When most people start preparing to buy a home, their biggest financial focus is usually the down payment.
But there's another expense that often catches buyers off guard: closing costs.
Between lender fees, title and escrow charges, prepaid insurance, and other expenses, the amount of cash needed to purchase a home can add up quickly.
What many buyers don't realize is that some of those costs may be negotiable.
One of the strategies I discuss with buyers is asking the seller to contribute toward their closing costs through something called seller concessions.
Depending on the property, financing, and terms of the offer, this can potentially save buyers thousands of dollars in upfront expenses.
Here's what you should know before purchasing a home in Phoenix, Scottsdale, or anywhere in the Valley.
What Are Seller Concessions?
Seller concessions are contributions a home seller agrees to make toward certain expenses associated with the buyer's purchase.
Instead of the buyer paying every eligible closing expense out of pocket, the seller agrees to cover a portion of those costs at closing.
For example, imagine you're purchasing a $450,000 home in Phoenix.
You negotiate for the seller to contribute 2% of the purchase price toward your eligible closing costs.
That's $9,000.
Depending on your financing and actual closing expenses, that $9,000 could help cover costs you would otherwise need to pay yourself.
And for many buyers, keeping an additional $9,000 in their savings account after purchasing a home can make a meaningful difference.
The important thing to understand is that seller concessions aren't automatically included in a transaction. They're something that must be negotiated and agreed upon.
What Can Seller Concessions Pay For?
Seller concessions can potentially cover several expenses associated with purchasing a home.
Depending on your loan program and lender requirements, eligible expenses may include:
Loan origination and certain lender fees
Title and escrow charges
Appraisal and other eligible transaction costs
Prepaid homeowners insurance
Certain prepaid property taxes and escrow account deposits
Mortgage discount points used to lower your interest rate
Other closing expenses permitted by your lender
One important distinction: seller concessions generally cannot be used toward your required down payment.
They're intended to help with eligible transaction expenses, not replace the buyer's required investment in the property.
The amount you can receive also depends on your loan type, down payment, and actual eligible costs.
That's why I always recommend discussing concession options with your lender before submitting an offer.
How Much Can a Seller Contribute?
The amount a seller can contribute depends largely on the financing you're using.
For many conventional loans backed by Fannie Mae, contribution limits for a primary residence or second home are based on the loan-to-value ratio.
Generally, the limits are:
Less than 10% down: Up to 3% in eligible financing concessions.
10% to less than 25% down: Up to 6%.
25% or more down: Up to 9%.
Investment properties generally have a lower 2% limit.
These percentages are calculated using the lower of the purchase price or appraised value, and additional loan requirements apply.
Other loan programs, including FHA, VA, and USDA loans, have their own rules.
These are maximum allowable contributions—not amounts sellers are required to offer.
And even when your loan program allows a higher percentage, the credit generally cannot exceed your actual eligible closing costs.
The goal is to negotiate an amount that makes sense for your particular transaction.
Seller Concessions vs. a Price Reduction: Which Is Better?
This is one of the most interesting conversations I have with buyers because the answer isn't always what people expect.
Let's say you're purchasing a home listed for $450,000.
You have two possible scenarios.
Option 1: Negotiate a Lower Purchase Price
The seller agrees to reduce the price by $9,000.
Your new purchase price is $441,000.
This reduces the amount you're paying for the home and, depending on your financing, may slightly reduce your monthly mortgage payment.
Option 2: Negotiate Seller Concessions
Instead of reducing the price, the seller agrees to contribute $9,000 toward your eligible closing expenses.
Your purchase price remains $450,000, but you may need significantly less cash at closing.
Neither option is automatically better.
A lower purchase price can reduce your loan balance and long-term borrowing costs.
Seller concessions can help you preserve cash, which may be especially valuable if you're purchasing your first home or planning improvements after moving in.
It's also important to remember that financing a higher purchase price can increase your mortgage balance and interest costs over time.
The best approach depends on your priorities, the property's appraised value, and the financing available to you.
