For many Colorado Springs homebuyers, the biggest challenge is not qualifying for the monthly mortgage payment. It is having enough money available for everything due at closing.
Buying a home involves more than making a down payment. Buyers may also need money for lender fees, title expenses, homeowners insurance, property taxes, prepaid interest, and other closing costs. Depending on the loan and property, buyers are often advised to estimate approximately 2% to 5% of the loan amount for closing costs and prepaid expenses.
This is where a seller concession may help.
What is a seller concession?
In the simplest terms, a seller concession is money the seller gives the buyer at the closing table to help pay the buyer’s approved homebuying expenses.
The buyer does not receive cash to spend however they choose. The concession appears as a credit on the closing statement and must be applied toward expenses permitted by the buyer’s lender and loan program.
A seller concession may help pay for lender fees, title expenses, prepaid homeowners insurance, property taxes, prepaid interest, or an interest-rate buydown.
A simple seller concession example
Imagine a buyer is purchasing a Colorado Springs home for $500,000.
In addition to the down payment, the buyer needs another $15,000 for closing costs and prepaid expenses.
The buyer asks the seller for a $10,000 concession, and the seller agrees.
That $10,000 is applied to the buyer’s approved expenses at closing. Instead of bringing the full $15,000 for those expenses, the buyer may need to bring only $5,000.
The seller is using $10,000 of the sale proceeds to help the buyer complete the purchase.
How much can a seller contribute?
The maximum allowed depends on the buyer’s loan type, down payment, occupancy, actual eligible expenses, and lender approval.
Conventional loan for a primary residence or second home
- Less than 10% down: Up to 3%
- 10% to 24.99% down: Up to 6%
- 25% or more down: Up to 9%
For a conventional investment-property purchase, the limit is generally 2%, regardless of the down payment.
FHA loan
- Up to 6% of the sales price
USDA loan
- Up to 6% of the sales price
VA loan
- Up to 4% of the home’s established reasonable value for items the VA defines as seller concessions
VA loans are different because the seller may also pay certain customary buyer closing costs and reasonable discount points without those amounts counting toward the 4% seller-concession limit.
These percentages are maximum limits, not guaranteed amounts. The buyer cannot receive more than the eligible costs allowed by the lender and loan program.
Are seller concessions guaranteed?
No. Seller concessions are always property-specific and must be negotiated.
Some sellers do not have enough equity or expected proceeds from the sale to contribute toward the buyer’s expenses. Other sellers may be willing to help, depending on the home’s price, condition, competition, and market activity.
In our market, 67% of the transactions that closed during July and August included seller concessions. That tells us concessions are common, but it does not mean every seller or property will offer them.
When could asking for a concession weaken an offer?
If a highly desirable home is marketed below its perceived market value, it may receive multiple offers.
In that situation, a buyer requesting a large concession may appear less competitive than a buyer who is not requesting assistance. The seller may prefer the offer that produces stronger net proceeds and includes fewer financial requests.
Before writing an offer, I look at the specific property, its pricing, showing activity, competing offers, the seller’s likely position, and the buyer’s financial priorities.
Sometimes requesting a concession makes sense. Sometimes strengthening the offer is more important.
What does this mean for a seller?
A seller concession is not automatically a bad financial decision.
For example, a $500,000 offer with a $10,000 concession may provide the seller with a better result than reducing the price to $485,000. The complete offer must be evaluated, including the seller’s net proceeds, the buyer’s financing, appraisal risk, inspection terms, and likelihood of closing.
The simplest explanation
For a buyer: The seller is helping pay some of the additional costs of purchasing the home, allowing the buyer to bring less money to closing.
For a seller: The seller is using part of the sale proceeds to help the buyer afford the upfront cost of purchasing the home.
Seller concessions can be a powerful affordability tool, but they are never guaranteed. The right strategy depends on the individual property, the seller’s equity, the competition, the buyer’s loan, and the maximum contribution allowed.
If you are buying or selling a home in Colorado Springs, Monument, Briargate, Black Forest, Falcon, Fountain, or elsewhere in El Paso County, I can help you understand how a seller concession could affect your cash needed at closing, monthly payment, offer strength, or net proceeds.
