Would you rather have a seller.....

Buy your loan down (see below) or cut their price by 1.5 times the amount of the concessio n and take a market interest rate. 50% higher than those shown below?

Assumes a $650k price and a $417k loan. Yes, there are some service providers with lower costs - some higher as well - and other factors go into each rate (Condo vs SFD, FICO scores). This is a general quiz, not final exams.

30 fixed - 4.00 rate, about 4.50 points or $18,765 or $28,150 in price reduction.

10/1 ARM - 3.50% rate, about 2.25 points or $9,382 or $13,992 in price reduction.

5/1 ARM - 2.50% rate, about 1.50 points or $6,250 or $9,375 in a price reduction.

I'm asking because there are many Agents (none from the board BTW) who have asked me recently "Where are all the buyers?". They're out there, but they just aren't looking at WTF listings. Anything priced right will sell as we all know. What about those houses that are close to market? Should the seller lower their price or offer concessions? Curious what the Collective Mind thinks.

PS - I won't be back on TI until late Sunday to respond. Post away in the mean time.

Soylent Green Is People.

Interesting scenario...  but in the end, I'd prefer the straight price reduction.  All I see on redfin are a bunch of WTF listing prices.  The next potential listing owner sees those WTF prices, says their house is better and adds WTF + 5%.  Of course, both ignored sold listings or comps (because their house is better), which really came out to WTF * 85%.

I would not want sellers thinking that these incentives are justifications to their asking price. 

If a price reduction brings the balance into a conforming limit or an affordability limit, I'll take that first.

If the price is already there, then I'll take the lower monthly payment of either price reduction (taking into account prop taxes) or the rate buy down.

Give me the lower price n forget the other incentives, why make things anymore complicated than they need to be.  I think if sellers had more realistic prices we would see an increase in sales volume.  All the Listings with the WTF asking prices do are linger on the market n collect dust. 

It's just as complicated to negotiate a price reduction as it is a seller concession. There is more of a pride factor for some sellers in lowering their price which has to be overcome. Another consideration is that in the example above, it's an aggressive sales price concession, costing 1.5 times the expense of a buy down. Some sellers won't go for that heavy of a price cut, but would rather take a bit off the top for a rate buy down

Taking the 30 fixed concession, your net savings is $89.00 per month ($33 lower property taxes vs $122 lower interest, net $89) but have to bring in $28k more at closing. Insurance costs are based on the rebuild of the property not the sales price so that wasn't a factor. It takes 310 months at $89 per month saved to break even. That $28k could be used for quite a bit around the house. Clearly in the long view of things - 30 years in this case - a significant price reduction will end up costing less at close even though your still paying more each month on the mortgage. Could you refinance? Not likely at these low rates. That wasn't considered here because at 4.5% 30 fixed, you'd need a 4.0% no cost refi to make the deal work. Those loan terms existed for about 2 weeks in 2010, then vanished.

Some food for thought.

Soylent Green Is People.

i would take the lower priced home...

Of course you should take lower priced home. When you sell in the future, you lose the benefit of buying-down-interest-rate , but you do not lose the benefit of lowered price.