By Sylvia Dorrance, REALTOR®, eXp Realty
What is a seller concession?
A seller concession, also called an interested party contribution, is money the seller agrees to pay toward your costs in the transaction. It commonly covers closing costs such as origination and title fees, prepaid items like property taxes and homeowners insurance, and sometimes discount points. The contribution is written into the purchase agreement and reduces the cash you need at closing. Because it is part of the negotiated price, the seller typically reflects the credit in how the final price is set. It is not a gift on top of the deal; it is a shift in how the transaction is paid. The amount allowed is set by your loan program and your down payment, not by the seller or the market. Understanding that limit first is what makes the rest of the negotiation concrete, because every dollar of the credit has to fit inside the rule for your loan type.
Why concessions come up in the Boise area
In the Boise area, known locally as the Treasure Valley, concessions are often part of the conversation when a buyer wants to reduce cash to close, or when an inspection turns up a repair the buyer and seller agree to handle with a credit. In a multiple-offer situation, sellers compare what each offer nets them, so a request for a credit is weighed against offers that don't ask for one. The common thread is that the limit comes from the loan program, so the conversation should start with a lender, not with the offer sheet.
How much can a seller contribute?
| Loan type and down payment | Maximum contribution | Notes |
|---|---|---|
| Conventional, primary or second home, less than 10% down | 3% | Fannie Mae Selling Guide B3-4.1-02 |
| Conventional, primary or second home, 10% to less than 25% down | 6% | Same source |
| Conventional, primary or second home, 25% or more down | 9% | Same source |
| Conventional, investment property, any down payment | 2% | Same source |
| FHA | 6% of the sales price | HUD Handbook 4000.1 |
| VA | 4% of the established reasonable value | Ordinary closing costs excluded |
Conventional loans: the fine print
Fannie Mae's Selling Guide, section B3-4.1-02, sets the conventional limits. They apply to a primary residence or second home and are based on the lower of the purchase price or the appraised value. With less than 10% down, the allowance is 3%; with 10% to less than 25% down, it is 6%; and with 25% or more down, it is 9%. Investment properties are limited to 2% at any down payment. Two other rules matter as much as the percentages. The contribution cannot exceed the buyer's actual closing costs, and it can cover HOA dues for no more than 12 months. If the contribution exceeds what the program allows, the excess is reclassified and treated as a reduction in the purchase price, which affects both the final price and what the appraisal can support.
FHA loans
FHA's rules live in HUD Handbook 4000.1. Interested parties, which includes sellers, agents, builders, developers, and lenders, may contribute up to 6% of the sales price toward the borrower's origination fees, other closing costs, prepaid items, and discount points. Contributions above that amount, or above the buyer's actual costs, are treated as an inducement to purchase and reduce the price dollar for dollar. FHA also does not allow the seller to cover the borrower's minimum required down payment. Because the 6% figure is measured against the sales price, the math is straightforward to check on any given offer.
VA loans
VA treats seller-paid closing costs differently from concessions, and the distinction gives veterans extra room in a negotiation. Under the VA Lender's Handbook, payment of the buyer's customary closing costs is not a concession at all, so a seller can cover those without counting against the limit. True concessions, such as a credit toward the VA funding fee, prepayment of property taxes or hazard insurance, or payoff of the buyer's debts, are capped at 4% of the established reasonable value. Because ordinary costs sit outside the cap, a VA buyer can sometimes receive meaningful seller help and still stay inside the rule.
Other loan programs
Other loan programs have their own limits, and guidelines change periodically. Confirm current limits with your lender before you structure an offer around a contribution.
Sylvia's take
A concession is a negotiation tool, not a bonus. Before you ask for one, talk with your lender about how much your loan allows. Then we can look at whether a credit toward closing costs or a lower price works better for the specific home.
Frequently asked questions
What is a seller concession in real estate?
A credit the seller pays toward your closing costs, prepaid items, or discount points, written into the purchase agreement. The allowable amount is set by your loan program, and it is part of the negotiated price.
How much can a seller contribute on a conventional loan?
On a primary residence or second home, the limit is 3% with less than 10% down, 6% with 10% to less than 25% down, and 9% with 25% or more down. Investment properties are limited to 2%.
What happens if a concession exceeds the limit?
The excess is treated as a reduction in the purchase price, which affects the final price and what the appraisal supports.
Can a seller concession cover my down payment?
Usually not. FHA excludes the minimum required down payment from interested party contributions, and other programs have their own rules. Your lender can confirm what applies to your loan.
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