Seller concessions are costs the seller agrees to pay on the buyer's behalf, usually toward closing costs, as part of the deal. For buyers, they can mean bringing less cash to closing. For sellers, offering them can keep a sale on track without cutting the price. Here's how they work in California, what they can and can't cover, and the lender limits that cap them.

What are seller concessions?

Seller concessions, also called seller credits or seller contributions, are money the seller puts toward the buyer's costs at closing. They're negotiated in the purchase contract and show up as a credit to the buyer on the Closing Disclosure. The buyer still pays the agreed price. The seller simply nets less.

In California, the standard purchase agreement includes a place for a seller credit toward the buyer's closing costs. A credit agreed to later, such as after the inspection, is put in writing in a signed addendum or repair request so escrow and the lender can apply it.

Concessions usually come up in one of three ways: written into the original offer, negotiated after the inspection as a credit instead of repairs, or offered by a seller up front to attract buyers. A credit after inspection is often simpler than asking the seller to make repairs before closing, because you control who does the work and how.

What seller concessions can cover

Concessions generally have to go toward actual closing costs and prepaid items. Common uses include:

• loan fees, appraisal and credit report charges

• title insurance and escrow fees

• prepaid property taxes, homeowners insurance and interest

• HOA transfer fees and similar charges

• discount points to buy down your interest rate, either for the life of the loan or temporarily

What they usually can't do: count toward your down payment, give you cash back at closing or exceed your actual closing costs. If a credit is larger than your allowable costs, the extra is typically lost or the price gets adjusted, so size the request to what you'll actually use. Ask your lender for an estimate before you write a number into an offer. More on closing costs for first-time buyers.

When sellers are more willing to offer concessions

Concessions are a negotiation, and leverage depends on the property and the market. Sellers tend to be more open to them when:

• the home has been on the market longer than similar homes nearby

• the inspection turned up items the seller doesn't want to fix before closing

• the seller has already bought another home or needs a firm closing date

• there are few competing offers, or prices in the area have softened

In a competitive situation with multiple offers, a request for concessions can weaken your offer. Your agent can tell you whether the listing will support one. If you're up against other buyers, see how to strengthen an offer without raising your price.

Pros and cons for buyers and sellers

For buyers, concessions keep more cash in your pocket for reserves, moving and the first repairs. The tradeoff is that you're often paying a slightly higher price to get them, which means a slightly larger loan. The home also still has to appraise at the contract price.

For sellers, a credit can be a better move than a price cut. It can widen your pool of buyers, especially first-time buyers who are short on cash at closing, and it can protect your list price as a comparable for future sales. The cost is a lower net. If you're selling to buy, run your net proceeds both ways before you agree, so your next down payment isn't the thing that shrinks.

Lender limits on seller concessions

Lenders cap how much a seller can contribute, both to keep prices from being inflated and to make sure buyers have their own money in the deal. Typical limits:

• Conventional loans on a primary home: 3% of the price with less than 10% down, 6% with 10% to 25% down and 9% with more than 25% down. Investment properties are generally limited to 2%.

• FHA loans: up to 6%.

• VA loans: the seller can pay normal closing costs, plus concessions of up to 4%.

• USDA loans: up to 6%.

Program rules change, and some lenders add their own limits, so confirm with your lender before you negotiate. If the seller is also covering your agent's compensation, ask your lender how that's treated in your loan.

What to do next

Before you make an offer, get a closing cost estimate from your lender so you know how much a credit would actually help and what your loan allows. A fully reviewed pre-approval puts you in a stronger spot to negotiate. When you're ready, search homes across the East Bay.

Want help deciding whether to ask for, or offer, a seller credit? Call or text 925-876-0876, or reach us here.

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