Can Seller Concessions Help Lower Your Mortgage Interest Rate?
Yes, and this is where concessions can become particularly interesting.
Some buyers choose to use seller contributions toward mortgage discount points.
Discount points are upfront fees paid to a lender in exchange for a lower mortgage interest rate.
For example, a buyer might negotiate a seller credit and apply part of that credit toward reducing their interest rate.
Depending on the lender's pricing, this could lower the buyer's monthly mortgage payment.
However, the amount of the rate reduction varies, and paying points doesn't always make financial sense.
A buyer who expects to keep the same mortgage for many years may evaluate the benefit differently than someone planning to refinance or move relatively soon.
Before deciding, I recommend asking your lender to compare the total costs, monthly payments, and break-even periods for each option.
A lower advertised interest rate isn't necessarily the best financial decision if achieving it requires substantial upfront costs.
Why Would a Seller Agree to Pay a Buyer's Closing Costs?
It's a fair question.
Why would someone selling their home agree to contribute thousands of dollars toward the buyer's expenses?
Because real estate negotiations involve more than just the purchase price.
A seller may be willing to offer concessions if doing so helps them secure an acceptable offer, avoid additional time on the market, or move forward with their next purchase.
For example, a seller may prefer an offer at their asking price with a negotiated closing-cost credit rather than a lower purchase price.
Of course, that depends on the seller's financial goals and the overall terms of the transaction.
In a competitive multiple-offer situation, requesting substantial concessions could make an offer less attractive.
But when a property has been available for a while, needs updates, or has limited buyer interest, concessions may be worth exploring.
Every property and negotiation is different.
Don't Forget About New Construction
Seller concessions aren't limited to resale homes.
When purchasing new construction in the Phoenix area, buyers may encounter builder incentives that help cover eligible closing costs or mortgage rate buydowns.
Some builders also offer incentives for using a preferred lender.
These promotions can be appealing, but I always encourage buyers to look beyond the headline incentive.
Compare the actual purchase price, financing terms, closing expenses, and any restrictions attached to the offer.
A generous incentive doesn't automatically mean you're getting the best overall deal.
It's important to evaluate the complete financial picture.
The Biggest Mistake Buyers Make With Seller Concessions
One mistake buyers can make is focusing entirely on the amount of the concession without considering the full offer.
For example, negotiating $15,000 in seller concessions might sound better than negotiating $8,000.
But if your lender only allows you to use $8,000 toward eligible expenses, the additional credit may not provide the benefit you expected.
Another consideration is the appraisal.
If you increase the purchase price to accommodate a larger seller credit, the property still needs to support that price for financing purposes.
That's why I believe the lender and real estate agent should work together before an offer is submitted.
A well-structured offer should account for the purchase price, available financing, seller contributions, and the buyer's overall financial goals.
What I Want Buyers to Understand Before Making an Offer
Buying a home is one of the largest financial decisions most people make.
And while finding a beautiful home is exciting, understanding how to structure the purchase is just as important.
Sometimes the best opportunity isn't necessarily the home with the lowest asking price.
It may be a property where the seller is willing to negotiate terms that better support your financial situation.
That could mean a price reduction.
It could mean assistance with closing costs.
It could mean a mortgage rate buydown.
Or it could mean a combination of terms that makes sense for both parties.
The key is understanding your options before you start negotiating.
When I'm working with buyers, I want them to understand not only what they're offering for a property but also how the terms of that offer can affect their finances.
Because a successful home purchase isn't just about getting the keys.
It's about feeling confident in the decision you made to get there.
Thinking About Buying a Home in Phoenix or Scottsdale?
Whether you're purchasing your first home, relocating to Arizona, or preparing for your next move, having the right strategy can make a difference.
I'd love to help you explore available homes, understand your negotiating options, and work toward a purchase that fits your goals.
Let's find the right home—and make sure you understand all your options along the way.
Kelly Sanchez | REALTOR® | Compass | The Klibanoff Team