Example
Suppose a seller will give up $10,000.
Choice 1: Reduce price by $10,000.
Choice 2: Provide $10,000 in permitted buyer concessions.
A $10,000 lower mortgage does not reduce a monthly payment by $10,000. Its benefit is spread over years.
A $10,000 closing-cost credit can potentially reduce the buyer's immediate cash requirement by nearly the amount actually usable.
When Credit May Be Better
A buyer who:
- Has limited cash
- Wants to preserve emergency reserves
- Needs a rate buydown
- Has significant closing expenses
When Price May Be Better
A buyer who:
- Has plenty of cash
- Cannot use the full credit
- Wants lower principal
- Is making a cash purchase
Don't Waste a Credit
Seller concessions generally cannot simply become cash handed back to the buyer if eligible expenses are lower than the credit.
Coordinate the amount with the lender.
Seller Strategy
Sellers should compare net proceeds.
Sometimes giving a buyer a useful concession gets the transaction done without a large headline price cut.
Thinking about reducing your price? Before you do, ask Lisa whether a strategic buyer credit could produce a better result.
