What is a seller's concession?

A seller's concession, also known as a seller's contribution, is a term commonly used in real estate transactions. It refers to an arrangement where the seller agrees to contribute a certain amount of money towards the buyer's closing costs or other expenses associated with the purchase of the property. This concession is typically negotiated as part of the sales contract between the buyer and seller.

Here are a few key points about seller's concessions:

1. Closing Costs: Closing costs are the fees and expenses that are incurred during the transfer of ownership of a property. They can include items such as loan origination fees, title insurance, appraisal fees, attorney fees, and more. Seller's concessions can help the buyer by covering some or all of these costs.

2. Negotiation: The amount of the seller's concession is negotiable between the buyer and seller. It is usually expressed as a percentage of the property's sale price or as a fixed dollar amount. The specific terms and conditions of the seller's concession are outlined in the purchase agreement or contract.

3. Limits and Guidelines: There may be limits on the amount of seller's concessions that can be provided based on the type of loan being used. For example, certain loan programs, such as those insured by the Federal Housing Administration (FHA), have specific guidelines regarding the maximum allowable seller's concessions. These limits are in place to prevent excessive concessions that could potentially inflate the property's value.

4. Purpose and Benefits: Seller's concessions are often used as a way to facilitate the sale of a property by attracting buyers who may have limited funds available for closing costs. By offering to contribute towards these expenses, sellers can make their property more appealing to potential buyers. Buyers, on the other hand, can benefit from reduced upfront costs or have more funds available for other purposes, such as making a larger down payment.

It's important to note that each real estate transaction is unique, and the terms of a seller's concession can vary. It's advisable for both buyers and sellers to consult with their real estate agents or attorneys to understand the implications and specifics of a seller's concession in their particular situation.