Seller Concessions in New York City Real Estate: How They Actually Work

If you have been researching home buying in New York City and come across the term "seller concession," be aware that it means something specific here — and it is different from how the term is used in most national guides and mortgage resources.

In the rest of the country, a seller concession typically means the seller agrees to pay some of the buyer's closing costs out of their proceeds, with the purchase price remaining unchanged. In New York City, the term is more commonly used to describe a different arrangement: the purchase price is set higher than the agreed market value by a specific amount, and the seller credits that same amount back to the buyer at closing. The buyer borrows against the higher price — typically 80% of it — which means the mortgage covers more, and the buyer brings less cash to the table for closing costs.

It is a nuanced mechanism, it requires full lender knowledge and approval, and it does not work in every transaction. Here is how it works, when it is used, and what buyers need to understand before relying on it.

The Basic Mechanics

The best way to understand a NYC seller concession is through an example.

Suppose a buyer and seller agree that a property is worth $600,000. The buyer plans to put 20% down and finance 80%, which would normally mean a $480,000 mortgage and $120,000 down — plus closing costs out of pocket.

The problem: closing costs in New York City for a transaction of this size can easily run $20,000 to $30,000. The buyer has the down payment, but coming up with an additional $25,000 for closing costs on top of it is a strain.

Under a seller concession arrangement, the parties structure the deal differently:

• Contract price: $625,000 (inflated by $25,000)
• Seller credit at closing: $25,000
• Buyer's mortgage: 80% of $625,000 = $500,000
• Buyer's down payment: $125,000
• Seller's net proceeds: $600,000 (same as the agreed value)
• Buyer's cash to close for closing costs: dramatically reduced, because the extra $20,000 in mortgage proceeds covers them

The seller receives what the property is actually worth. The buyer finances more, which covers closing costs that would otherwise come out of pocket. The difference is in what the buyer borrows — and what the buyer pays in interest over the life of the loan.

The Non-Negotiable Requirement: Full Lender Disclosure

This arrangement only works — legally and practically — if the lender knows about it and approves it.

A seller concession that is not disclosed to the lender is not a creative financing strategy. It is mortgage fraud. The lender is relying on the contract price as a representation of the property's value; concealing a credit that artificially inflates that price distorts the loan-to-value ratio the lender is underwriting. The consequences — for both buyer and seller — can be severe.

When the concession is properly disclosed, it appears in the purchase contract and on the Closing Disclosure. The lender reviews and approves it as part of the loan underwriting process. Some lenders are comfortable with this structure; others are not. Whether a given lender will approve a seller concession of this type depends on their specific guidelines, the loan program, and the amount of the concession relative to the purchase price.

If you are planning to ask for a seller concession, tell your mortgage lender before the contract is signed — not after. The last thing you want is to negotiate a concession into the contract and then discover your lender will not approve it.

The Appraisal: The Critical Variable

Here is where many NYC seller concession arrangements run into trouble: the property must appraise at or above the inflated contract price.

Lenders base the loan amount on the lower of the purchase price or the appraised value. If the contract price is $625,000 but the appraiser values the property at $600,000, the lender calculates the loan on $600,000 — and the concession structure collapses. The buyer is back to needing 20% of $600,000 plus out-of-pocket closing costs, regardless of what the contract says.

This is not a technicality. It is a fundamental constraint on when this structure is viable:

• If the property has clear comparable sales that support the inflated price, the appraisal is likely to come in at or above the contract price, and the structure works
• If the property is priced at or near the top of the market for its neighborhood and type, an inflated price may not be supportable, and the appraisal may come in short

For this reason, a seller concession of this type is more likely to be used — and to work — when the agreed value has genuine room above it in the comparable sales data, or when the market has been moving upward and the appraisal is likely to reflect current conditions.

Your attorney and mortgage officer can help you assess whether the appraisal risk is manageable before you commit to this structure.

How Lenders Treat Seller Concessions

When a lender evaluates a transaction with a seller concession, they look at the concession as what Fannie Mae calls an "Interested Party Contribution" — a payment made by a party with an interest in the transaction (in this case, the seller) toward the buyer's costs.

Fannie Mae and conventional loan guidelines generally require that when non-arms-length inducements are built into the sales price, the appraiser must consider whether the price reflects market value or has been artificially inflated. If the appraiser concludes the price has been inflated, they adjust the effective value downward — which can reduce the loan amount accordingly.

