I get a lot of questions when a buyer or seller is negotiating a price reduction vs a credit. These two options look very similar for a seller, but can be very different for a buyer. Let’s use the example of a $500,000 house for sale.
A price reduction is the seller lowering the price they will accept on their home for a buyer. For example they will accept $490,000 instead of $500,000. For the seller this reduction takes away from the net proceeds they will receive at closing.
For a buyer this reduction will reduce their monthly mortgage payment. The amount will vary depending on interest rate. Buyers that are sensitive to their monthly mortgage payment may choose this route.
A seller credit is the seller offering to pay for a portion of a buyer’s closing costs. For example they accept the full sale price of $500,000 and will contribute $10,000 towards the buyer’s closing costs. For the seller this reduction takes away from the net proceeds they will receive at closing.
For a buyer this credit will reduce the amount of cash they have to bring in at closing. If a buyer’s down payment is $50,000 and their lender/title/pre-paid closing costs are $10,000 they will only need to bring in $50,000 instead of $60,000 at closing. Buyers that would like to keep cash on hand after closing (most of the time for repairs or updates) may choose this route.
Have more questions? Reach out at marissa@livingroomre.com
