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What is More Beneficial? A Price Reduction or Seller Credit?
I believe most buyers, in their negotiations, actually negotiate the wrong thing when making an offer to purchase a home. I'll explain...
If you ask for $12,000 off the purchase price of a $600,000 home, you will only reduce your monthly payment by about $72. That's it! Seventy-two dollars.
If you ask for a $12,000 seller credit and use it to buy down the interest rate, you can reduce your monthly payment by $195. Same $12,000. Almost three times the impact.
Here is why the math works out this way.
A $12,000 price reduction on a $600,000 home only drops your loan amount from $570,000 to about $558,600. Spread that over 30 years at 6.5%, and the monthly amount is barely noticeable.
But putting that same $12,000 applied as a seller credit towards buying down your rate drops you from 6.5% to roughly 6%. On a $570,000 loan, that small rate difference saves you almost $200 every month. Over the life of the loan, that's over $70,000 in total interest saved, and what could you do with $70,000?
What's really crazy is that most agents won't know how to tell you how that can work for you, especially in a market where homes are sitting thirty-plus days, and sellers are competing for buyers. Most sellers will indeed negotiate on credits. Especially when their home has been sitting, they would rather give you $12,000 in credits than a $12,000 price reduction, so as not to let their home look weak in the market.
It's actually easier to get a credit than a price reduction, and that would benefit you, the buyer, more anyway.
Let me know your thoughts...
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