What a difference a few months make. Our local housing market has had a noticeable shift since May to more of a balanced market. Higher mortgage rates and increased housing inventory are two of the factors driving our current market. Price reductions are becoming more common.
I’ve been reaching out to my realtor partners about a possible alternate strategy to a price reduction when selling a home, that is a win for the seller, the homebuyer, and the neighborhood. The strategy is, instead of recommending to the seller that they need to reduce their sales price substantially, why not offer the potential buyer 2 points to help them permanently buydown their interest rate. The number analysis works out in both the seller and buyers favor in most cases.
It’s a Win, Win, Win!
The following is the analysis I did for a home currently listed in Seaview. (You can see the complete analysis at this link.)
Assumptions: Sales price $1,250,000, Buyer puts 20% down and is offering $25,000 below list price.
Strategy: Instead of reducing the price another $25,000, why not have the seller offer the potential buyer 2 points of the loan amount, so that they can buy down their interest rate.
1) The buyer is happy because this would buy down their rate from 5% to 4.625% and save them about $227.00 a month. Over the life of the loan they save $61,660.00. The lower rate also enables them to qualify for more loan if needed.
2) The seller is happy because instead of accepting the $25,000 price reduction the cost is $20,000. Saving them $5000.00.
3) The neighbors are happy because you helped keep the values up in the neighborhood.
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