What Concessions and Credits Are (and Why They Matter)
A concession is anything of value one party gives the other to keep the deal moving without necessarily changing the headline price. In residential transactions, concessions most often show up after inspections, during appraisal/financing friction, or when a buyer’s cash-to-close is tight.
Common forms include: repairs, seller credits (toward closing costs or prepaid items), price reductions, home warranties, rate buydowns (where allowed and feasible), and personal property inclusions (e.g., washer/dryer).
Structuring concessions well is about choosing the tool that solves the real problem: safety/condition risk, affordability/cash-to-close, appraisal constraints, or emotional “value” concerns.
Concession Types and How to Structure Each
1) Repair Requests
What it is: Seller completes specific repairs before closing (or sometimes before appraisal) to address defects found during inspection.
Best used when: The issue is safety-related, could worsen, could affect financing/insurability, or is likely to be flagged by an appraiser or lender (e.g., active leaks, electrical hazards, missing handrails, roof failure, HVAC inoperable).
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How to structure (step-by-step):
- Identify the defect precisely (location, component, symptom).
- Define the standard (e.g., “repair to working order,” “replace,” “remediate,” “per licensed contractor recommendation”).
- Set who performs the work (seller to hire licensed contractor where applicable).
- Set documentation (paid receipts, permits, warranty transfer, photos).
- Set timing (by a specific date or “no later than X days before closing”).
- Set verification (buyer reinspection rights and access window).
Typical phrasing elements: scope + contractor requirements + proof + reinspection.
2) Seller Credits (Closing Cost Credits / Repair Credits)
What it is: Seller provides a credit at closing to reduce buyer’s closing costs and/or prepaid items, or to compensate for repairs the buyer will handle after closing.
Best used when: The buyer needs help with cash-to-close, the repair scope is uncertain, the work is better controlled by the buyer, or the timeline makes pre-closing repairs risky.
How to structure (step-by-step):
- Name the credit clearly (e.g., “Seller to credit Buyer $X toward Buyer’s closing costs and prepaid items”).
- Confirm limits (credits may be capped by loan program; excess may be disallowed or require price adjustments).
- Specify where it appears (credit shown on the settlement statement/closing disclosure).
- Clarify purpose if needed (e.g., “in lieu of repairs identified in inspection report dated…”).
Important: A credit does not fix the property; it shifts responsibility and timing to the buyer.
3) Price Reductions
What it is: Lowering the purchase price to reflect condition issues, appraisal constraints, or market reality.
Best used when: Appraisal is tight, the lender limits credits, or the buyer’s monthly payment needs to drop (especially if credits can’t be used effectively).
How to structure (step-by-step):
- Anchor the reduction to a rationale (inspection findings, contractor estimates, appraisal gap, market comps).
- Confirm downstream effects (loan amount, taxes/insurance escrow, and any percentage-based costs).
- Pair with a clean repair stance when possible (e.g., “price reduced; property sold as-is” except for agreed safety items).
4) Home Warranties
What it is: A service contract that may cover certain systems/appliances for a period after closing, subject to exclusions and service fees.
Best used when: The buyer wants risk reduction for older systems, and the seller prefers a smaller, predictable concession.
How to structure (step-by-step):
- Specify provider and plan level (basic vs. upgraded coverage).
- State who pays and the maximum cost.
- Clarify timing (ordered at closing) and that coverage is subject to provider terms.
Note: Warranties are not a substitute for correcting known material defects; they often exclude pre-existing conditions.
5) Rate Buydowns (Where Applicable)
What it is: Seller funds a temporary or permanent interest rate reduction through lender-approved pricing (often via points), lowering the buyer’s payment.
Best used when: The buyer qualifies but is payment-sensitive, the seller wants to preserve price for appraisal optics, and the loan program allows it.
How to structure (step-by-step):
- Confirm feasibility with lender (program rules, maximum seller contributions, and whether a temporary buydown is permitted).
