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Everybody Wins with Seller Paid Discount Points

This week’s Expert Discussion series features Josh Lewis & Scott Schang discussing Seller Paid Discount Points


Scott Schang: And we are live.

Josh Lewis: Perfect. Welcome back to find my way home live. It’s Thursday at five. We try to go if not every week, every other week here, and go through topics that are important. Questions, problems, and issues that buyers are having in the current market. And today we’re gonna talk about an interesting strategy for coping with high prices, a possible inflection point here in the market.

Josh Lewis: High prices and high interest rates. So really those two things combined are causing some affordability challenges and a little bit of an impasse in certain markets on certain properties between buyers and sellers. So this is a strategy that Comes and goes when rates are high, especially rapid increases in interest rates, which literally what is it?

Josh Lewis: Is it 30? The most rapid increase in rates in at least 30, but it may be even 40 or 50 years. So in the last six months, we’re up two and a half percent. That sort of gives buyers whiplash relative to looking at homes in December and saying, what do they cost on a monthly basis and looking at them today and saying, what do they look like on a monthly basis?

Josh Lewis: And, car dealers adopted this strategy, back in the eighties and nineties of let’s not talk about how much the car costs. People are really worried about what the monthly payment is. On a mortgage, on a house. That’s an even more true and it always has been true. If we look over time, if you just look at home prices and household incomes, it doesn’t show the true relationship because it also is impacted by the interest rate, which tells us how much the monthly payment is.

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Josh Lewis: So what we’re talking about here today is a buy down strategy. Specifically the seller buy down strategy that Scott’s gonna walk us through here of. A way that sellers can help you get a lower monthly payment without a gigantic price cut, which many buyers would hope to see? And the market’s not really warranting right now.

Josh Lewis: So with that, Scott, why don’t you do we wanna first talk about just what a buy down is period, and then go into the seller, buy down strategy? Or do you wanna just roll into some of your thought.

Scott Schang: Yeah, we’re gonna cover it as we go down and we can talk about buy downs and there’s a couple of different buy downs, right?

Scott Schang: There’s there are temporary buy downs, which are allowed in a lot of guidelines. And I talked to somebody the other day and they actually told me, oh, I, when I bought my house, 15 years ago, the contractor was doing a two, one buy down. And like what the, that kind of means is you have a low interest rate, a lower interest rate for the first year, a higher interest rate for the second year and a little bit above what the market rate was three years ago permanently after the third year.

Josh Lewis: And specifically that two, one buy down for the first year, it’s 2% lower for the second year. It’s 1% lower. And then you go for the remaining 28 years at whatever the interest rate is. So one of the common ways, the person who’s telling you that story said, Hey, the builder paid for that.

Josh Lewis: So in essence, what happened there? We have one year at 2% less interest the lender received 2% less interest than they wanted or expected. And then one year where they received 1%. So 3% of. Didn’t exist or didn’t get paid to the lender. So someone had to pay it. So in that instance, the build the builder said, Hey, we don’t want to cut our price.

Josh Lewis: Let’s help you get into the property. We’ll pay those three points and you can benefit from that in those stepped in basis. Over two years one year at 2% lower one year at 1%, and then go to the long term. The other way, which you hinted at Scott is. Pay for it yourself upfront, which sort of defeats the purpose, or you can take a higher interest rate over that remaining 28 years.

Josh Lewis: And the lender says, cool, we’ll take a little less in year one, a little less in year two, and then catch up over the remaining 28 years. It’s. It’s a viable strategy. Totally legit, totally allowable. Right now what we’re seeing is not many lenders offer it because there’s some logistics on the back end of their part.

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Josh Lewis: They have to manage that impound account. They actually set the money aside. And when you make your payment every month, they send a little bit of extra interest off to the lender to make them whole for what they were expecting. If rates stay elevated for the next six, 12 months, we’re probably gonna see most lenders offering them as of today.

Josh Lewis: They don’t. So today, specifically what Scott’s gonna walk us through is a permanent buy down. Yeah. Using funds from the seller to permanently buy down the interest rate. And he’s gonna go through the math of why in terms of qualifying and in terms of your monthly payment, this is gonna be your most bang for the buck.

Josh Lewis: Above and beyond what a price reduction would do.

Scott Schang: Yeah. And, this is interesting because it’s, it’s funny Josh this strategy only works in certain markets and it works in really volatile markets where rates are rising really fast. And the last time I. I brought this out.

Scott Schang: So what we’re sharing today is actually a presentation that I’m doing for several hundred loan officers to help them be aware that this program exists, because this is really about education. There’s a lot of moving parts. All parties in the transaction need to be involved. And if somebody doesn’t understand it, there needs to be an education process that takes place.

