What Is Seller Concession?
A seller concession is money a seller agrees to pay toward the buyer's closing costs and prepaid items, credited at closing. It is used to reduce the buyer's cash to close without lowering the price, and matters because loan programs cap how much a seller can contribute and it can never fund the down payment.
Seller Concession in plain English
A seller concession is money the seller agrees to put toward the buyer's closing costs, such as lender fees, title charges or prepaid items. It appears as a credit on the Closing Disclosure.
It lowers the cash the buyer needs at closing without lowering the price, which matters to buyers short on cash.
Worked example
A buyer's closing costs are $12,000 and the seller agrees to a $6,000 concession paid at closing. The buyer needs $6,000 less cash, subject to the limits of the loan program.
A $6,000 seller concession versus a $6,000 price cut
Illustrative example - round numbers, not current market data. Calculated with Reaixo's calculator engines.
Assumptions
- Price
- $400,000
- Down payment
- 10%
- Rate
- 6.75%, 30 years
- Buyer closing costs
- 3% of price
- Property tax
- 1.2% of price a year
| Step | Calculation | Result |
|---|---|---|
| 1. Fannie Mae limit at 90% LTV (6% of price) | $400,000 × 6% | $24,000 |
| 2. Cash to close with the concession | down payment + closing costs − credit | $46,000 |
| 3. Cash to close with the price cut | down payment + closing costs | $51,220 |
| 4. Monthly payment with the concession | principal, interest and tax | $2,734.95 |
| 5. Monthly payment with the price cut | principal, interest and tax | $2,693.93 |
Cash saved at closing by the concession: $5,220. The concession saves the buyer $5,220 of cash now; the price cut saves about $41 a month instead. Short on cash? The concession usually helps more. The seller nets about the same either way.
What this calculation leaves out
- A concession can only pay allowable closing costs and prepaids, never the down payment, and not more than the costs.
- Limits differ for FHA, VA and investment properties.
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Builder incentives compared: the same dollars, five ways
A builder's incentive can cut the price, pay closing costs, buy down the rate or fund upgrades. Each changes cash to close, the payment and the long-term cost differently.
- Lowest 5-year cost
- Price reduction
- $573,772
- Least cash at closing
- Closing-cost credit
- $44,500
- Lowest first-year payment
- Temporary 2-1 buydown
- $2,150 a month
| Option | Cash to close | Payment year 1 | Payment year 3 | 5-year cost | Unused |
|---|---|---|---|---|---|
| Price reduction | $55,000 | $2,575 | $2,575 | $573,772 | — |
| Closing-cost credit | $44,500 | $2,665 | $2,665 | $581,369 | $3,000 |
| Temporary 2-1 buydown | $50,835 | $2,150 | $2,665 | $578,369 | — |
| Permanent buydown (points) | $56,500 | $2,418 | $2,418 | $574,532 | — |
| Upgrade allowance | $56,500 | $2,665 | $2,665 | $593,369 | — |
- Price reduction: Lowers the loan, the payment and usually the property tax for as long as you own the home. Not an interested-party contribution, so no concession limit applies.
- Closing-cost credit (financing concession): Lowers cash to close dollar for dollar, up to your actual closing costs and prepaids. Cannot fund the down payment; any excess is usually lost.
- Temporary 2-1 buydown (financing concession): The buydown costs $9,335; the rest of the incentive goes to closing costs. You qualify at the full note rate, and the payment rises in years 2 and 3.
- Permanent buydown (points) (financing concession): About 3.75 points, lowering the rate to roughly 6.064% (lender pricing varies). Saves every month for the life of the loan - unless you refinance or sell early.
- Upgrade allowance: Worth the full amount only if you would have bought those upgrades anyway. Upgrades may add less resale value than they cost; the appraisal must still support the price.
Eligibility: you qualify at the full note rate with a temporary buydown; credits cannot fund the down payment.
Formula
5-year cost = Cash to close + Σ payments (months 1–60) + Balance after 60 monthsAssumptions
- Concession limit at this LTV: 6% of the price ($26,700), Fannie Mae Selling Guide B3-4.1-02, principal residence.
- 30-year fixed loan; taxes, insurance and mortgage insurance left out.
- Point pricing varies by lender; get the builder's lender quote in writing and compare it with an outside lender.
- Upgrades are counted at zero cash value: they help only if you wanted them.
Cash to close: from total owed to the wire amount
Cash to close is what you bring on closing day: everything you owe, less money already paid and credits from the seller or lender.
- Total owed
- $52,000
- Down payment, costs and prepaids
- Cash to close
- $45,000
- Usually sent by wire
Show the numbers as a table
| Step | Amount |
|---|---|
| Down payment | +$40,000 |
| Closing costs | +$9,000 |
| Prepaids and escrow | +$3,000 |
| Earnest money already paid | −$5,000 |
| Seller and lender credits | −$2,000 |
| Cash to close | $45,000 |
Formula
Cash to close = Down payment + Closing costs + Prepaids − Earnest money − CreditsAssumptions
- Credits can pay closing costs and prepaids, not the down payment; lenders cap them.
- Your Closing Disclosure states the exact figure at least three business days before closing.
- Confirm wire instructions by phone with your closing agent - wire fraud is common.
Why it matters
A concession and a price cut of the same size cost the seller about the same, but help the buyer differently: the concession saves cash now, the price cut lowers the loan and the payment for as long as you own the home.
What it means for you
Who pays?
The seller, out of the sale proceeds.
What buyers should know
Request a concession sized to your estimated closing costs, and check your program's limit with your lender first.
What sellers should know
A concession keeps the contract price - which some sellers prefer for comparable sales - but it reduces your net proceeds dollar for dollar.
Common mistakes
- Asking for more than the loan program allows or more than the actual closing costs - the excess is usually lost.
- Trying to use a concession for the down payment.
- Raising the price to fund a concession when the appraisal will not support it.
Compare and common questions
Seller Concession: frequently asked questions
How much can a seller contribute to closing costs?
It depends on the loan program and LTV. Fannie Mae allows 3% of the price (or appraised value, if lower) above 90% LTV, 6% from 75.01% to 90%, 9% at 75% or less, and 2% on investment properties.
Is a seller concession better than a price reduction?
If you are short on cash, usually yes, because it lowers cash to close. If you have the cash, a price reduction lowers your loan, payment and property tax for as long as you own the home.
Can a seller concession pay for the down payment?
No. Concessions can pay allowable closing costs and prepaids, not the down payment or the minimum borrower contribution.
Go deeper
Recommended calculators
Run Seller Concession with your own numbers:
Where it fits
- Buying a home, Offer & Negotiation: before this, Multiple Offer Situation; next, Mortgage Rate Buydown.
More Buying Terms
Recommended next step
Compare a credit, a price cut and a rate buydown with your numbers.
Seller credit vs price reduction calculator →Apply it to a specific property: Net proceeds analysis.
Sources and review
- Selling Guide B3-4.1-02, Interested Party Contributions (IPCs), Fannie Mae. Supports: Interested-party contribution limits by LTV and occupancy.
Where this applies: United States. Contribution limits shown are Fannie Mae's; FHA, VA, USDA and portfolio lenders set their own.
Last reviewed: · Updated:
Examples use illustrative figures; rules of thumb are labelled as such. Rates, limits and program rules change - confirm current figures with your lender or a qualified professional.
This definition is provided for general educational purposes and is not financial, legal, tax, or real estate advice. Verify important decisions with appropriately qualified professionals.
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