A seller concession is an agreement where the seller pays part or all of the buyer's closing costs and prepaid items at settlement. Buyers often request concessions to preserve cash for down payment or reserves, or to offset repair needs discovered during inspection. Sellers may agree to attract offers in slower markets or close a deal quickly. The contribution reduces the seller's net proceeds dollar-for-dollar, so it's negotiated as part of the purchase price and contract terms.
How concessions are applied
Concessions can cover lender fees, title insurance, appraisal costs, discount points, prepaid property taxes, homeowner's insurance premiums, and initial escrow deposits. They cannot cover the buyer's down payment itself. The buyer's lender reviews the settlement statement to confirm the concession stays within program limits and applies only to allowable costs. Any amount over the cap is returned to the seller or adjusted before closing.
Loan-type limits on seller contributions
Each mortgage program sets a maximum concession as a percentage of the home's sale price or appraised value, whichever is lower.
- · **Conventional loans**: For primary residences and second homes with down payments of 10 % or more, the cap is 6 % of the lower of sale price or appraised value. With less than 10 % down on a primary or second home, the limit drops to 3 %. Investment properties are capped at 2 % regardless of down payment size.
- · **FHA loans**: The maximum concession is 6 % of the sale price or appraised value, whichever is less, for all occupancy types and down payment amounts.
- · **VA loans**: There is no percentage cap on seller concessions. However, the seller may not pay more than the buyer's actual closing costs and prepaids, and certain fees—such as the VA funding fee—cannot be paid by the seller.
- · **USDA loans**: Seller concessions are capped at 6 % of the sale price or appraised value, whichever is lower.
These figures are illustrative; rates and products are subject to change and this is not a commitment to lend.
Appraisal and negotiation considerations
When an offer includes a large concession, the appraiser examines whether the sale price reflects true market value or is inflated to disguise a below-market net to the seller. If the appraised value comes in below the contract price, the maximum concession recalculates downward, potentially leaving the buyer short on closing funds. Structuring the sale price and concession realistically from the start avoids last-minute surprises.
The Alliance take
Seller concessions are a practical tool when both parties understand the boundaries. Buyers gain breathing room on cash to close; sellers gain a signed contract. The key is ensuring the numbers work within the loan program's rules and the property appraises appropriately. Every transaction is different, so walk through your scenario with your loan officer before finalizing the purchase agreement. Ready to explore your options? Start an application and discuss what structure fits your financing best.
Consult a CPA or attorney; this is not tax or legal advice.