Scott Schang: So this is actually a presentation that I did to help under help loan officers understand the, what this. This strategy is. And, I think it’s a really good idea that you, as a consumer or as a home buyer, understand this strategy because you can bring it up with your loan officer. And if you’re dealing with a loan officer that just got into the business in the last few years, They’ve never heard of this.

Scott Schang: They don’t know how to use it and it’s not even on the table. And when I show you how this works, I think you’re gonna agree. That it’s a really good thing to know about whether you can use it or not. If it does work for you. It’s very beneficial. What’s funny is this presentation, Josh. I actually brushed this off.

Scott Schang: Last time I did this presentation was in 2018 because from August of 2018 to November of 2018 interest rates went from four and a half to 5%. And at that was a pretty big jump. That was a half percent jump. Within 30 days, people started panicking. We started seeing buyers pulling out of the market or offering below.

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Scott Schang: Or offering lower prices because they could afford less. And that’s really that’s an important part of this. The first thing that, that I want everybody to understand that when you’re buying a home, you’re making an offer to buy a home. You are negotiating to buy a home from the seller of the home.

Scott Schang: Now that’s usually done. Through your real estate agent, your real estate agent knows the laws, and they’re like your attorney in the case. And you’re trying to get the best deal and they’re trying to get the best deal. And at the end of the day, you have a successful, no negotiation.

Scott Schang: And I’ve always said that a successful, no negotiation is when everybody walks away from the table and they all think they got the best. And that this strategy plays a little bit into that opportunity. So really what we’re talking about is right now, affordability is the issue, Josh. So a year ago on July 20th, 2021, the interest rate was 3.2, two, 9%.

Scott Schang: And at that point, if you were. Qualified for a home for $450,000. And that was where your price range is. That was fantastic. On July 20th, the interest rate top just over 6%. And now instead of affording a $450,000 house with nothing else changing. You can only afford a $413,000 house. And if you’re a buyer and if you’re in a, in this market to try to buy, that home prices are not going down, if anything, there’s multiple offers and there’s all cash offers and these prices are starting starting to go up.

Scott Schang: But the seller buy down solution comes in right at this point of the market. Josh. You said that this is the fastest rates have ever gone up. I know they made a really big jump last week, but how long how high have they risen in what period of time?

Josh Lewis: Yeah, let’s put this all into context.

Josh Lewis: So you had talked about 2018. That was one of the bigger jumps we had seen. And if you remember, 20 13, 20 14, the fed was fighting the effects of the great recession. They, their first, first three rounds of quantitative easing. We had got rates maybe on our best days down to about 3.6, two five. If we look at the Freddie Mac primary mortgage market survey, which is what you’re quoting here, probably 3 75 is about as good as the rates got.

Josh Lewis: So they had inched up and then in 2018 jumped up to almost 5%. So one and a quarter jump, but 3.75 up to five. It’s about a 25% increase there in the interest rates, maybe 30% and J December. Just before Christmas is about when we’d hit the lowest levels of last year interest rates were under 3%, 2.97 2.98%.

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Josh Lewis: And you just showed the number of 6%. So we’re back under 6% by most measures for most well qualified borrowers. That are not doing a minimum down with a lower credit score or buying condos or buying units or buying a, an investment property. Your average borrower with 10 to 20% down, a seven 50 FICO and a single family residence is gonna be well under 6% right now, but definitely the high five.

Josh Lewis: So when we look at that, Scott, what’s, the answer rates have doubled in six months. . Yeah.

Scott Schang: And the numbers that we’re gonna talk about today the rates are pretty irrelevant. We did go back to historical charts to pull some of these numbers or being conservative with some of these numbers.

Scott Schang: The actual number is not as important as the conditions of the market. And the opportunity to use this strategy. So you said this before, what we’re really looking for is an interest rate time machine, right? And if interest rates are 6%, we can use seller discount points to go into the interest rate, time machine, roll it back to maybe five and a quarter, something like that.

Scott Schang: And here’s why we do that. And here’s why we do this target. So I have a couple of case studies for you that I pulled out of Austin. And then I wanna ask. Josh, what kind of opportunities you’re seeing for in maybe a higher cost area? So here’s the first case study. This house is in Austin, Texas. The, there was a recent price reduction from 420,000 to $405,000.

Scott Schang: So as this home sits now on the MLS. Available for sale. This home is listed for $405,000. The seller has already agreed to take $15,000 less than what they originally listed the property for sale at. Now, the very first step that we need to do in order to look at this strategy is we gotta try to figure out what the actual value of the home is because what we’re seeing.

