Should Salem Sellers Reduce the Price or Offer Buyer Incentives?

If a seller is willing to give up $10,000 to complete a transaction, the smartest question may not be whether to reduce the price.

The better question is: Where can that $10,000 create the most value for the buyer?

A $10,000 price reduction, $10,000 toward closing costs and $10,000 used for mortgage financing do not create the same result.

With affordability still affecting buyer decisions in Salem and the Willamette Valley, sellers should understand those differences before automatically changing the asking price.

Why are seller incentives becoming more important?

Mortgage rates have eased slightly, but not enough to dramatically change most buyers' monthly payments.

Freddie Mac's average 30-year fixed mortgage rate moved from 6.67% to 6.65% for the week ending August 20.

Meanwhile, national purchase-mortgage applications declined last week rather than increasing.

That combination is useful for sellers to understand. Buyers are still sensitive to affordability, and a small improvement in mortgage rates has not suddenly created a new wave of demand.

That makes the structure of a transaction increasingly important.

What happens when a seller simply reduces the price?

A lower purchase price certainly has value.

It can improve how the property compares with competing listings, reduce the amount the buyer needs to borrow and potentially attract buyers searching within a lower price range.

For a property that is simply positioned above what buyers will pay, a price adjustment may be exactly the right solution.

But if the objective is primarily to improve affordability for a specific buyer, the effect of a price reduction on the monthly payment may be smaller than many people expect.

That is why price should be compared with other options rather than treated as the only negotiating tool.

How can seller-paid closing costs help a buyer?

Buying a home requires more than a down payment.

Depending on the loan and transaction, buyers may also have lender fees, prepaid expenses, title and escrow costs and other allowable closing expenses.

A seller contribution toward those costs can reduce the cash a buyer needs at closing.

For a buyer who has sufficient income for the monthly payment but wants to preserve savings after purchasing, that can be more useful than reducing the purchase price by the same amount.

The allowable contribution depends on the buyer's loan program and lender requirements, so the financing details need to be verified before writing the terms.

What is a temporary mortgage-rate buydown?

A temporary rate buydown uses funds at closing to temporarily reduce the buyer's mortgage payment during the first portion of the loan.

The exact structure depends on the loan program and lender.

For the right buyer, it can make the transition into homeownership more manageable during the early years of the mortgage.

The buyer still needs to qualify under the lender's requirements, and the payment eventually moves to the full note rate.

This makes temporary buydowns useful in some situations but not automatically the best option.

What is a permanent mortgage-rate buydown?

Seller funds may also be used, when permitted by the loan program, to pay discount points that reduce the buyer's mortgage rate for the life of the loan.

A permanent buydown may create a larger monthly-payment benefit than using the same seller dollars as a modest price reduction.

But the benefit depends on the buyer's loan amount, interest rate, expected ownership period and the cost of the rate reduction available that day.

This is why we prefer to have the lender calculate the actual options rather than rely on rules of thumb.

Why should resale sellers pay attention to builder incentives?

New-home builders already use this strategy extensively.

In August, the National Association of Home Builders reported that 63% of builders were using some form of buyer incentive and 35% were reducing prices.

That matters even if a seller is not directly competing with a brand-new subdivision.

Builders understand that buyers shop based on more than the advertised price. Closing-cost assistance and financing incentives can change the buyer's monthly-payment calculation without requiring the builder to make an equally visible reduction to the base price.

Resale sellers should understand the same math.

When is a price reduction still the better choice?

Seller incentives are not a substitute for realistic pricing.

If a home is positioned well above comparable properties, adding a financing incentive may not solve the underlying problem.

Buyers still compare:

• Location
• Condition
• Features
• Recent comparable sales
• Competing listings
• Total monthly payment

If the asking price is preventing buyers from considering the property in the first place, reducing the price may be more effective.

Our recent Salem and Keizer market review above $450,000 showed that about 54% of active listings in that range had already reduced their price.

That is one reason we want to solve the correct problem rather than automatically choose one type of concession.

How should a seller compare the options?

We like to look at the transaction from both sides.

If the seller is prepared to concede a certain amount, we can ask the lender to compare what that amount would accomplish as:

• A purchase-price reduction
• Seller-paid closing costs
• A temporary rate buydown
• A permanent rate buydown

Then we can compare the buyer's payment, cash required at closing and the actual cost to the seller.

The goal is not simply to give the buyer more.

The goal is to use the seller's dollars efficiently enough to help create a transaction that works for both sides.

The asking price is only one part of the deal

Real estate negotiations are often described as if everything comes down to a single number.

In reality, price, financing, closing costs, repairs, possession and timing can all have value.

That creates more options for sellers than simply accepting an offer or reducing the list price.

For buyers, it creates an opportunity to negotiate for the term that actually improves their situation.

For a deeper look at the buyer side of affordability, read our guide to using leverage when mortgage rates remain elevated.

Thinking about selling in Salem or the Willamette Valley?

Before recommending a price reduction or seller credit, we want to understand what problem we are trying to solve.

Sometimes price is the answer. Sometimes financing assistance creates more value. And sometimes the listing needs better positioning rather than a larger concession.

We are happy to help you compare the current competition and understand the options before making that decision.