A seller’s concession is an amount of money paid toward closing on your behalf. Generally, this money is used to pay for closing costs, but sellers occasionally concede money if they realize their carpets are gross and need to be replaced or that their garage needs repairs they don’t really want to make.
In most cases, the seller’s concessions may look like a gift, but they’re really just a legal way to allow you to roll the closing costs of your transaction into your loan. Don’t expect it to be simple, though. No matter what you’ve got to offer, the sellers have already decided on a final cash price they need from their home, so they’ll counter your offer with seller concessions until a final deal has been reached that gets them to their magic number. Sometimes, that’s going to drive your contract amount over the sales price, but as long as the home will appraise, it’s fine.
The amount a seller can contribute varies widely between loan products. In general, a conventional loan allows anywhere from two to nine percent of your new home’s sales price in seller concessions, a VA up to four and FHA and USDA loans allow six percent in seller concessions. For buyers who are cash poor, this is great news because it means they’ll still be able to buy. If sellers weren’t allowed to give this money to buyers on paper, it would have long-reaching effects on the real estate market.