In real estate negotiations, concessions are incentives offered by one party to make a transaction more attractive and to bridge gaps between price, terms, and buyer financing. Understanding what are concessions in real estate is essential for both first-time buyers and seasoned investors. Concessions can lower the effective cost of buying a home, smooth out loan approval hurdles, or help sellers stand out in a competitive market.
Concessions can take many forms. They are typically payments or credits that reduce closing costs, but they can also be items the seller agrees to repair, replace, or credit toward updates after closing. The core idea is to create value without dramatically altering the negotiated purchase price. When structured correctly, concessions benefit both sides: buyers preserve cash reserves, and sellers attract more offers or secure a quicker close.
Types of real estate concessions
Closing cost credits are among the most common concessions. A seller may contribute a portion of the buyer’s closing costs at closing, reducing out-of-pocket expenses for the buyer. Rate buy-downs are another popular option, where a seller or lender finances a temporary reduction in the interest rate, lowering monthly payments. A seller can also include a home warranty to cover repairs for a year or more, offering peace of mind to the buyer. In some cases, the seller provides a credit for home improvements or to cover certain repairs after closing. Prepaid items such as property taxes, insurance, or HOA dues can be bundled into concessions as well. Finally, concessions may address underwriting or appraisal contingencies, helping to bridge gaps where financing or valuation challenges arise.
Who can offer concessions?
Concessions are most commonly offered by sellers, but buyers and lenders can also participate under certain conditions. In practice, seller concessions are used to make a deal more appealing in competitive markets or when a buyer needs help meeting the closing costs. In a hot seller’s market, concessions may be limited or carefully calibrated; in a buyer’s market, buyers may request more substantial concessions. The key is to align concessions with the overall strategy, ensure they fit the loan program, and meet lender guidelines.
How to negotiate concessions effectively
Begin with a clear plan: know your budget, your maximum price, and your target monthly payment. Work with a real estate professional to craft an offer that includes concessions without inflating the price beyond value. Always document concessions in the contract with precise dollar amounts and terms. Consult your lender to understand which concession types are allowed and how they affect the loan, pricing, and appraisal. Be prepared for pushback and have alternative terms ready, such as a smaller price with larger credits or a credit for repairs instead of cash elsewhere.
For a detailed exploration of how these strategies work in practice, you can read the article what are concessions in real estate for examples and guidance on calculating the impact on your cash to close and evaluating different concession scenarios across offers.
Practical considerations and risks
While concessions can simplify closing and improve the attractiveness of a deal, they can also complicate financing or appraisal. Lenders may scrutinize the source of funds and verify that concessions comply with loan guidelines. If the contracted price remains high and concessions are substantial, the appraisal may come in lower than expected, triggering renegotiation. Always coordinate with your lender and real estate professional to keep the deal aligned with your financial goals and the property’s value.
For more guides, tips, and tools, visit the FJREO homepage for a broad set of real estate resources and negotiation strategies.