Published September 13, 2025
Understanding Seller Concessions in Colorado Real Estate Contracts
In this guide:
What are Seller Concessions
Seller concessions are amounts the seller agrees to pay toward the buyer’s allowable costs at closing. These do not reduce the buyer’s required down payment, they reduce cash needed for things like fees and prepaids.
Common items concessions can cover
- Closing costs such as loan origination, appraisal, title search, recording, and underwriting fees
- Prepaid items including property taxes and homeowners insurance
- Temporary interest rate buydowns such as 2-1 or 1-0 buydowns
- Repair credits that the lender allows to be handled as concessions
Important: Seller concessions cannot be used for the buyer’s down payment.
Loan Specific Limits on Seller Concessions
Lenders set caps based on loan type and sometimes occupancy. Structure your offer to fit within the correct cap to avoid delays or rework at underwriting.
| Loan type | Down payment or occupancy | Maximum seller concessions |
|---|---|---|
| Conventional, primary or second home | Less than 10 percent down | Up to 3 percent of purchase price |
| Conventional, primary or second home | 10 to 25 percent down | Up to 6 percent of purchase price |
| Conventional, primary or second home | 25 percent or more down | Up to 9 percent of purchase price |
| Conventional, investment property | Any down payment | Up to 2 percent of purchase price |
| FHA | All FHA purchases | Up to 6 percent of purchase price or appraised value, whichever is lower |
| VA | Eligible veterans and service members | Up to 4 percent in seller concessions, plus customary closing costs that VA does not count toward the 4 percent bucket |
| USDA | Eligible rural properties | No fixed program cap, lenders typically allow about 6 percent |
| Jumbo or portfolio | Loan size above agency limits | Investor specific, confirm early with the lender |
Program rules can vary by investor, occupancy, and loan size. Always confirm the cap with your lender before finalizing terms in the contract.
Why Lenders Cap Concessions
- Prevent inflated prices: Caps reduce the incentive to raise the price and roll excessive fees into the loan.
- Ensure buyer stability: Lenders want buyers to contribute real funds, which shows capacity and commitment.
How Section 4.2 Works in Colorado
The Colorado Real Estate Commission approved Contract to Buy and Sell Real Estate includes Section 4.2, titled Seller Concession. This section allows the buyer to ask the seller to contribute either a flat dollar amount or a percentage of the purchase price toward allowable buyer costs, subject to lender rules.
- The credit is applied on the settlement statement at closing.
- Funds may only be used for items the lender permits for that loan type.
- If actual buyer costs are less than the negotiated concession, the excess is not paid to the buyer in cash. The credit is reduced to the allowable amount.
Pro move: Work with your lender for a written fee worksheet. Size the concession to real, allowable costs so you do not leave funds unused.
Strategy Tips for Buyers and Sellers
For Buyers
- Use concessions to fund a temporary rate buydown or closing costs to keep cash free for furnishings or reserves.
- If you plan a small down payment, remember the cap is lower on conventional loans. Consider FHA if appropriate and if the 6 percent cap is helpful.
- Confirm with your lender that every targeted fee is allowable for your loan program.
For Sellers
- Concessions can widen your buyer pool, especially when rates are elevated.
- Price strategy matters. A modest price adjustment plus a well targeted concession can outperform a deep price cut.
- Evaluate net proceeds, appraisal risk, and buyer strength together, not in isolation.
Quick Dollar Examples
- $600,000 conventional, 5 percent down: cap is 3 percent, so up to $18,000 in concessions if allowed by lender and fees support it.
- $525,000 FHA: cap is 6 percent of price or appraised value, whichever is lower, so up to $31,500 if supported by costs.
- $750,000 conventional investment: cap is 2 percent, so up to $15,000.
- $500,000 VA: concessions bucket up to 4 percent, or $20,000, with certain customary fees handled outside that bucket per VA rules.
Alternatives When You Hit the Concession Cap
- Seller completes repairs before closing: Have the seller hire licensed contractors and finish agreed repairs prior to appraisal or closing, with receipts provided to the buyer. Since no credit flows through the settlement statement, this can sit outside the concession bucket, subject to lender rules.
- Price reduction in lieu of credits: Reduce the purchase price to offset the buyer’s additional costs. This lowers the loan amount, can improve payment, and avoids exceeding the cap. Coordinate with the lender and consider appraisal implications. However, buyer will still need to come up with their own resources for repairs to be made after closing.
- Repair escrow holdback, if permitted: For lender allowed items such as weather dependent or safety repairs, request a seller funded holdback from proceeds. Lenders often require 1.5 times the repair bid and specific completion timelines. Cosmetic upgrades usually do not qualify. Additional time may be needed to obtain written bids from contractors and both the mortgage lender and title company will need to be advised and approve this option.
Discuss each path with the lender and title company before signing any amendment or inspection resolution. Program rules vary, and what sits outside the concession limit can be interpreted differently by investors.
FAQ
Can seller concessions pay the down payment
No. Concessions pay allowable costs like fees, prepaids, and buydowns, not the buyer’s down payment.
What happens if we negotiate more than the program allows
The lender enforces the cap. The Seller Concession credit is reduced to the maximum allowed, which can require an amendment or changes to fee allocations.
Do appraisals factor in concessions
Appraisers review terms and market conditions. Concessions that are typical in the market are usually acceptable, but outsized credits can raise valuation questions. Coordinate with your lender and agent before finalizing terms.
Are jumbo loan rules the same
Often not. Jumbo and portfolio investors set their own caps. Confirm early during preapproval.
Are you buying or selling a home?
When are you planning on buying a new home?
Are you pre-approved for a mortgage?
Would you like to schedule a consultation now?
When are you planning on selling your home?
or another way