Try This One Trick When An Offer Comes in Low

By
Mortgage and Lending with San Diego VA Home Loans/858-777-9751

Assume you have a home listed for $500,000 and you're getting offers under $475,000. You're countering these offers at $485,000 because you're trying to preserve some profit on the sale. You might be focused on the wrong thing. 

 

Buyers pay mortgage payments, not price. In this case, the buyer may not want to pay more than $2500 PITI for the home (with 20% down at 4.25%, 30 year fixed, 4.32% APR).  She is offering a lower price  because her payment would be $2589 at $500,000. If you sell to her at her price, you will lose $25,000.

 

Counter her offer at $500,000 but offer to pay three discount points for her, to lower her rate to 3.75% (4.05% APR). This will bring her payment to $2473. This is actually $10/month lower than what her payment would be, at the no point rate (4.25), for a purchase price of $475,000. 

 

The buyer gets a lower payment and you only "lose " $12,000 instead of $25,000. Your real estate agent will have to understand financing well and "sell" it to the buyer's agent but, if presented properly, everyone gets what they really want.

close

Re-Blogged 5 times:

Re-Blogged By Re-Blogged At
  1. Marla Yost 09/02/2014 06:56 AM
  2. Phyllis Lerner call 914.438.7556 09/02/2014 10:44 PM
  3. Rain Silverhawk 09/02/2014 11:24 PM
  4. Andrea Burns 09/03/2014 06:41 AM
  5. Winston Heverly 04/29/2015 01:14 PM
Topic:
Home Selling
Location:
California San Diego County
Tags:
san diego homes for sale

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Rainmaker
1,467,941
Donna Harris
Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com - Austin, TX
Realtor,Mediator,Ombudsman,Property Tax Arbitrator

That's very interesting, never really thought of that as rates are so low, it's actually silly to buy them down... Might be better in a lower price point.

Sep 03, 2014 08:13 AM #77
Rainmaker
323,165
Fred Cope
Reliant Realty in Nashville, TN - Nashville, TN
Looking For Homes With A Smile

Brian, well presented post, and a valuable tool in a REALTOR's® arsenal.  From a different perspective, but same principle, I have used the points buy-down to get a buyer's high debt ratio in line.  Primarily, this has been beneficial for a home builder needing to move inventory--it attracts a needed buyer with a plum, i.e. lower payment.  You're key point is that rate reduction can lower P&I more than downpayment: most folks do not think in those terms; but a knowledgable MLO can hold a deal together.  I hope other REALTORS® remember this.

Another potential use is for the buyer putting a large downpayment into the transaction to lessen the down-stroke and buy down the rate.  For the same monthly payment, the buyer may reduce interest payments, increase principle reduction, and have a tax write-off for points.  Running the numbers is critical.

Have a great day, and keep REALTORS® in awe as to the value of a thinking MLO.

Sep 03, 2014 10:27 AM #78
Ambassador
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Silvia Dukes PA, Broker Associate, CRS, CIPS, SRES
Tropic Shores Realty - Ich spreche Deutsch! - Spring Hill, FL
Florida Waterfront and Country Club Living

Brian, thank you for tis post.  It's definitely something most agents wouldn't think of but could save the deal for both parties.  This is just the type of creative thinking that is needed many times!

Sep 03, 2014 11:50 AM #79
Ambassador
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Ed Silva
RE/MAX Professionals, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

I have had this explained by someone one in my past but have never had the occasion to try it, but it could be a positive

Sep 03, 2014 12:15 PM #80
Rainmaker
311,469
Brian Brady
San Diego VA Home Loans/858-777-9751 - San Diego, CA
858-777-9751

Like this Rich Arnold :

"Seller to pay 3% of the buyer's loan amount towards loan discount points and/or non-recurring closing costs.  Price to remain at $XXX,XXX.

Sep 03, 2014 12:36 PM #81
Rainmaker
311,469
Brian Brady
San Diego VA Home Loans/858-777-9751 - San Diego, CA
858-777-9751

It's just a math problem for the seller Tom White .  Try this:

We're priced at $500,000 and all the offers are coming in at $475,000.  We can try two things:

1- Counter at $488,000 and hope they will come up or
2- Counter at $500,000 with seller-paid discount points to produce the same payment as their offer.  This takes some salesmanship on the listing agent and the selling agent's parts. 

The delta is downpayments is $5,000 so that might be an issue but, if you can sell payments, you can save your seller some money.  Too often, we treat price as if it's the only issue when terms can make the deal happen.

