The Home School Podcast, Episode 19
Is a rate buydown better than a price cut? Often, yes. Buyers buy a monthly payment, and sellers sell a net. A seller-paid buydown can cost the seller about the same as a price cut, while giving the buyer much bigger payment relief in the early years. A price cut helps the buyer a little, forever. A buydown helps the buyer a lot, right now.
Buyers buy a monthly payment. Sellers sell a net. When rates are high, those two goals can sound like complete opposites, and deals fall apart because nobody looks at the third option.
Here's a scenario we see all the time: a pre-approved buyer gets nervous about the monthly payment and asks for a $10,000 price cut. The seller has a number they need to walk away with and says no. The deal dies, and both sides lose.
In this episode of The Home School Podcast, Liz Sandwick and co-host Tom Sommers of Coldwell Banker Realty break down what each side of a deal is really solving for, and how to structure a deal so the buyer's payment drops while the seller's net holds.
Watch: Buyer Payment vs. Seller Net, The Home School Podcast with Liz Sandwick and Tom Sommers. See all Home School episodes. Previous episode: Episode 18, Selling Your House in a Minnesota Winter
Buyer Payment vs. Seller Net: What Each Side Is Solving For
| Buyers are solving for | Sellers are solving for |
|---|---|
| A monthly payment they can live with | Net proceeds |
| Cash to close | Certainty the deal closes |
| A payment that works in year one and year three | A closing date that fits their next move |
New Construction vs. Resale
A higher-priced new build with a builder rate can sometimes carry a lower monthly payment than a lower-priced resale. Resale sellers need to understand that comparison, because it's the one buyers are making. Our episode on new construction vs. resale goes deeper.
Temporary (2-1) Buydown vs. Permanent Buydown
A temporary 2-1 buydown lowers the buyer's rate for the first two years. A permanent buydown lowers it for the life of the loan. Which one fits depends on how long the buyer plans to stay and whether they expect to refinance.
Price Cut vs. Buydown
The seller's net can be nearly identical either way, while the buyer's first-year payment relief can be many times bigger with a buydown.
A price cut helps the buyer a little, forever. A buydown helps the buyer a lot, right now. Either way, the seller pays about the same. Know which one your deal needs.
Other Tools to Know
- Seller credits toward the buyer's closing costs
- Assumable FHA and VA loans, where a buyer may be able to take over the seller's existing rate
- Adjustable-rate mortgages (ARMs)
How to Buy Well and Sell Well When Rates Are High
Sellers: before you say no to a buyer's ask, look at what it does to your net.
Buyers: before you ask for a price cut, ask what a buydown would do to your payment.
Still deciding between a price adjustment and a buydown on a home that's already listed? Our episode Why Hasn't My House Sold? covers that decision from the seller's side.
Frequently Asked Questions: Price Cuts, Buydowns, and Seller Net
Is a rate buydown better than a price cut?
Often, yes. A seller-paid buydown can cost the seller about the same as a price cut while giving the buyer much bigger payment relief in the early years. A price cut helps the buyer a little, forever. A buydown helps the buyer a lot, right now.
What is a 2-1 buydown?
A temporary buydown that lowers the buyer's interest rate for the first two years of the loan before it settles at the full note rate. A permanent buydown lowers the rate for the life of the loan.
Does a buydown cost the seller more than a price cut?
Not necessarily. For the same dollars, the seller's net can be nearly identical either way. What changes is how much the buyer's monthly payment drops and for how long.
Can a new build have a lower payment than a resale home?
Sometimes. A higher-priced new build with a builder rate can carry a lower monthly payment than a lower-priced resale home at market rates.
What other tools help buyers when rates are high?
Seller credits toward closing costs, assumable FHA and VA loans, and adjustable-rate mortgages. Programs, concession limits, and qualifying rules vary by loan type and lender.
See Your Numbers Three Ways
Buying or selling in Lakeville or anywhere in the south metro? I'll show you how a price adjustment, a buydown, or a seller credit changes the buyer's payment and your net, so you can choose the deal that works.
Liz Sandwick, REALTOR®, Coldwell Banker Realty
Call or text: 952-491-3685
Email: Liz@CBRealty.com
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All examples are illustrations of principal and interest only, not a loan offer. Programs, concession limits, and qualifying rules vary by loan type and lender and are available to qualifying buyers. Talk to a licensed lender about your situation. Liz Sandwick, REALTOR®, Coldwell Banker Realty. Equal Housing Opportunity. Information is general in nature and not legal, tax, or lending advice.