They are less common in seller's markets, where buyers compete fiercely and sellers have no reason to offer them.

Key Takeaways

  • Seller concessions can cover part or all of your down payment, but lenders set caps on how much the seller can contribute, usually 3 to 6 percent of the purchase price depending on your loan type.
  • The concession must be negotiated in the purchase agreement before closing; you cannot ask for one after the offer is accepted.
  • Lenders require the seller concession to be used for closing costs and down payment only, not for repairs, inspections, or other expenses outside the transaction.
  • A seller concession does not reduce the purchase price—it is a separate credit that lowers your out-of-pocket costs at closing.
  • If the seller concession exceeds the lender's cap, the excess typically goes to reduce the purchase price or is returned to the seller.

Lender limits on seller concessions

Every lender sets a maximum on how much a seller can contribute. The cap depends on your loan type and down payment size. Conventional loans (not backed by a government agency) usually allow seller concessions up to 3 percent of the purchase price if you put down less than 10 percent, and up to 6 percent if you put down 10 percent or more. A $300,000 home with a 5 percent down payment would allow a $9,000 seller concession (3 percent of $300,000).

FHA loans permit seller concessions up to 6 percent of the purchase price, regardless of your down payment size. VA loans allow up to 4 percent. USDA loans allow up to 6 percent. These caps exist because lenders want to ensure you have genuine skin in the game—that you are not borrowing 100 percent of the purchase price plus closing costs.

Your lender will calculate the concession cap and tell you the maximum amount during pre-approval. If you negotiate a concession above the cap, the excess typically gets applied to reduce the purchase price instead, which lowers your loan amount and monthly payment.

How to negotiate a seller concession in your offer

Seller concessions are negotiated at the time you make an offer, not after. Your real estate agent includes a line item in the purchase agreement stating something like "Seller to provide $X toward buyer's closing costs." The seller can accept, reject, or counter with a lower amount.

The strength of your negotiating position depends on market conditions and the property. In a buyer's market with many homes for sale, sellers are more willing to offer concessions to close a deal. In a hot market where homes sell in days, sellers rarely offer them. Your offer price, down payment size, and loan type also matter—a buyer putting down 3 percent and asking for a 6 percent concession may face pushback, while a buyer putting down 20 percent asking for 3 percent may get it easily.

Once the concession is written into the contract and signed by both parties, it is locked in. You cannot increase it later or ask for additional credits. If you want to renegotiate, the seller must agree to an amendment to the purchase agreement.

What the seller concession can and cannot cover

Seller concessions can be used for your down payment, loan origination fees, appraisal fees, title insurance, homeowners insurance, property taxes, HOA fees, and other standard closing costs. The concession must go toward costs directly tied to the purchase and financing of the home.

Seller concessions cannot be used for home inspections, repairs, pest treatments, or other work done before closing. They also cannot be used to pay off your existing debts, fund your moving costs, or cover anything outside the transaction itself. If you negotiate a concession and later try to use it for an inspection repair, the lender will reject it and you will have to pay out of pocket or renegotiate with the seller.

Your lender will review the closing disclosure and verify that every dollar of the seller concession is applied to allowable costs. If the concession is misapplied, closing will be delayed until it is corrected.

The difference between a seller concession and a price reduction

A seller concession and a price reduction look similar on the surface but work differently. A price reduction lowers the purchase price itself—if you negotiate a $10,000 price reduction on a $300,000 home, the new price is $290,000 and your loan amount drops by $10,000. A seller concession keeps the purchase price the same but credits money toward your closing costs, so your loan amount stays the same but your out-of-pocket costs at closing drop.

From a lender's perspective, a price reduction is often preferable because it lowers your loan-to-value ratio (LTV), which can improve your interest rate and reduce your monthly payment. A seller concession does not change your LTV. However, from a seller's perspective, a concession may be preferable because it keeps the purchase price high, which can matter for their own tax records or for appraisal purposes if the deal falls through.

In practice, if a seller is willing to give you $10,000 in relief, you and your agent should discuss whether to ask for it as a price reduction or a concession based on your specific situation and what the lender allows.

When seller concessions make sense for your situation

Seller concessions are most useful when you have a small down payment and limited cash for closing costs. If you are putting down 3 to 5 percent and closing costs will strain your savings, negotiating a concession can keep you from having to take out a personal loan or delay the purchase. A $5,000 to $8,000 concession can cover most or all of your closing costs, leaving your down payment intact.

Concessions also make sense in a buyer's market where sellers are motivated to move inventory. If you are shopping in a slow market, asking for a concession is a reasonable negotiating tactic that costs the seller nothing except the opportunity to ask for a higher price from another buyer.

Concessions are less useful if you have substantial savings and can cover closing costs yourself, or if you are in a competitive market where asking for one weakens your offer. In a hot market, offering to waive the concession or asking for a smaller one can make your offer more attractive to the seller.

What happens if the appraisal comes in low

If the home appraises for less than the purchase price, your lender will reduce your loan amount to match the appraised value. This can affect your seller concession. If you negotiated a $10,000 concession on a $300,000 purchase price and the appraisal comes in at $290,000, your lender may reduce the concession to 3 percent of the new appraised value ($8,700) to stay within lending guidelines.

Some purchase agreements include language protecting the buyer in this scenario—for example, stating that the seller concession will not be reduced if the appraisal is low. If your agreement does not include this protection and the appraisal comes in low, you will need to renegotiate with the seller or cover the shortfall yourself. Discuss this possibility with your agent and lender before you make an offer.

Frequently Asked Questions

Can I ask for a seller concession if I am paying cash?

No. Seller concessions are only available to buyers using a mortgage. Cash buyers do not have a lender setting caps or reviewing closing costs, so there is no mechanism for a concession. If you are paying cash and want the seller to contribute, you would negotiate a lower purchase price instead.

What if the seller concession is more than my closing costs?

If the concession exceeds your closing costs, the excess is typically applied to reduce the purchase price. Your lender will not allow you to pocket the extra money or use it for anything outside the transaction. The title company will handle this adjustment on the closing disclosure.

Does a seller concession affect my interest rate?

Not directly. Your interest rate is based on your credit score, loan type, down payment percentage, and market conditions. A seller concession does not change any of these factors. However, if the concession allows you to put down a larger down payment (because you are not spending your cash on closing costs), a higher down payment could may have access to you for a better rate.

Can I negotiate a seller concession after I make an offer?

No. The concession must be included in the original purchase agreement. Once the seller accepts or counters your offer, the terms are set. If you want to change the concession amount later, both you and the seller must sign an amendment to the contract.

What if my lender denies the seller concession?

Lenders rarely deny a concession that is within their guidelines and applied to allowable costs. However, if your lender finds that the concession was misapplied or exceeds their cap, they will ask the title company to correct it before closing. You and the seller may need to sign an amendment adjusting how the concession is used.