A concession addendum is a short written addition to a signed real estate purchase agreement that commits the seller to give the buyer a specific benefit, almost always money toward closing costs, repairs, or a mortgage rate buydown. It doesn’t replace the original contract. It attaches to it, and the two documents are enforced together as one deal.
When Buyers and Sellers Add One
Most concession addendums get drafted after the purchase agreement is already signed, when something changes the math for the buyer. A home inspection turns up a cracked foundation. Closing costs come in higher than the buyer planned for. The appraisal lands below the contract price. Rather than tear up the deal, the parties negotiate a concession and put it in writing as an addendum that rides along with the original agreement.
Keeping the original purchase price intact matters for the paper trail. The lender, title company, and closing agent all need to see exactly what changed and when, and an addendum gives them one clean document to work from.
What a Seller Can Concede
A concession addendum can cover one benefit or combine several. The common ones:
- A closing cost credit that pays all or part of the buyer’s title insurance, appraisal fees, and lender charges, reducing the cash needed at the closing table.
- A repair credit, where the seller hands over a dollar amount after inspection instead of doing the work. Buyers often prefer this because they pick the contractor and the scope.
- A rate buydown, where the seller funds discount points to lower the buyer’s mortgage interest rate, temporarily or permanently.
- Prepaid expenses like prorated property taxes, homeowners insurance premiums, or HOA dues that would otherwise be due at closing.
- A one-year home warranty paid by the seller, covering major systems and appliances for a short period after move-in.
Which concession fits best depends on the buyer. Someone short on cash benefits most from a closing cost credit. A buyer with savings but anxious about the monthly payment may do better with a rate buydown.
Concession or Price Cut?
Buyers sometimes wonder why they’d negotiate a concession instead of asking for a lower price. The two moves solve different problems. A concession reduces the cash due at closing but leaves the loan amount alone. A price reduction shrinks the loan and the monthly payment but saves relatively little upfront.
A $10,000 concession puts $10,000 back in the buyer’s pocket on closing day. A $10,000 price cut might save a few thousand on the down payment and trim roughly $50 off the monthly payment on a typical loan. If the plan is to refinance or sell within a few years, the concession almost always wins.
One trap: you cannot pocket a concession that exceeds your actual closing costs. If your costs total $8,000 and the seller agrees to $12,000, the extra $4,000 doesn’t come back to you in cash. Anything above your real costs gets treated as a sales concession and deducted from the property value for lending purposes.
Lender Caps That Can Sink the Deal
Every major loan program limits how much the seller can contribute, and crossing the cap can take down the financing. Confirm the number with your lender before signing anything.
Conventional Loans
Fannie Mae and Freddie Mac set caps by loan-to-value ratio, applied against the lower of the sale price or appraised value:
- Down payment under 10 percent: 3 percent cap.
- Down payment of 10 to just under 25 percent: 6 percent cap.
- Down payment of 25 percent or more: 9 percent cap.
- Investment properties: 2 percent, regardless of down payment.
Concessions above the cap get deducted from the sale price for underwriting, which pushes the loan-to-value ratio up and can disqualify the loan.1Fannie Mae. Interested Party Contributions (IPCs) – Fannie Mae Selling Guide
FHA Loans
FHA allows up to 6 percent of the sale price for every borrower, regardless of down payment. The cap covers closing costs, prepaid items, discount points, the upfront mortgage insurance premium, and rate buydowns.2HUD. What Costs Can a Seller or Other Interested Party Pay on Behalf of the Borrower
VA Loans
VA splits seller contributions into two buckets. Normal closing costs like title fees, appraisal charges, recording fees, and market-rate discount points have no cap. What the VA calls “seller concessions,” meaning anything of value given to the buyer at no cost, is capped at 4 percent of the home’s reasonable value. That bucket includes credits for the VA funding fee, debt payoffs, prepaid hazard insurance, and discount points beyond market norms.3U.S. Department of Veterans Affairs. VA Funding Fee and Loan Closing Costs
USDA Loans
USDA Rural Development loans allow seller and interested-party concessions up to 6 percent of the sale price.4USDA Rural Development. HB-1-3555 Chapter 6 – Loan Purposes
How the Appraiser Treats It
Appraisers watch concessions because an inflated credit can mask an inflated price. When comparable sales include seller concessions, the appraiser adjusts those comps downward dollar-for-dollar. Three comps that sold for $400,000 each with $15,000 in concessions can get treated as $385,000 sales.
An unusually large concession on your own deal can also raise eyebrows. A $20,000 credit on a $300,000 home will prompt the appraiser and underwriter to ask whether the home is really worth the contract price or whether the number was padded to carry the concession. Where concessions exceed actual closing costs, Fannie Mae requires the excess to be subtracted from the sale price for lending purposes.1Fannie Mae. Interested Party Contributions (IPCs) – Fannie Mae Selling Guide
What the Addendum Itself Must Say
The document doesn’t have to be long, but vague wording like “seller will help with costs” invites a fight at closing. A workable concession addendum includes:
- A reference to the original contract: the date of the purchase agreement, the property address, and the names of all parties, so the addendum is tied to the right deal.
- The specific concession, stated as an exact dollar amount or a clear formula such as “3 percent of the final sale price.” If it’s a repair credit, describe the issue it addresses.
- How the concession will be applied, whether as a credit on the closing disclosure, a direct payment, or a reduction in a specific fee.
- Any conditions or deadlines, such as the buyer securing financing by a particular date.
- The effective date.
- Signatures from every person who signed the original contract. An unsigned addendum is only a proposal.
Most agents use standardized forms from their local association of realtors or brokerage. If you’re buying without an agent, have a real estate attorney review the language before you sign.
Watch for release language. Some concession addendums include a clause where the buyer accepts the credit in full satisfaction of the issue it addresses and waives future claims about those specific items. A $5,000 repair credit tied to inspection findings may close the door on complaining about those defects later. Read that language carefully; you’re trading one right for the cash in hand.
If the Seller Doesn’t Pay
Once every party signs, the concession addendum becomes a binding part of the original contract. Courts read the two documents together as a single agreement, so failing to deliver the concession is a breach of the deal, not a broken promise.
If the seller signs an addendum promising a $10,000 credit and then refuses to pay it at closing, the buyer has the same remedies available for any contract breach: demanding performance, seeking damages, or, under the contract’s default provisions, walking away. The concession carries real contractual weight.