When you ask “what does ‘concessions’ mean in real estate?”, concessions are incentives or credits offered by one party—typically the seller or lender—to cover costs like closing fees, repairs or rent incentives, making a transaction more attractive.
Concessions reduce upfront expenses for buyers, help sellers differentiate their listing in competitive markets and give renters flexibility through move-in specials or deposit discounts.
Sellers commonly agree to pay appraisal fees, title insurance, inspection costs, attorney fees, property taxes or offer credits for inspection-related repairs, easing buyers’ cash needs.
Lenders may provide credits to offset origination fees or buy down interest rates. Borrowers often accept a slightly higher rate in exchange for points that lower closing costs.
Landlords use free-rent periods, deposit reductions, tenant improvement allowances or flexible lease terms to attract tenants and fill vacancies faster.
Concessions shift fees from buyer to seller or lender, potentially eliminating or reducing the cash required at closing.
Some concessions roll into the loan principal, increasing the amount financed, while lender-credited points can lower your rate and monthly payment.
A price reduction lowers the sale price upfront—which may affect appraisal comparisons—whereas a concession is a credit applied to specific costs without altering the contract price.
FHA loans cap seller concessions at 6% of the lesser of sale price or appraised value. Allowed uses include closing costs, prepaid items and discount points for the buyer.
VA loans permit sellers to pay all buyer closing costs plus up to 4% of the loan amount toward fees and prepaid items, but sellers cannot pay discount points on the buyer’s behalf.
Conventional loans limit seller concessions to 3% of the purchase price with less than 10% down, 6% with 10–24% down and 9% when the down payment is 25% or more.
Include a clear line item or credit request in the purchase agreement specifying the type and dollar amount of concessions to avoid misunderstandings at closing.
Request concessions when market conditions favor buyers—such as in a slower market—or after an appraisal shortfall when sellers are motivated to close.
Negotiate trade-offs between a higher sale price with closing credits or a lower price without credits to find the optimal net outcome for both parties.
Most concessions applied to closing costs aren’t treated as taxable income for buyers. Always verify with a tax professional based on your situation.
Appraisers base value on comparable sales and contract price. Properly disclosed credits shouldn’t reduce the appraisal if they’re within allowable limits.
Full disclosure of all credits and concessions is required by lenders and regulatory agencies. Written agreements and lender approval ensure compliance.
Concessions are typically credited at closing and do not increase the contract sale price, though some deals roll credits into a slightly higher price and finance the difference.
Lender credits originate from the lender in exchange for rate adjustments, while seller concessions are negotiated directly between buyer and seller.
Seller concessions don’t alter your interest rate. Rate changes occur through lender-credited points negotiated separately from seller credits.
Yes. Landlords often prorate free-rent periods, combine move-in specials and deposit waivers to create tailored leasing packages.
If credits exceed lender caps based on loan-to-value, the lender will reduce the allowable concessions and the buyer must cover any excess out of pocket.