- Define the cap (e.g., “Seller to contribute up to $X toward rate buydown/points”).
- Make it flexible (if buydown not permitted, funds reallocate to allowable closing costs or price reduction).
6) Personal Property Inclusions
What it is: Including non-realty items (appliances, patio furniture, window treatments) to increase perceived value without changing price.
Best used when: The buyer is emotionally attached to items, the seller can part with them easily, and monetary concessions are constrained.
How to structure (step-by-step):
- List each item specifically (brand/model if possible).
- State condition (often “as-is” for personal property).
- Confirm it is allowed and properly documented in the contract/addenda.
Caution: Personal property rarely solves appraisal or cash-to-close issues; it’s a value/perception tool.
Pros/Cons Comparison: Choosing the Right Tool
| Concession Type | Impact on Appraisal | Impact on Buyer Cash-to-Close | Impact on Seller Net | Transaction Smoothness |
|---|---|---|---|---|
| Repairs | Can help if repairs address lender/appraiser-required items; may reduce condition risk | Neutral (buyer still pays closing costs); may reduce future out-of-pocket | Cost depends on scope; risk of overruns | Can create delays, reinspection scheduling, workmanship disputes |
| Seller Credit | May raise appraisal scrutiny if price is high relative to net; generally acceptable within loan limits | Often best for reducing cash-to-close (if credit applies) | Direct reduction to net at closing | Usually smooth if within lender limits; avoids repair timing |
| Price Reduction | Often best for appraisal alignment; lowers value target | May reduce down payment and some costs, but doesn’t directly pay closing costs | Reduces net; may reduce some seller costs tied to price | Smooth paperwork; minimal logistics |
| Home Warranty | Little to no appraisal effect | Minor help (doesn’t reduce closing costs meaningfully) | Low, predictable cost | Smooth; but may create false confidence if buyer expects too much coverage |
| Rate Buydown | Can preserve price while improving affordability; must fit lender rules | Helps monthly payment; may or may not reduce cash-to-close depending on structure | Reduces net via contribution/points | Can be smooth with lender coordination; complexity increases with program constraints |
| Personal Property | Usually not counted in appraisal value; could complicate if improperly documented | No direct help | Low cost if items are already owned; potential replacement cost for seller | Generally smooth if clearly listed; disputes if vague |
Decision Framework for Inspection Negotiations
Step 1: Categorize Defects (Safety, Functional, Cosmetic)
Use a simple triage system to keep the negotiation focused and defensible.
- Safety: Conditions that could cause injury or pose immediate hazard (e.g., exposed wiring, gas leaks, missing smoke/CO detectors where required, unstable stairs/rails, severe mold conditions, active water intrusion creating electrical risk).
- Functional: Systems/components not operating as intended (e.g., HVAC not cooling/heating, plumbing leaks, roof at end of life with active leaks, non-working water heater, foundation movement affecting doors/windows).
- Cosmetic/Deferred Maintenance: Aesthetic issues or normal wear that doesn’t impair function (e.g., worn carpet, minor drywall cracks, dated finishes, small chips/peeling paint not tied to safety requirements).
Step 2: Choose an Ask Strategy
Match the ask to the category and to the deal’s constraints (timeline, financing, seller temperament, buyer risk tolerance).
- Safety-first strategy: Ask for seller-completed repairs for safety items; keep the list short and non-negotiable in tone. Use credits only if timing makes repairs risky.
- Function-focused strategy: For major functional issues, choose between (a) repair by licensed contractor with proof, or (b) a credit/price reduction based on estimates. Prefer credits when scope is uncertain or access is limited.
- Cosmetic-minimal strategy: Avoid nickel-and-diming. If cosmetics matter to the buyer, bundle them into a single monetary request (price reduction or credit) rather than a long repair list.
Practical rule: If the buyer’s main pain is cash-to-close, prioritize credits (within loan limits). If the main pain is appraisal/value, prioritize price reduction. If the main pain is risk of defect, prioritize repairs with clear terms.
