A Real-World Definition for Agents and Investors. If you have been in this business longer than a week, you know that the listing price is rarely the final price. Real estate transactions are living, breathing things that require negotiation, leverage, and sometimes, a little grease to keep the gears turning. That grease? That is what we call concessions.
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You might be a new agent trying to sound seasoned using real estate listing presentation scripts, an investor looking to save cash on a flip, or a landlord trying to fill a vacancy without lowering your face rate. Regardless of your role, you need to master the art of the concession. Real estate professionals use these tools daily to bridge gaps in negotiations.
Let’s Start With the Basics
What Exactly is a Concession?
In real estate, concessions are costs one party agrees to cover for the other, like closing costs, repair credits, or rent discounts. It is essentially a discount, rebate, or abatement that sweetens the deal. But unlike a simple price reduction, a concession is strategic, it moves money to where it is needed most (usually the buyer’s or tenant’s pocket) to get the deal done. This helps cover upfront expenses that might otherwise kill a deal.
How They Appear on the Closing Statement
When we talk about concessions, we usually aren’t talking about handing over a suitcase of cash. We are talking about specific line items on the settlement statement or lease agreement. These typically look like:
- Seller-Paid Closing Costs → The seller agrees to pay a portion of the buyer’s settlement fees, effectively lowering the total closing costs needed at the table.
- Repair Credits → Instead of fixing a broken HVAC before closing, the seller credits the buyer the “cost to cure”.
- Rate Buy-Downs → The seller pays a fee to the buyer’s lender to lower the buyer’s interest rate for the first year or two.
Types of Concessions You’ll Actually See
Buyer Concessions
While less common in a buyer’s market, these were standard during the unicorn years of 2020 – 2021. This is when a buyer offers to cover costs that are traditionally the seller’s responsibility.
- Rent-Backs: Seller stays 30 – 60 days post-closing.
- Waiving Contingencies: Covering appraisal gaps.
Agent Tip Use a real estate agent checklist for buyers to track these options.
Seller Concessions
The most common type. The seller credits a portion of their proceeds to the buyer to cover upfront costs.
- Closing Cost Credits: Preserves buyer liquidity, helping with the down payment crunch.
- Buying Down the Rate: Pays “discount points” to lower the mortgage rate.
Landlord & Lease
Crucial for commercial or multifamily operators to protect building valuation.
- Free Rent: Use a net effective rent calculator to see the real cost.
- TI Allowances: Cash for custom build-outs.
- Back-to-Back Leases: Paying the tenant’s old rent to move them now.
Lender Concessions
Lenders waiving fees to win business.
- Waived Origination Fees: Instant savings on loan origination fees.
- Lender Credits: Offsetting closing costs in exchange for a slightly higher rate.
Real-Life Examples I’ve Seen or Used
Real-World ExampleTheory is great, but let’s look at how this plays out in the field. You can find similar scenarios in our real estate sales pitch samples.
1. “We covered $9K in buyer closing costs… and still sold over ask”
I had a listing sitting stagnant at $400,000. Any experienced real estate agent knows stagnation kills listings. We raised the price to $410,000 but offered a $10,000 seller concession for closing costs. The buyer effectively financed their closing costs. The seller netted the same amount, but the buyer didn’t have to drain their savings.
2. “I offered 2 months free rent… and landed a 5-year tenant”
On a commercial listing, instead of lowering the rent from $25/sq. ft. to $23/sq. ft., we kept the rate at $25 but offered months 1 and 13 rent-free. The landlord maintained the higher “face rate,” which kept the building’s cap rate and resale value higher. Investors should track these impacts on a rental property profit and loss statement spreadsheet.
3. “We used a concession to get past a low appraisal on a duplex”
An investor client was buying a duplex with a shot roof. Rather than asking the seller to replace it (delaying closing), we negotiated a “credit in lieu of repairs.” The buyer used their own roofer later. Always use a rental property analysis spreadsheet to ensure the math still works.
How Concessions Affect the Deal Math
You cannot just throw numbers around. You have to understand how lenders and appraisers view these credits based on the home’s purchase price.
Appraisal Red Flags
Appraisers look for “sales concessions.” If a house sells for $300,000 with $15,000 in concessions, the appraiser might view the true “adjusted sales price” as $285,000. If you artificially inflate the sales price just to get a massive credit back, the appraiser will likely flag it.
How Lenders View Them (The Limits)
The buyer cannot walk away from the closing table with extra cash in their pocket. Furthermore, loan types have limits on interested party contributions:
- Conventional Loans: Usually capped at 3% to 9%.
- FHA/VA: Typically capped at 6% (FHA) or 4% (VA).
- Investment Properties: Often capped at 2%.
ROI Implications for Investors
For investors, concessions boost your cash-on-cash return. If you can get the seller to pay your closing costs, your initial cash investment drops, skyrocketing your ROI percentages. Check your rental property expense worksheet to see where you can offset initial costs.
🏆 Pro Moves. The Concession Playbook.
This is where the top 1% of agents earn their commission using the negotiation process effectively.
When to use credits instead of price cuts
“If we drop the price by $10,000, your client saves about $60/month. If we give a $10,000 concession to buy down the rate, we could drop their payment by $200+/month.” Cash is king. A price reduction saves money over 30 years. A concession saves money today.
Script for Buyer Agents
Instead of asking, “Is the price negotiable?”, try this: “My clients love the house but are tight on liquidity. If we write a clean offer at your list price, would the seller be open to a credit for pre-paids? It keeps your net high and gets the deal done.”
Landlord Tip for Lease-Ups
Avoid dropping rent; it is hard to raise it back up. Offer a “move-in special” instead. It creates urgency and preserves your long-term revenue baseline.
Dealing Off-Market? Ensure concessions are documented clearly. Use a real estate non-disclosure agreement template if terms are sensitive. Even in a hot seller’s market, smart structuring wins the deal.
FAQs. Let’s Clear These Up.
🧾 Concession Negotiation Estimator (Free Tool!)
Stop guessing. Use this tool to check if your concession ask is realistic based on the loan limits.
(Visual preview of calculation logic below)
What Have We Learned?
Concessions are leverage, use them wisely. In a hot market, asking for them can lose you the house. In a cooling real estate market, they are your best tool to bridge the gap between a seller’s expectations and a buyer’s reality. It is a strategy that works for buyers and sellers alike.
Do not just look at the top-line price. Look at the net. Look at the cash to close. It benefits both the buyer and the seller to keep the deal moving. Review the real estate transaction process flow chart to see exactly where these fit in. If you can master the math of concessions, you will close deals that other agents let fall apart.