Portfolio lenders — banks that keep loans on their own books rather than selling them to government-sponsored enterprises — typically have more flexibility in how they handle seller concessions. This is one reason seller concessions of this type are more commonly seen in NYC transactions financed through private banks and portfolio lenders than in standard conventional loan transactions subject to strict Fannie Mae or Freddie Mac guidelines.

If a seller concession is part of your plan, the choice of lender matters. Not every lender will accommodate the structure, and those that do may impose their own limits on the concession amount.

What the Seller Gets Out of It

A seller concession does not cost the seller money — at least not in the straightforward version of the arrangement. The seller nets the same amount they would have received at the agreed market value. The inflated price and the credit back are offsetting: the seller receives the higher price and immediately credits the difference back.

What the seller gains is a more financeable transaction. A buyer who cannot cover both a down payment and substantial closing costs may not be able to complete the purchase at all. The seller concession makes the deal possible, which benefits the seller by getting the transaction done.

The seller does, however, carry some risk if the appraisal does not support the inflated price. If the deal needs to be restructured because the appraisal came in low, both parties have to renegotiate. This is a conversation to have before the contract is signed, not after.

The Tax Implications

Because the contract price is the inflated number, the taxes are calculated on that number:

Mansion Tax: If the inflated price crosses the $1,000,000 threshold, the mansion tax applies — even if the "real" agreed value was below it. A concession structure that pushes a $975,000 property to $1,025,000 on paper triggers a $10,250 mansion tax the buyer would not have otherwise owed. (For more on mansion tax, see our complete mansion tax guide.)

NYC Transfer Tax and NYS Transfer Tax: Calculated on the contract price — the higher number — and paid by the seller. This increases the seller's tax burden, which affects their net proceeds and may need to be factored into the negotiation.

Mortgage Recording Tax: Calculated on the loan amount. Because the seller concession increases the loan amount, the buyer pays more in mortgage recording tax. On a $25,000 increase in loan amount, the additional mortgage recording tax at the NYC rate runs approximately $420 to $480 — a modest but real cost.

These tax implications need to be modeled before the structure is finalized, and your attorney should review them as part of the negotiation.

Inspection Credits: A Related but Different Concept

Separate from the NYC seller concession structure described above, buyers also sometimes receive credits from sellers arising from the home inspection — when defects are discovered and the seller offers a dollar credit rather than making repairs.

An inspection credit is not the same as an inflated-price seller concession. An inspection credit is typically applied against the purchase price as already written, reducing the seller's net proceeds. It does not change the mortgage amount or allow the buyer to borrow more — it simply reduces what the buyer brings to closing for costs the seller is effectively absorbing.

Both mechanisms result in a credit on the settlement statement. But the economics — and the lender implications — are different, and it is worth understanding the distinction.

When Does a NYC Seller Concession Make Sense?

It is a tool, not a default. The situations where it tends to make sense:

• The buyer has sufficient income and creditworthiness to support the higher loan amount but is cash-constrained for closing costs
• The agreed purchase price has room to be supported at the inflated level by comparable sales
• The lender is a portfolio lender or otherwise willing to accommodate the structure
• The concession amount is modest relative to the purchase price — a $20,000 concession on a $600,000 transaction is more defensible than a $60,000 concession on the same property
• The tax implications (mansion tax threshold, transfer tax, mortgage recording tax) have been modeled and accounted for

It does not make sense when the appraisal risk is high, when the lender will not approve it, or when the tax consequences offset the cash-flow benefit.

The Role of Your Attorney

Structuring a seller concession correctly requires careful contract drafting, coordination with the lender, and attention to the tax implications. The concession must be clearly reflected in the contract rider with precise language, disclosed on the Closing Disclosure, and approved by the lender before anyone relies on it in their financial planning.

An attorney who is unfamiliar with how NYC seller concessions work — or who treats them the same as a standard closing cost credit — can create problems that surface at the worst possible time: at the lender's underwriting review or at the closing table.

Understanding the timeline and having an experienced attorney who knows how these arrangements work is essential to a smooth transaction.

Questions About How to Structure Your Purchase?

Whether you are considering a seller concession, an inspection credit, or simply trying to understand all the tools available to you as a buyer, having an experienced attorney in your corner makes a difference.

With over 25 years representing Staten Island home buyers, I work through these arrangements regularly and can help you understand what is viable for your specific transaction.

Call (718) 442-2010, text (718) 957-8121, or schedule a free consultation online.

Pete Weinman is a real estate attorney licensed in New York and New Jersey, with offices at 260 Christopher Lane, Suite 201, Staten Island, New York 10314. This article is for general informational purposes only and does not constitute legal advice. Please consult an attorney and a tax advisor regarding your specific situation.