What is a concession?
Updated June 18, 2021
A concession is an incentive or discount offered during a real estate transaction, which could include either concessions related to residential sales or rentals. These benefits are generally discussed as a part of negotiations in order to encourage closing the deal.
Concessions related to closing costs can encompass the following: appraisal fees, covering the amount paid to the home appraiser to ascertain the property’s market value; inspection fees, a sum paid to the home inspector who offers a report on the property’s structures and systems; recording fees, which is the amount paid to register the property’s sale with the local government; property taxes, which are the taxes a buyer will own upon finalizing their purchase of the property; and attorney fees, which is the sum paid to an attorney to review closing documents and finalize the transaction.
Concessions related to the property can include home repairs, appliance upgrades, a decorating allowance to be used for renovations, furniture and other unattached decorative elements already in the home, and even moving expenses. A seller can also offer an incentive unrelated to the property, such as paying for meals, cars or vacations.
Access to a building's gym are among the concessions some renters or buyers might get. Credit: Sam Moqadam/Unsplash
Seller concessions are more likely to be proposed in a down market (also known as a buyer’s market). Buyers, knowing they have the advantage because of a surplus of homes on the market, can ask for concessions in order to get the property at the price they want, or on terms most favorable to them.
Concessions can be a benefit to buyers as well as sellers. For the buyer, these incentives can greatly lower the amount they will have to pay out of pocket. For the seller, concessions can help sweeten the deal on a home that had been challenging to sell. A buyer can seek concessions upon making an offer or at any point during negotiations, but these are the most common scenarios: A home inspection demonstrates that major repairs or improvements are needed; an appraisal of the property shows that it has a lower value than the contract price; the buyer does not have enough funds for both the down payment and closing costs, and therefore needs assistance with the latter; and as mentioned, when the seller is having difficulty selling the home.
A buyer should be aware that a seller’s concession in relation to closing costs often gets added onto the sales price of the home—which would mean being added to the buyer’s mortgage. So while the concession could cover a portion or all of the closing costs, this would mean that the mortgage loan amount would also increase. So by accepting this concession, the buyer could actually pay more over time because their mortgage would take a longer period of time to pay.
A rental concession is an incentive offered by a landlord to attract tenants, and most often occurs in a renter’s market. Concessions are usually some form of rebate that a property owner offers to try to persuade a tenant to move into the residence. They can be monetary compensation or a discount, or an offer of goods or services.
Examples of monetary rental concessions can include a month’s free rent, reduced security deposits, paying for a tenant’s broker fees or assisting with moving costs. Examples of goods and services concessions can include discounted or free access to building amenities (i.e. gym membership, pool use, laundry services), gifted electronics such as a television or sound system, upgraded appliances or one-year subscriptions to streaming services.