A seller concession is money the seller agrees to apply toward the buyer’s closing costs at settlement. The purchase price stays the same. The seller returns part of the proceeds to cover costs the buyer would otherwise bring in cash. Every major loan program caps how much a seller can contribute, and the cap depends on the loan type, the down payment and how the buyer will occupy the property. Most programs bar concessions from covering a down payment, and no concession can exceed the buyer’s actual closing costs.
Key takeaways
- A seller concession pays the buyer’s closing costs. It is not a reduction in the contract price.
- Lenders call these interested party contributions, or IPCs. The loan program sets the cap, not the buyer, seller or agent.
- Conventional caps run from 2% to 9% of the price depending on down payment and occupancy. FHA and USDA cap at 6%. VA uses a split structure.
- Most programs bar concessions from covering a down payment, financial reserves or cash back to the buyer.
- A concession cannot exceed the buyer’s actual closing costs. Any unused portion does not convert to cash.
What is a seller concession?
A seller concession is a credit the buyer and seller negotiate and write into the purchase agreement. It appears on the closing disclosure as a seller-paid item and reduces the cash the buyer wires at settlement. The same arrangement goes by several names, including seller-paid closing costs, seller contributions and seller credits. Lenders use the term interested party contribution, which is broader. An interested party is anyone with a financial stake in the transaction, including the seller, the builder, the developer and the real estate brokerages involved. All contributions from all interested parties count against a single combined cap.
Both parties must disclose concessions to the lender. Undisclosed side agreements, such as an off-contract payment or an item of value the seller leaves behind for the buyer, can violate the loan terms.
What can a seller concession pay for?
Eligible costs are the ones a buyer normally pays at closing. Common items include:
- Loan origination and underwriting fees
- Discount points, including points used for a rate buydown
- Appraisal and credit report fees
- Title insurance, settlement and recording fees
- Prepaid property taxes and homeowners insurance
- Escrow account deposits
- HOA dues, which conventional guidelines allow a buyer to prepay up to 12 months
Costs that generally do not qualify include the down payment, financial reserves required by the lender, personal property, furniture and moving expenses. Program rules differ on home warranties and repair credits, so those two items raise a lender question rather than follow a general rule.
How much can a seller contribute?
The loan program sets the cap and measures it against either the sale price or the appraised value, depending on the program. The figures below reflect published agency guidelines.
| Loan type | Buyer situation | Contribution cap |
|---|---|---|
| Conventional | Primary or second home, less than 10% down | 3% |
| Conventional | Primary or second home, 10% to 24.99% down | 6% |
| Conventional | Primary or second home, 25% or more down | 9% |
| Conventional | Investment property, any down payment | 2% |
| FHA | All occupancy types | 6% |
| USDA | Eligible rural properties | 6% |
| VA | Eligible borrowers | Customary closing costs, plus 4% in concessions for specified items |
How is a concession different from a price reduction?
The two move different numbers. A price reduction lowers the contract price, which lowers the loan amount, the down payment in dollars and the monthly principal and interest. It also becomes the recorded sale price used in future comparable sales. A concession leaves the contract price intact and reduces the cash the buyer needs on closing day.
Which one carries more value to a given buyer depends on whether that buyer is short on cash at the table or short on monthly room in the budget. That comparison runs through the loan file, so a lender and an agent are the two people positioned to run it.
How do buyers request a seller concession?
- Confirm the cap first. Ask the lender for the maximum IPC on the specific loan program and down payment before a number goes in the offer.
- Get an estimate of actual closing costs. The concession cannot exceed them, so a request above that figure has no effect.
- Write it into the offer. Concessions are stated in the purchase agreement as a dollar amount or a percentage of the price.
- Ask the agent for local context. An agent can pull what concessions were recorded on comparable closings in the same market and price band.
- Treat it as one term among several. Price, closing timeline, contingencies and possession all sit on the same negotiation.
What limits a concession at closing?
Four things narrow the number. The program cap sets the ceiling. Actual closing costs set a second ceiling, since the credit cannot exceed them. The appraisal matters because several programs calculate the cap against the lesser of the sale price or the appraised value. And the down payment restriction applies across most programs, so concession dollars cannot be redirected to cover it.
A local agent can walk through how concessions are typically structured in a specific market and price range.
When is a concession finalized?
A concession is negotiated in the purchase agreement, but it is not settled at that point. The lender reviews it during underwriting against the program cap and against the buyer’s actual closing costs, and either figure can pull the number down. What governs at the table is the amount shown on the closing disclosure, which federal rules require the buyer to receive at least three business days before closing.
That timing has a practical effect. A concession renegotiated late in the transaction, after an inspection or an appraisal for example, can require a revised closing disclosure and restart the three-day waiting period. Agents and lenders generally surface concession changes as early as the facts allow for that reason.
Frequently asked questions
What is a seller concession?
A seller concession is money the seller agrees to apply toward the buyer’s closing costs at settlement. The contract price does not change. The credit appears on the closing disclosure and reduces the cash the buyer brings to closing. Lenders refer to these as interested party contributions.
What is the maximum seller concession on a conventional loan?
Conventional caps depend on down payment and occupancy. For a primary or second home, the cap is 3% with less than 10% down, 6% with 10% to 24.99% down and 9% with 25% or more down. Investment properties are capped at 2% regardless of down payment.
Can seller concessions be used for a down payment?
No. Fannie Mae states that interested party contributions cannot be applied to the down payment, financial reserves or the borrower’s minimum required contribution. Other programs carry similar restrictions. Concessions apply to closing costs and prepaid items only.
Do seller concessions lower the purchase price?
No. The contract price stays the same and is the figure recorded as the sale price. A concession reduces the buyer’s cash requirement at closing rather than the amount financed.
Can a seller concession pay for a mortgage rate buydown?
Discount points are an eligible closing cost on most programs, so concession funds can be applied to a buydown. The cost of the buydown counts against the same contribution cap as every other seller-paid item. A lender can confirm eligibility for a specific loan program.
What happens if the concession exceeds the buyer’s closing costs?
The excess does not go to the buyer as cash. Depending on the program and the amount, the credit is reduced to match actual costs, or the contract is amended. Contributions above program limits can require a dollar-for-dollar reduction in the price used to calculate the maximum loan amount.
Who counts as an interested party?
An interested party is anyone with a financial stake in the transaction, including the seller, the builder, the developer and the real estate brokerages involved. Contributions from all interested parties are combined and measured against a single cap.
