Seller Concessions vs. Price Reduction - which is better?

20 Feb 2024 · 2 min

Watch on YouTube

1:57

In this short instructional video, mortgage professional Andrew Postell explains how a seller concession can be a more effective negotiation tool than a straight price reduction. Using a concrete example, he compares a $350,000 home at a 7.125% interest rate (monthly P&I $1,886) with two alternatives: a 5% price cut to $332,000 (same rate, monthly payment $1,792, saving $94/month) and a $5,600 seller concession used to buydown the rate to 6.5% (monthly payment $1,770, saving $116/month). He argues that the concession requires less price reduction, yields larger monthly savings, and is easier for listing agents to accommodate, especially in builder or new‑listing scenarios. The video’s purpose is to educate buyers and real‑estate professionals on leveraging seller concessions for better client outcomes.

Chapters

Hey now, Drew Tutson. We talk about real estate, finances, mortgages, and Drew 2. Today, I want to talk about seller concessions. So I've got a buydown sample scenario for us to review. Here's what I want you to understand. So I've got purchase price, principal and interest. Purchase price of $350,000. We're using an interest rate of 7.125%. And here's our monthly payment, $1,886. That's without taxes and insurance. So let's say you're a buyer and you found a home, but you want to kind of negotiate on the price a little bit. Let's say you ask for a 5% reduction in price. That doesn't sound like that big, right? So here's what a 5% reduction of the price would look like. Purchase price is now $332,000. Let me use the same interest rate as before, and here's my monthly rate, $1,792. That saves me $94 a month. That sounds like a good win. But I gotta negotiate. $17,000? What if I could show you an alternative that's easier to negotiate and saves you more money a month? That's what a seller concession can do. $5,600. So we're going to keep the purchase price the same, but now I get to buy down the rate to 6.5%. There's the APR. Now I'm saving $116 a month because my rate is lower. And then which one is easier to negotiate with? $17,000 or $5,600? Yeah. And if you're the listing agent, which one would you take if one buyer brought this and the other one brought that? Of course, almost in every scenario, just asking for a seller concession can make more sense for you and both sides of the client experience, right? And if you're a listing agent, we can even offer this rate on the time of your listing, which without a buyer like a builder would. Hey, this is Andrew Postell, so I hope today's Drew To made sense. Tune in next time where we'll talk about more real estate, finances, and mortgages. Talk soon.