Step 3: Set a Ceiling for Total Concessions
Before sending a request, define the maximum total concession the buyer will accept (or the seller will give) so you can negotiate without drifting.
How to set the ceiling (step-by-step):
- List “must-have” items (usually safety and major functional).
- Estimate costs using contractor ballparks, not just the inspection narrative.
- Decide the format (repairs vs. credit vs. price reduction) based on financing and timeline.
- Set a maximum (e.g., “We will not request more than $X total value in concessions,” or “We will accept up to $Y in unresolved items and proceed”).
- Pre-plan trade-offs (e.g., “If seller credits $6,000, buyer will waive request for minor plumbing adjustments and cosmetic paint”).
Tip: Keep the ceiling internal. Your written request should present a coherent package, not your maximum flexibility.
Writing Repair Terms Precisely (Avoiding Disputes)
Vague repair language is a common source of conflict. Your goal is to remove ambiguity about scope, quality, proof, and verification.
Key Elements to Include
- Scope and location: Identify the exact component and area (e.g., “repair active leak at supply line under kitchen sink” rather than “fix plumbing”).
- Standard of completion: Define what “done” means (e.g., “restore to proper working order with no active leaks”).
- Who performs the work: Specify licensed contractor where appropriate (electrical, plumbing, HVAC, roofing) and whether permits are required.
- Documentation: Require paid receipts, warranty information, and permits/final sign-offs if applicable.
- Reinspection rights: Buyer may reinspect repairs prior to closing with reasonable notice; define access and timing.
- Timing: Completion deadline and what happens if delayed (e.g., escrow holdback if allowed in your jurisdiction/contract, or closing extension terms if permitted).
Examples of Precise Repair Language
Seller to have a licensed electrician evaluate and repair the open junction box in the attic above the hallway (as noted in inspection report dated __/__/____). Repairs to be completed prior to closing. Seller to provide paid invoice and any required permit documentation. Buyer shall have the right to reinspect the repair with 48 hours’ notice prior to closing.Seller to repair active roof leak at the rear bedroom ceiling by a licensed roofing contractor. Repair must stop active water intrusion and include replacement of any damaged underlayment/shingles in the affected area as recommended by contractor. Seller to provide paid receipt and transferable workmanship warranty (if provided by contractor). Buyer may reinspect prior to closing.Common Pitfalls to Avoid
- Overbroad lists: “Fix all items in inspection report” invites disagreement and delay.
- No quality standard: “Repair as needed” without defining working order or verification.
- DIY ambiguity: If you need licensed work, say so; if DIY is acceptable, acknowledge “seller may complete” and still require proof.
- No reinspection clause: Without it, buyers may feel forced to accept unknown workmanship.
- Unclear substitution: If repairs can’t be completed, pre-authorize an alternative (credit/price reduction) with a cap.
Creative (But Practical) Concession Packaging
When one concession type doesn’t solve the whole problem, combine tools into a clean package that addresses both risk and affordability.
Package Patterns
- Safety repairs + credit for the rest: Seller fixes lender-sensitive items; buyer receives a credit for smaller functional items to handle post-closing.
- Price reduction + warranty: Price aligns with condition; warranty provides buyer comfort for older systems.
- Credit capped with fallback: “Up to $X credit toward closing costs; if lender limits apply, remaining amount converts to price reduction.”
- Rate buydown cap + inspection credit: Separate caps can keep the negotiation organized (subject to loan contribution limits).
How to Present a Package (Step-by-Step)
- Lead with the problem statement: “Inspection identified safety and functional concerns that affect immediate habitability and buyer budget.”
- Group requests by purpose: Safety repairs (must), functional (credit/repair), cosmetic (none or minimal).
- Make it easy to say yes: Provide one preferred option and one acceptable alternative, each with clear numbers and deadlines.
- Keep the paperwork clean: Avoid mixing vague repair promises with open-ended credits; define caps and documentation.
