What a Rate Buydown Really Costs You as the Seller (And When It Beats a Price Cut)

When a listing is getting showings but not offers, most sellers reach for the price. It is the lever everyone knows. There is a second lever that gets less attention and sometimes does more for the buyer at the same cost to you: paying for a rate buydown. Here is the plain version of what it is, what it costs, and when it beats a straight price cut.

A rate buydown is a seller credit at closing that the buyer's lender applies to lower the interest rate on the buyer's loan. There are two kinds. A temporary buydown steps the buyer's rate down for the first year or two, then returns to the full note rate. A permanent buydown uses discount points to lower the rate for the life of the loan. In both cases the cost to you is a fixed dollar amount that comes out of your proceeds, exactly like any other closing cost credit. The lender calculates it before closing, it goes on the settlement statement, and you net that much less.

A price cut works differently. It lowers the sale price for every buyer who looks, it lowers the commission base, and it becomes the new comp for your neighbors. The buyer's monthly payment moves too, but usually less than a buydown of the same dollar amount would move it, because a price cut is spread across the whole loan while a buydown is aimed straight at the rate.

So which one wins? It depends on what is actually stopping the buyer. A buyer who is short on down payment, or who is comparing your home to a cheaper one down the street, needs the price to move. A buyer who qualifies but is stuck on the monthly payment needs the payment to move, and that is the buydown's job. Same dollars from you, very different results for them.

What trips people up is treating the buydown as free money. It is your money, and the buyer's lender caps how much a seller may contribute based on loan type and down payment. Before you advertise either option, have the buyer's lender run both side by side: your net and the buyer's payment under each. That one page beats any rule of thumb.

The costly mistake is solving the wrong problem. Ask what is stopping the buyer first, then pick the lever.

This is general information, not legal or tax advice. Questions about how a credit affects your taxes or the contract belong with a tax professional, an attorney, or the buyer's lender.

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Jon Hegreness, REALTOR / Associate Broker, Howe Realty
(623) 826-0888 / JonHegreness@gmail.com / License BR540940000
9059 W Lake Pleasant Pkwy, B-200, Peoria, AZ 85382
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