This week I received a flyer from one of the local Flagstaff lenders with whom I work -- another technique for her to drum up business, I thought. Then I took another look. It was really an old technique for selling homes, but maybe one I'd forgotten about.
The strategy, in this marketing pitch, is called Maximum Seller Buy-Down. The details of how this program works aren't really there, nor can I find them on the blog referred in the sales pitch. What I think it means is that the seller pays the buyer's points at closing to reduce the interest rate on the buyer's loan. (I'd appreciate a few comments from our mortgage experts on Active Rain to see if I've got this right.) This can be a win-win because the seller saves money as compared to an equivalent (to the buyer) price reduction, but the buyer gets a lower mortgage interest rate so that the home comes within the buyer's monthly payment affordability range. (Right, mortgage experts?)
I'd don't think that, as the marketing pitch suggests, that this technique alone will "turn around" our market, but isn't it worth pursuing in the interests of our seller clients?
In the current slow market, we've seen more and more offers asking not just for price concessions but also payment of buyer closing costs, and, indeed, for paying points to buy down the buyer's mortgage rate. So, why not turn that to a marketing advantage for the seller - make the offer to all buyers as part of your marketing remarks about the home?
I promise to pursue this possibility with more research off-line tomorrow, but I'll also check back for comments by the Active Rain experts. I don't promise to write much in response because I'm headed on vacation later this week! Yahoo!
Want to buy or sell Flagstaff real estate? Contact my team: Team Heitland at RE/MAX Peak Properties!
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Ann loves selling real estate. Ann works with a team of in order to provide you the best real estate experience ever! The best advice about the market, selling your home, or finding your dream home
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Hi Ann, I have heard of this before . It sounds like a terrific way of getting a deal to move foreward.
Bryan -- thanks for the confirmation!
Bill -- I hope it will bring in some deals, then I can move them forward!
Ann, thanks for this post. It will help many of us continue to be creative solving buyer and seller problems.
Hi Ann,
A good reminder, we have to find creative ways to get things done these days.
All the best!
Ann,
It should be counted as part of the seller concessions, but the numbers usually work within 3% for larger loan sizes.
Richard
Ann,
Congratulations on taking that vacation! All of us need to do more of that. As for the buydown, I think you have it figured out. Yes, it certainly can be a valuable tool.
Ann,
The seller can contribute towards the buyer's purchase. The maximum amount the seller can contribute is 6% of the purchase price (or of the appraised price, whichever is less.) This can be used in several ways, one of which is the subject of your post. Ways all or part of this money can be used:
Seller Buy Down of the Buyer's Interest Rate: The seller can pay the lending institution discount points (each point is 1% of the mortgage loan amount) in order to buy down the buyer's interest rate. This is a much more attractive way of qualifying the buyer than dumping the sales price--both for the seller and for the real estate agent.
Purchase Price: $250,000 (this would buy a double wide in Flagstaff, I think, but this is just for demonstration purposes)
Downpayment: 20%, or $50,000.
Conventional Conforming Loan Amount: $200,000. at today's rate of 6.25%, 30 years fixed.
Payment (P/I): $1,231.43
Maximum Buydown Rate: 5.75% fixed, 30 years (SunTrust Bank, today's rate sheet, at a cost of 1.716%, or $3,432.)
Payment at the buydown rate (P/I): $1,167.15
Let's say that this ($1,168) is the maximum payment the buyer can qualify for, and say further that the buyer really wants this house. The cost to the seller is $3,432.
Dropping the price to qualify the buyer: If the seller wasn't aware that he/she could buy down the mortgage for the borrower, and the seller is willing to drop the purchase price to the point where the buyer's payment (80% mortgage, 20% downpayment) reaches $1,168, the sales price would have to drop by $12,500. in order to get the mortgage payment down to this level. Your commission would drop considerably too!
Another way to use money the seller is willing to give toward making the transaction work:
Mike: thank you for your detailed answer, and for the phone call also!
Anne , great question. When Mike Jones spoke of your blog it made me think of all the information that I see but sometimes don't know exactly what it means. Mike, my preferred lender, and I will be meeting next week to talk about this and other topics all because of you!
Secondly, just a few weeks back we drove through your town and saw several elk grazing on the mountainside. It's stunning up there. We moved to Tucson from Toledo, OH three years ago and haven't had the privilidge to tour the state much. Flagstaff rocks! Best of luck!
Your post is very helpful, and if you prepared your house there will be next problem - sell your house FSBO. There are lots of sites on the web that can help you with it. But nowhere I met good helpful services. And when I got at Fizber I was surprised. There were so many services like finding schools at http://schools.fizber.com/ or finding videographers at http://videographers.fizber.com/.