When developers want to preserve the price of homes for future sales and appraisals, offering to buy down the rate is a great way to add value for the buyer.
Are any of you working with a motivated seller??
**** Of course you are!!!****
If we were in a large room full of realtors and I asked that question I think there would be a lot of agents raising their hands!
With the tremendous amount of inventory on the market for buyers to choose from, it’s important for sellers to get creative in order to attract buyers. My favorite quote is, “The definition of insanity is trying the same thing over and over again and expecting different results”. If you are sticking to the same old techniques in trying to motivate sellers, you may find your listings are not moving quite as fast as you would prefer.
I would like to offer you a different way of attracting more buyers. Why not have your sellers offer a permanent rate buy down? Actually, this concept is really not different at all. This is something that sellers have always been able to do. However, I don’t see a lot of sellers doing it!
Consider this scenario:
$250,000 selling price
Down payment of 20%
Loan amount of $200,000
Hypothetical rate on a conventional 30 yr fixed rate mortgage is 4.250% with 0 Points.
What if you could offer QUALIFIED buyers of one of your listings a 30 year fixed rate of 3.750% with 0 Points? Well, you can! Here’s how…
By offering a prospective buyer a seller funded, permanent rate buy down. Here’s how it works. Let’s say the cost to buy down the interest rate from 4.250% to 3.750% is 2 Points (2% of the loan amount = $4,000).
Conventional lending guidelines allow a seller to pay up to 6% of a borrower’s non-recurring closing costs. (Min. down payment must be = to 10% If less than 10%, max. contribution is 3%). A seller could potentially offer a lower rate if they agree to pay additional points, as long as it is within the max. seller contributions of 6%.
Before you do a price reduction, why not offer a permanent rate buy down? The benefits of doing this are:
1) You preserve the sales price for future comps
2) You earn more commission since the price has not dropped
3) The seller is happy since they were able to sell their home for more money
4) The buyer is happy since they saved thousands of dollars in interest over the life of their loan
At first glance the monthly savings may not look like much. But if you look at how much a buyer could save if they applied that monthly savings to paying off the principal! The savings are staggering and the payoff of the note is complete 25% sooner.