You don't often hear this question from homebuyers; but, perhaps you should raise it yourself. Counseling the buyer as to the best way to structure the transaction can save the buyer thousands of dollars and sometimes can save the sale!
The lowest rate always carries the highest closing costs. This adds to the total acquisition cost of the property, which impacts initial and future equity.
You may argue that it does not cost the buyer when the seller is paying the buyer's closing costs; but in reply I would challenge you to show me a serious seller that would accept $100,000 paying $5,000 closing costs but would not accept $95,000 paying no closing costs. The seller just receives more or less. Only the buyer is on the paying end of the transaction in fact.
In this current odd market where appraisals are often a problem, sales professionals may want to consider whether or not "loading up the sale price" is actually going to benefit the buyer; and, even if it is the buyer's best choice, is it the only way to make the deal work. If it is, then ok-go-for-it, but be aware that you have a thinly qualified buyer, so there's no maneuvering room with a low appraisal.
Related to this is the advice you may be providing your seller, both at the time of listing the property and at the time a contract is offered.
At the time of listing you may want to engage the seller in a discussion of "list price strategy." For this discussion you will need to show the seller alternative list prices required to achieve the desired seller's net given various levels of seller-paid closing costs. The range of alternatives will be from "bare bones" price (no seller-paid costs) to a "fully loaded" list price (seller pays the max, maybe 2 to 3 points + CC). One good reason to do this is that it will disarm the seller who doesn't want to "pay" closing costs, since each scenario delivers the exact same seller's net.
There are pros and cons to either extreme of a list price strategy. A more competitive price may deliver greater activity, but you can almost bet that any offer in the first-time homebuyer price range will ask for seller-paid closing costs anyway. And, what are the consequences (buyer reaction, appraisal, lending guidelines) if the seller counters at a price above the list price? The "fully loaded" list price may cause selling agents to pass you by, but there is more room to negotiate and it's easier to come down than go up on the price.
So, sure enough, a low offer is made. And, sure enough, the buyer is asking the seller to pay a large amount of loan fees and closing costs. The seller is very motivated but can't live with the net. What to do? If you counter on the amount of seller-paids, the buyer may not qualify for the loan. Countering at a price that leaves the seller-paids alone may be more acceptable to the buyer. But will the property appraise; and, is the low rate/high cost choice really the buyer's best choice??
What I have presented here is the dilemma, not the solution. The solution is for the buyer's agent or the buyer's loan counselor to have counseled the buyer as to which rate/cost combination is the best choice. The best choice is not someone's opinion. My research has found that neither is a thumb rule reliable (so, be careful!). The "financially correct" choice can only be found using technical analysis.
As additional information I have posted a Best Rate Choice Analysis here> http://e-linq.com/Examples/BesteRateChoiceExample.xls
Each of the transactions summarized results in the same net to seller. Notice that, although the buyer expects to live in the house 7 years, the results do not show the lowest available rate to be the best choice. The rate schedule used ranges in loan discount points from about 2% to -2%. Different levels of loan discount yield different results.
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