By Thomas Roberts | RealtorTom
New York State Licensed Real Estate Salesperson
William Raveis Real Estate
A buyer may be comfortable with the monthly mortgage payment but still need help with closing costs. A seller may want another way to negotiate and keep a transaction moving. A seller concession can sometimes help bring those needs together.
For buyers and sellers in Westchester County and across New York, understanding how a credit affects financing, cash needed at closing, and the seller’s proceeds is essential.
What Is a Seller Concession?
A seller concession commonly takes the form of a negotiated contribution toward the buyer’s eligible closing costs. You may also hear it called a seller credit.
The credit is applied through the closing process. It is not simply cash handed to the buyer to spend however they choose.
Depending on the mortgage program and lender approval, eligible expenses may include:
- Loan origination fees
- Mortgage discount points
- Appraisal fees
- Title insurance and related charges
- Attorney fees
- Recording fees
- Certain mortgage insurance costs
- Prepaid homeowners insurance and tax escrow deposits
Your lender should confirm which expenses qualify before you negotiate the credit.
A $600,000 Example
Suppose a buyer agrees to purchase a home for $600,000, with a $15,000 seller credit toward eligible closing costs.
If the lender approves the full credit and the buyer has enough eligible expenses, it can reduce the buyer’s cash needed at closing by $15,000.
The contract price remains $600,000. The seller receives $585,000 before other selling expenses and any mortgage payoff. That amount is not the seller’s final net proceeds.
Seller Credit Versus Price Reduction
A price reduction and a closing cost credit solve different financial needs.
A price reduction lowers the agreed purchase price and may reduce the loan amount and monthly payment.
A seller credit helps pay eligible closing expenses and may reduce the cash the buyer needs to bring to closing.
A $15,000 price reduction does not necessarily reduce the buyer’s immediate cash requirement by $15,000. Ask your lender to compare both options using the same loan assumptions.
When Might Seller Concessions Help?
- A buyer has a down payment but needs help with eligible closing expenses.
- A seller wants another way to respond to an offer.
- A property has been on the market and the seller wants to encourage interest.
- Inspection negotiations lead the parties to consider an approved credit.
- A buyer is considering lender-approved discount points or an interest rate buydown.
Concessions are negotiable. They do not guarantee a faster sale or a successful closing.
Benefits and Tradeoffs for Buyers
Lower Cash Needed at Closing
An approved credit can reduce upfront closing expenses, allowing the buyer to retain more of their own savings after the purchase.
Those retained savings may be useful for moving, furnishings, maintenance, or emergencies. The credit itself, however, is not a cash allowance for those purchases.
Mortgage Qualification Still Matters
A seller concession does not automatically make a buyer qualify for a mortgage. The lender still reviews income, credit, debts, required funds, and the property.
A Higher Price Can Increase Borrowing Costs
If the parties negotiate a higher purchase price to help offset the credit, the buyer may borrow more and pay more interest. Review the monthly payment and total borrowing costs before deciding.
Benefits and Tradeoffs for Sellers
A seller credit provides another negotiating option and may help a qualified buyer move forward. However, it reduces the seller’s proceeds.
Compare offers by reviewing the price minus credits, along with financing, contingencies, timing, and other terms.
For example, a $600,000 offer with a $15,000 credit and a $585,000 offer without that credit have the same starting amount before other expenses. Their final costs and transaction risks can still differ.
Review the credit with your lender and attorney before closing.
Mortgage Limits and Unused Credits
There is no single concession limit for every mortgage. The loan program, occupancy, loan-to-value ratio, and lender requirements matter.
For Fannie Mae loans, financing contributions cannot fund the buyer’s down payment or satisfy required reserves. Contributions exceeding eligible closing costs require different underwriting treatment. Other mortgage programs have their own requirements.
Do not assume unused credit will become cash back. Ask your lender and attorney what happens if the final eligible costs are less than the negotiated credit.
Read the Fannie Mae guidance on interested party contributions for more information.
Appraisals and Inspection Repairs
Increasing the contract price does not establish the home’s market value. The appraisal and the lender’s financing requirements still matter.
If the appraisal is below the contract price, the parties may need to revisit the price, credit, financing, or buyer’s cash contribution.
A repair credit also may not satisfy a lender’s requirement to correct a property condition before closing. Confirm whether the issue requires actual repairs rather than a credit.
How to Approach Concessions in New York
- Start with the lender. Obtain an estimate of eligible expenses and the permitted contribution.
- Compare the options. Review cash to close, monthly payments, borrowing costs, and seller proceeds.
- Have your attorney document the agreement. Clear contract language should reflect the negotiated terms.
- Keep the lender informed. Disclose credits and any changes to the agreement.
- Review the closing paperwork. Confirm the credit matches the agreement and is applied correctly.
The Consumer Financial Protection Bureau’s Closing Disclosure explainer can help buyers review their closing documents.
Frequently Asked Questions
Is a seller concession the same as a price reduction?
No. A price reduction lowers the purchase price. A seller credit contributes toward eligible buyer costs through closing.
Can a seller credit pay my down payment?
Do not plan on using a closing cost credit for your down payment. Fannie Mae prohibits that use of interested party contributions. Your lender must confirm the rules for your mortgage program.
Do concessions automatically make a buyer qualify for a mortgage?
No. They may reduce upfront cash needs, but the lender still evaluates income, credit, debts, required funds, and the property.
Can a credit replace inspection repairs?
Sometimes a negotiated credit can address an inspection concern, but it may not replace repairs the lender requires before closing.
Does the seller have to agree to a concession?
No. Seller concessions are negotiated. The seller should consider the effect on proceeds and the overall offer terms.
Make the Numbers Work Before You Negotiate
A properly structured seller concession can help bridge a cash-to-close gap and give both parties another way to reach an agreement.
The best starting point is a clear lender estimate and a careful comparison of the buyer’s costs and seller’s proceeds.
Planning to buy or sell in Westchester County? I’m Thomas Roberts, RealtorTom, with William Raveis Real Estate. I can help you compare your real estate options and coordinate the conversation with your lender and attorney.
Explore more financing resources on The Money Page.
Considering a co-op? Read Buying or Selling a Co-op in Westchester.
This article provides general education, not legal, tax, or mortgage advice. Consult your attorney and lender about your transaction. Mortgage program requirements can change.
