The Difference Between Concession and Contribution

While the words “concession” and “contribution” can, and usually will be, used synonymously in the real estate world, they can end up having completely different meanings under the transaction aspect of the contract. For the most part, closing and settlement costs are paid for by the buyer while any other costs are taken on by the seller.

When the buyer’s part of the payments is paid by a third party they are considered to be contributions. These contributions will usually have some kind of limitations as to the amount that can be paid, though.

The Difference Between Concession and Contribution

The Difference Between Concession and Contribution

When the seller, or a third party on behalf of the seller, gives some kind of an incentive, be it cash, a vehicle, or anything else of value to induce the buyer to go through with the transaction, this is considered a concession. When a concession is made, the amount of the item given is taken off of the asking price of the purchase.

The limits to a concession are objects of value that are left for convenience. Things like expensive light fixtures can fall into this category, as long as the appraiser states it is not personal property in their report.

There are times when a concession doesn’t affect the price at all, usually with VA loans, but is limited to 4 percent. Because it is difficult to determine ahead of time which is going to be best for you, it is wise to consult your personal real estate agent as to what they would do. Negotiations can be made, or broken, because of these issues. It is a good thing to do some research to find out what concessions would benefit you and what kind of contributions you can accept.

Because of the differences in the terms, using them synonymously can be a bit confusing. Although they are tossed around, the contribution is usually an aspect of paying for the closing of the buyer and a concession is about giving something of value to make the sale happen quicker.

If you can remember these two things, then you will be able to understand any contract or verbal agreement that has these words placed within. It might take some time getting used to, though.

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