Mortgage Rates Just Jumped. Sellers, Before You Cut Your Price, Consider This.

Mortgage rates jumped again this week, and if you're thinking about selling your house, I don't think your first reaction should automatically be, "Great, now I have to lower my price."

There may be another option, and it's one I'm talking about constantly right now: seller-paid interest-rate buydowns.

When rates rise, buyers lose purchasing power. A buyer may have exactly the same income, credit score and down payment they had a month ago, but the monthly payment on the same house can suddenly look very different. In Southern California, where we're already talking about large loan amounts, even relatively small movements in interest rates can matter.

That affordability problem affects sellers too. If buyers love your house but can't get comfortable with the monthly payment, reducing the price isn't necessarily the only lever we can pull. In some cases, I'd rather explore whether offering a significant seller credit toward the buyer's closing costs and interest-rate buydown could make the house substantially more attractive.

Let's use $25,000 as an example.

Imagine your house is listed at $1.2 million and isn't getting the activity we expected. One option might be reducing the price to $1.175 million. But another strategy could be keeping the price where it is and proactively offering up to $25,000 in seller concessions that an eligible buyer could potentially use toward allowable closing costs and a temporary or permanent rate buydown, subject to the buyer's loan program and lender approval.

Those two strategies do not necessarily feel the same to a buyer.

A $25,000 reduction in the purchase price gets spread across a 30-year mortgage and may make a surprisingly modest difference in the monthly payment. Using seller funds strategically toward financing costs or an interest-rate buydown can potentially have a much more noticeable impact on the buyer's immediate affordability.

That's why I don't want sellers thinking only about price. I want us thinking about what is actually preventing the buyer from saying yes.

Temporary vs. Permanent Rate Buydowns

A temporary buydown reduces the buyer's effective monthly payment for a defined period at the beginning of the loan. A common example is a 2-1 buydown, where subsidy funds effectively reduce the borrower's payment by two percentage points during the first year and one percentage point during the second year before the borrower begins making payments based on the full note rate.

A permanent buydown is different. Funds are used to purchase discount points from the lender, which reduces the interest rate for the life of the loan. Whether temporary or permanent makes more sense depends on the buyer's financing, how long they expect to own the property, available seller concessions and the lender's specific guidelines.

There are limits and rules around all of this. Seller contributions are subject to the buyer's loan program, loan-to-value ratio, occupancy type, actual allowable costs and lender requirements. This is exactly why I want the buyer's lender involved early instead of trying to reverse-engineer the financing after we've already negotiated the deal.

Buyers: This Needs to Be Part of the Offer Strategy

This is the piece I especially want buyers to understand.

If you're counting on the seller contributing money toward your closing costs or rate buydown, tell me before we write the offer.

Do not assume we're going to get our offer accepted and then ask the seller for $25,000 afterward. Seller credits and financing concessions need to be properly disclosed and documented, and the lender needs to know what we're structuring. Depending on the financing, the concession may need to be reflected in the purchase agreement or an addendum and coordinated with the lender from the beginning.

More importantly, it changes how I negotiate your offer.

Maybe we're looking at a $1.2 million house and we offer the seller their price while asking for a $25,000 credit. Maybe the house has been sitting for 60 days and we negotiate on both price and concessions. Maybe we're competing against four other buyers and asking for a large seller credit would make our offer much less attractive, so we structure it differently.

There isn't one formula. That's the point.

I want to know what matters to you before I send the offer, because the purchase price is only one part of what we're negotiating.

Sellers Can Use This as a Marketing Strategy

This is where I think sellers have an opportunity to be much more proactive.

Instead of listing too high, sitting for 45 days, reducing the price, sitting another three weeks and only then becoming willing to offer a buyer credit, we can potentially decide before the house ever hits the market that affordability is going to be part of our strategy.

Imagine a buyer seeing two comparable houses at approximately the same price. One listing simply says $1.2 million. The other clearly communicates that the seller is willing to consider a substantial credit toward allowable buyer closing costs or an interest-rate buydown.

Which one does the payment-conscious buyer want to learn more about?

That's why a $25,000 incentive can sometimes be a more interesting marketing tool than a $25,000 price reduction. We're not just changing the number attached to the house. We're potentially addressing the exact thing keeping buyers on the sidelines: the monthly payment.

None of this means a rate buydown can rescue an overpriced house. If the market says your house is worth $1.1 million and you're asking $1.3 million, creative financing isn't going to magically create $200,000 of value.

But when the property is priced appropriately and affordability is the obstacle, seller incentives can give us another very useful lever.

This is why I want both my sellers and my buyers thinking about financing strategy before we get to the negotiating table. Sellers should understand what incentives might create more demand for their property. Buyers should know what their lender allows and what concessions would actually make a meaningful difference to their payment before we write the offer.

Because in this market, I don't just want to negotiate the price of the house.

I want to structure the deal in the way that gives both sides the best chance of getting where they want to go.

CONTACT KRISTIN
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Kristin Gutierrez
Helping Homeowners Turn What You Have Into What You Want.

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