In a rising rate environment does it make more sense for a seller to reduce the sales price to sell their home or to intrigue potential buyers by offering seller concessions? Let’s take a look at a pricing example for a home priced at $500,000 with the borrower putting down 10% (equaling $50,000) and closing costs equaling $15,000.

If the seller reduces the sales price to $480,000 with no seller concessions:

  • The buyer’s mortgage payment goes down $96 a month
  • The buyer’s down payment goes down $2,000
  • The closing costs are about the same

If the seller keeps the sales price at $500,000 and now offers $20,000 in seller concessions: 
Option 1:

  • The buyer’s monthly mortgage payment can stay the same and the down payment can stay the same BUT the seller has now paid the full $15,000 in buyer’s closing costs AND the buyer can use the additional $5,000 from the seller concessions to buy down their mortgage interest rate approximately .25%
    • The buyer therefore needs $15,000 less in cash for closing
    • The buyer saves approximately $66 per monthly mortgage payment which equals a savings of $3,960 over first 5 years

Option 2:

  • The buyer uses all of the seller concessions to buy down their rate approximately .50%
    • The buyer saves approximately $136 per monthly mortgage payment which equals a savings of $8,160 over first 5 years

So what option makes more sense in this mortgage environment? Option 2 because:

  • The seller keeps the same sales price and nets the same amount
  • The realtor makes commission on the original sales price

The buyer has the option to save money they originally needed to pay out-of-pocket at closing, can get a better rate and/or can save more money over time