What Is a Seller Credit?

A seller credit, also called a seller concession, is when you agree to pay a portion of the buyer’s closing costs. Rather than lowering the purchase price, in general, a seller credit reduces the amount of cash the buyer needs to bring to closing, making it easier for them to complete the purchase.

When you’re selling a home, you want the transaction to go as smoothly — and quickly — as possible. Seller credits are a common negotiation tool, especially in a buyer’s market or if the home needs repairs. They can help you stand out from other sellers, make your home more affordable to potential buyers, and avoid lengthy back-and-forth negotiations over small repairs. A local real estate agent can guide you through the following options, and what they could mean for your home sale strategy and proceeds.

Let’s take a closer look at how seller credits work, what they can and can’t be used for, and the limits you’ll need to keep in mind based on your loan type.

How do seller credits work?

When you offer a seller credit, it can be used to help cover the buyer’s closing costs or other expenses related to the home purchase, such as negotiated repairs. Instead of going directly to the buyer, the credit is applied toward eligible costs to reduce their out-of-pocket expenses at closing.

Seller credits can typically cover expenses like the loan origination fee, appraisal fee, inspection fee, title insurance fee, attorney fees, recording fees, as well as occasional property taxes. 

As a seller, offering a credit can save you the hassle of scheduling last-minute repairs or losing an interested buyer over a relatively small amount of money. Instead, you help them afford the purchase, and both sides move forward to closing.

What can seller credits be used for?

Offering a seller credit isn’t giving something away, it’s a strategic move to help your home sell faster, keep the deal moving, or appeal to more buyers. Here are some common situations where buyers and sellers can use them to reach a win-win deal:

Offset the cost of repairs found during an inspection

If the buyer’s home inspection uncovers issues, you might not want to delay closing while coordinating repairs. Instead, if the buyer’s lender will allow it, you can offer a seller credit that lets the buyer take care of repairs themselves after closing. This can speed up the process and give the buyer flexibility in how and when repairs are done.

Attract potential home buyers

In a market where there are plenty of homes for sale, offering a seller credit can attract buyers who are concerned about their total out-of-pocket costs. Advertising a seller-paid closing cost credit in your listing might help your property stand out.

Use it as a negotiation tool

Rather than dropping your list price, you might consider offering a seller credit to meet the buyer halfway on costs. This approach keeps your home’s sale price higher, which may be important for future appraisals or comparable sales, while still helping the buyer afford the transaction.

What can seller credits not be used for?

While seller credits offer helpful flexibility, they come with clear boundaries. They’re intended to reduce the buyer’s out-of-pocket closing costs not to cover unrelated expenses or put cash in their pocket. Offering more than what’s allowed by the lender could cause problems with the buyer’s loan approval or lead to misunderstandings during the sale. Here’s a closer look at what seller credits cannot be applied toward:

Down payment

Seller credits are designed to help with closing costs only. They cannot be used for the buyer’s down payment, which must come from the buyer’s own funds or an approved gift. Lenders want to ensure that the buyer has a financial investment in the home purchase, and the down payment demonstrates that commitment.

Exceeding actual closing costs

Seller credits cannot exceed the total closing costs for the transaction. For example, if your total closing costs are $7,500 and the seller agreed to cover $9,000, only $7,500 can be applied. The excess $1,500 can’t be cashed out or used elsewhere.

Paying off debts

Unfortunately, seller credits can’t be used to pay down the buyer’s personal debts, like credit cards or car loans. These credits are strictly regulated and tied to the costs of closing the real estate transaction itself. Lenders assess the buyer’s debt load when approving the mortgage, and using seller funds to pay off unrelated debt could interfere with loan qualification rules.

Cash back to the buyer

It’s also important to know that seller credits can’t be used to hand the buyer cash at the closing table. These credits reduce what the buyer owes in closing costs, but they’re not a rebate or cash bonus.

Key tip: Seller credits must be clearly documented in the purchase contract and closing statement. If the actual closing costs end up being less than the agreed-upon seller credit, the unused portion typically reverts back to the seller. It doesn’t go to the buyer as cash.

Do lenders limit seller credits?

Yes, each loan type limits how much the seller can contribute toward closing costs. These limits help ensure the buyer has some financial stake in the transaction and that the loan meets lender and investor guidelines.

Understanding these limits is key when negotiating seller credits — too high a credit, and your lender won’t allow it. Here’s how seller credits are limited based on the type of loan:

What additional costs can seller credits cover with a VA and USDA loan?

USDA loans: As of the date of this article, seller credits are allowed to contribute to customary closing costs as well as all or a portion of the upfront guarantee fee.

VA loans: As of the date of this article, seller credits can cover prepaid taxes or insurance, all or a portion of the VA funding fee, down payment, as well as paying down the buyer’s existing debt or judgments.

List with Zillow for a smoother sale

When you list your home on Zillow, you’ll reach millions of potential buyers, and have the chance to connect with local experts who can help you price your home competitively, market it effectively, and negotiate confidently. Whether you plan to offer seller credits or explore other ways to attract buyers, Zillow can help you sell smarter. Check out our multiple selling options.

This article is provided for informational purposes only. It is not real estate, legal, tax, or financial advice. Speak to a licensed professional for personalized advice specific to your needs.