Sep 03, 2014 12:48 PM #82
Rainmaker
311,469
Brian Brady
San Diego VA Home Loans/858-777-9751 - San Diego, CA
858-777-9751

Rates are low Donna Harris but I don't know anyone who doesn't like lower rates.  The principle works in a 4% mortgage rate environment or a 9% mortgage rate environment.  It's a just a math problem

Sep 03, 2014 12:49 PM #83
Rainmaker
311,469
Brian Brady
San Diego VA Home Loans/858-777-9751 - San Diego, CA
858-777-9751

Mario Reyes :  The price "prints" as the agreed upon price (in my example, $500,000).  Therefore, the buyer will technically be paying an "extra $26/month in property taxes (in CA).

The buyer would use the $500,000 as a cost basis.

The seller books this not as a donation but as a selling cost (much like title insurance or escrow fee)

Sep 03, 2014 12:55 PM #84
Rainer
115,233
Mario A. Reyes
Coldwell Banker - San Leandro, CA
Your real estate friend at San Francisco Bay Area

Thanks Brian for the explanation and I have something for you to "solve" in one of my deals that fell apart. I just want to know if you could have solved the deal.

As buyer's agent to my client who had availed of a special lender rate for a fixed (about) 4.25% Interest 30-year mortgage and 3% DP on a house located in a "distressed" area per Lender's program, we offered $380,000 (since this was the loan limit set by the Lender) and seller carry-back loan of $20,000 on a reduced selling price of $400,000. Seller refused acceptance. Then, we offered to increase the 3% DP by $10,000 and still the Seller refused to carry-back the other $10,000 not wanting to accept any carry-back loan at all since the sale price had been reduced. Will your trick financing work on this deal and how?

Sep 03, 2014 03:45 PM #85
Rainmaker
311,469
Brian Brady
San Diego VA Home Loans/858-777-9751 - San Diego, CA
858-777-9751

What was the listing price Mario Reyes ?

Sep 03, 2014 04:28 PM #86
Rainer
115,233
Mario A. Reyes
Coldwell Banker - San Leandro, CA
Your real estate friend at San Francisco Bay Area

Listing price was about $350,000. After we offered $380,000 the Seller countered with $400,000 as selling price.

Sep 05, 2014 12:54 AM #87
Ambassador
3,674,552
Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

Brian, I remember closing a gap with this very technique on one of my first transactions - back in the early 1980's!  This is a time-tested way to create a win-win for both sides.

Sep 06, 2014 02:00 AM #88
Rainmaker
311,469
Brian Brady
San Diego VA Home Loans/858-777-9751 - San Diego, CA
858-777-9751

It works in any price or interest rate environment !

Sep 06, 2014 02:08 AM #89
Rainmaker
311,469
Brian Brady
San Diego VA Home Loans/858-777-9751 - San Diego, CA
858-777-9751

Hmmm, that sure makes it tough, doesn't it Mario Reyes (selling some 15% over list price)?  I'm assuming this special loan program didn't have PMI ?

Sep 06, 2014 02:09 AM #90
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Jeff Dowler, CRS
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude

Could be a terrific negotiating tool, Brian. Great idea to keep in mind

Jeff

Sep 07, 2014 02:42 PM #91
Rainmaker
972,320
Jan Green
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

I used to do this back in 2003 and 2004, made a lot of sense then and will now!

Sep 08, 2014 12:36 PM #92
Rainmaker
302,832
Tammy Adams ~ Realtor / Podcaster
Maricopa Real Estate Co - Maricopa, AZ
A Maricopa Agent who Works, Lives & Loves Maricopa

That is actually a unique way of solving this issue. I never would have thought of this angle

Apr 29, 2015 02:20 PM #93
Ambassador
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Frank Rubi
Frank Rubi Real Estate, LLC - Metairie, LA
FrankRubiRealEstate.com

Brian Brady Time tested and works well. Just need to be explain to some agents but you do a great job here. 

Apr 30, 2015 12:13 AM #94
Rainmaker
797,509
Troy Erickson AZ Realtor (602) 295-6807
Good Company Real Estate www.ChandlerRealEstate.weebly.com - Chandler, AZ
Your Chandler, Ahwatukee, and East Valley Realtor

Brian - Now that is thinking out of the box for most real estate agents. A great way to satisfy both the buyer and the seller and keep that transaction moving towards closing.

Apr 30, 2015 02:51 AM #95
Rainmaker
273,464
Wayne B. Pruner
Oregon First - Tigard, OR
Tigard Oregon Homes for Sale, Realtor, GRI

What a great idea and you generated some very useful comments. Thanks.

Sep 17, 2015 06:11 AM #96
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