Homebuyers

Seller Credits: Why Homebuyers Should Take Advantage of Them

From the cost of a gallon of milk to the sticker prices on homes, it seems like everything is more expensive these days. That’s why savvy homebuyers should be on the lookout for little-known ways to save money, such as seller credits.

Seller credits are essentially financial assistance offered by home sellers to help buyers cover certain costs. They’re more common in a buyer’s market when sellers, both homeowners as well as builders, may have trouble getting to the closing table.

This type of seller concession is often used an incentive to attract potential buyers. When sellers offer the credits, which can be used to offset closing costs, taxes, loan fees, or other expenses, it can help a property stand out. 

“Seller credits are a valuable tool that can make the difference between a deal falling apart or closing smoothly,” said Bubba Peek, a real estate investor and owner of Bubba Land Company in Jacksonville, Florida. “For buyers, they reduce upfront costs, and for sellers, they make a property more appealing without slashing the asking price.”

How do seller credits work?

A seller credit is money that the seller agrees to give the buyer to help cover some of the costs of purchasing the property.  

“Instead of lowering the purchase price, the seller provides this credit to reduce the buyer’s upfront expenses,” said Peek. “It’s a practical strategy that benefits both sides, helping buyers save cash while ensuring the sale moves forward.”

Typically, the seller and buyer negotiate the seller credit amount during the offer process. It can also be offered after a home inspection, particularly if the inspection unearths costly problems that threaten to torpedo the deal.

“Once agreed upon, the credit is applied at closing,” said Brett Johnson, a real estate agent, investor, and owner of New Era Home Buyers in Denver. “For example, if a buyer negotiates $5,000 in seller credits, that amount is deducted from the funds they need to bring to the table.”

Why do sellers offer credits?

There are a number of reason sellers might offer a seller credit.

They can be used to facilitate a quicker sale, address needed repairs, or help a property attract attention, especially in a buyer’s market where there are more homes to choose from.

“Seller credits are rarely offered in a seller’s market because there is too much competition, and sellers typically don’t need to provide incentives,” said Cindy Rainey, a real estate agent based in Westport, Conn.

“However, in a buyer’s market, where competition is lower, sellers may be more willing to negotiate on terms such as credits to attract offers or close a deal,” said Rainey.

What is the maximum amount of seller credits?

There are generally limits on how much a seller can offer in seller credits to a buyer, depending on the loan type.

• Conventional Loans: Seller concession limits for conventional loans typically range from 3% to 6% of the home's purchase price. However, the limit varies based on the buyer's down payment and the loan-to-value ratio.
• Federal Housing Administration (FHA) Loans: FHA loans allow seller concessions of up to 6% of the home's purchase price or the appraised value—whichever is lower.
• S. Department of Veterans Affairs (VA) Loans: The VA typically allows seller concessions of up to 4% of the home's purchase price.
• S. Department of Agriculture (USDA) Loans: The USDA loan program permits seller concessions of up to 6% of the home's purchase price.

What can seller credits be used toward?

Seller credits can be used for a laundry list of expenses, some of which buyers may not have even known existed before they began looking for a home.

They include appraisal fees; title search fees; loan origination fees; inspection fees; homeowner association fees; and real estate taxes.

Real estate investor Peek added that in some cases, seller credits can be used to cover repairs or upgrades that a buyer intends to tackle after the purchase.

“However, they can’t be used toward a down payment and are capped at the buyer’s total closing costs,” said Peek

Strategies homebuyers can use to negotiate for seller credits

The best time to ask for seller credits is during negotiations.

Peek noted that he once had a client concerned about outdated appliances in a home. By pointing this out during negotiations, the clients secured $5,000 in credits. This covered replacements without complicating the closing process.

“In buyer-friendly conditions, homes that sit unsold for weeks are more likely to involve concessions,” said Peek. “Inspection reports also offer leverage. Repair needs can justify asking for credits.”