What is a seller's concession?

I find myself explaining what a seller's concession is to my clients quite often so I figured I'd post about it here.

First of all, the term seller's concession is very misleading, because it leads everyone to believe that the sellers are giving the buyers money out of their own pockets to pay for closing costs.  What it actually is, is an additional amount above the purchase price that the buyer tacks onto their mortgage loan amount, this additional money is used for their closing costs.  The maximum seller's concesssion allowed is 6%, so a buyer applying for a $200,000 mortgage can add up to $12,000 on top of their loan and that $12,000 can be used to pay for attorney fees, title insurance, mortgage points, escrow tax money, etc. 

The only caveat here is that the property being purchased now has to appraise for $212,000 instead of $200,000 or else the concession will not work.  If you are planning on adding a concession onto your offer to purchase, have your Realtor make sure that there are supporting comps so that you can have the assurance that you will not run into any appraisal issues down the line.

I think seller's concessions are beneficial because while they may not cover all of the closing costs, they enable a buyer to free up a large amount of cash that they can now reserve for upgrades and/or personalization of the home, furniture, etc.

-Rachael