When selling a home, every decision can seem monumental. From strategic marketing to value-boosting repairs, there’s plenty of room to go right (or wrong) in the market. Pricing plays a major role in how buyers respond to your home. But is opting for a price reduction always the best option?
Our partners at Movement Mortgage caution sellers: before you drop the price, do the math.
A $55,032 price reduction or a $55,032 rate buydown?
When a listing is sitting and the seller is considering a price reduction, the automatic response is often:
“Let’s drop the price.”
But what if we could use those same dollars to create a much bigger impact for the buyer while helping the seller protect the sales price?
Let’s do the math.
$1.5 million sales price
Purchase Price: $1,500,000
Down Payment: 20%, or $300,000
Loan Amount: $1,200,000
Note Rate: 7.000%
Principal & Interest at 7%: $7,984 per month
Now let’s assume the seller is willing to contribute $55,032 toward an eligible 3-year temporary rate buydown.
| Year | Effective Rate | Monthly P&I | Monthly Savings | Annual Seller Funded Buydown |
| Year 1 | 4.000% | $5,729 | $2,255 | $27,060 |
| Year 2 | 5.000% | $6,442 | $1,542 | $18,504 |
| Year 3 | 6.000% | $7,195 | $789 | $9,468 |
| Years 4 through 30 | 7.000% | $7,984 | $0 | $0 |
Total Seller Funded Buydown: $55,032
Consider what those dollars accomplished for the buyer.
Year 1: $2,255 less per month
Year 2: $1,542 less per month
Year 3: $789 less per month
That is $55,032 of payment relief during the first three years.
Now, what if the seller just dropped the price by $55,032? Instead of using $55,032 toward the temporary buydown, let’s reduce the purchase price by the same amount.
Original price: $1,500,000
New price: $1,444,968
With 20% down, the buyer’s new loan amount would be approximately $1,155,974. At a 7% illustrative rate, principal and interest would be approximately $7,690 per month. That is only about $294 per month less.
The seller gives up the same $55,032. One strategy potentially gives the buyer approximately $294 per month in principal and interest savings.
The other provides:
$2,255 per month in year 1
$1,542 per month in year 2
$789 per month in year 3
Sometimes the question is: “How can we use the seller’s dollars to solve the buyer’s biggest objection?”
If the objection is the monthly payment, let’s see what financing can do. This can create a win for both sides.
The seller has an opportunity to protect the contract price. The buyer gets substantial payment relief during the first three years. The listing agent gets a powerful marketing strategy beyond another price reduction. The buyer’s agent gets another tool to help make the home affordable for their client.
And instead of negotiating only around price, we start negotiating around value.
The Movement Mortgage team is here to guide you through the best option for your unique real estate journey. Reach out today.
