Sales Concession
Definition and meaning of Sales Concession in real estate.
A sales concession is a financial incentive offered by a property seller to reduce the buyer's out-of-pocket costs at closing. This arrangement typically involves the seller paying a portion of the buyer's transaction fees, loan origination costs, or property repair expenses to facilitate the transaction.
In more detail
Sellers commonly offer these concessions in a buyer's market, where properties sit on the market longer and buyers have more leverage. The concession is typically structured as a credit at closing, which reduces the amount of cash the buyer must bring to the table. Lenders regulate concessions carefully because they can artificially inflate the sales price of a home.
Government-backed and conventional loans have strict percentage limits on concessions, which are calculated based on the sales price or appraised value. Buyers and sellers must document any concession in the purchase contract and receive approval from the mortgage lender.
Key facts
| Category | Buying & Selling |
|---|---|
| Also known as | Seller contribution, seller credit |
| Watch out for | Lender limits on concession percentages |
| Who pays | The property seller |
A seller lists a home for $300,000, and a buyer offers the full price but requests a 3 percent sales concession of $9,000 to cover their closing costs, allowing the transaction to proceed because the buyer has limited cash on hand.
Frequently asked questions
Does a sales concession reduce the home price?
No, a sales concession does not lower the sale price on paper. Instead, it provides a cash credit to the buyer at closing, which helps cover transaction costs without changing the official purchase price of the home.
Can a seller pay all of a buyer's closing costs?
It depends on the loan type. Most mortgage programs, including conventional, FHA, and VA loans, place strict limits ranging from 2 to 9 percent of the purchase price on how much a seller can contribute.