Scott Schang: Josh is we’re not seeing home prices go down. We’re seeing really a really aggressive home sellers be a little bit less aggressive. Is that accurate?

Josh Lewis: I would say this it’s a funny market. Sellers are going on two years of being in absolute and total control buyers had no say in the matter it was essentially an auction for every property.

Josh Lewis: So some seller. Got really aggressive. They just looked around and said, Hey, whatever the last guy sold for, I’m 10% higher and that’s not realistic when a market levels off now. Right now, one of the things got an important thing for us to talk about. I is the, you see the headlines, the click bait is the market cooling market, is gonna crash.

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Josh Lewis: What we’re seeing is a normalization. and yeah, how long this continues and what direction it goes is largely gonna be dictated by interest rates because it’s caused by interest rates. That doesn’t mean that the home prices having gone up 35, 40% over the last two and a half years, isn’t important.

Josh Lewis: The bigger part of. The monthly payment, because look back to January and February, when rates were much lower, they were still in the threes. People were buying and there were long lines and all of my buyers were crying about, it’s 20 offers on every property. Yep. So can’t get my offer accepted the sellers that are super aggressive that think they get 10% more than the last sale are.

Josh Lewis: Sadly disappointed. The people with nice homes that are pricing right are getting their homes sold and having two, three offers. And. Pick and sift through them and the people who have a, not so nice home, but still expect to get a, not a nice price are ending up looking at price reduction. So really your bigger question was not why people are doing it or what’s happening is it is happening.

Josh Lewis: That some homes are not moving as quickly as they were and motivated sellers don’t wanna sit around with their house on the market. They want to move the house. So back to your original slide of what is the win-win proposition for that person to sell their house and for you to buy it.

Scott Schang: Yeah. So let me set this up a little bit.

Scott Schang: Just so that this is clear, cause I removed some slides outta here that, for loan officers, it would be more important. But what we’re looking at is that original sales price of four 20, and we wanna know. What will the house actually appraise for now, if you’re a consumer and you go online and you look on Zillow or Redfin, they’re going to give you what the home is listed for.

Scott Schang: So you need to talk to either a loan officer. We have access to tools that can do valuation models or talk to your real estate agent about sales comparables and see what the house will actually appraise for what could sell for based off of. The appraised value. So let’s take a look at what our options are.

Scott Schang: So the asking price after the reduction is $405,000, right? So in this scenario, I’m just doing a 20% down conventional mortgage. And what you’re seeing here is a little pricing tool. That kind of shows what the interest rate is. And so at 6% that you’re not paying anything for this interest rate your payment is $1,942 and 54 cents just as just the principle and interest to make an offer on this house.

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Scott Schang: Now. If you really want this house, you can absolutely go in and offer $405,000 and pay your interest rate and get this house for an under $2,000 payment without taxes and insurance. Or if you want to be extra competitive, you go back to the seller or your real estate agent goes to the seller and says, Hey, listen.

Scott Schang: If I offer you the original $420,000, but you give me back $7,300 to permanently buy down my interest rate. And you’ll see that here in the red, this is the cost for a 4.37 or 5.375 interest rate. The, my payment. Now as a buyer is $1,881. So my payment is actually $62, less than if I took a market rate and bought the house at $15,000 lower.

Scott Schang: Now where this really gets cool is, First of all this, why would the seller give you $7,300? The reason for that is because the seller is making an additional $7,600 that they wouldn’t have made if they would’ve sold a house at $405,000. And so that’s how this strategy works. This is one of the lower leverage strategies.

Scott Schang: Like for every dollar they paid in discount points. Like they get a dollar. In equity and that’s that’s a minimum viable return, I think on that investment. But what you’ve done as a buyer is you’ve now separated yourself. And we’re gonna talk a little bit about how everybody wins in these scenarios, but let’s go to another Scott,

Josh Lewis: hold on.

Josh Lewis: I don’t want, I don’t wanna leave that one yet. There’s I have some comments and things that I want to say. So you’re looking at this and there’s something in the first jumps out at me. If you’re not in the market. Which you probably wouldn’t be watching this video if you’re not in the market, but if you’re watching it home and you’re in the market, you say wait, they offered to take $15,000 off.

Josh Lewis: This is great that this saves me $60, but why would I pay $7,400 more net than what they’re asking for? Why wouldn’t if I want $7,500 in discount points, why wouldn’t I just ask for add, the 7,500 to the 4 0 5, you would the only situation where you’re gonna go and say, Hey, I wanna net you more than what you are asking for.

Josh Lewis: They’ve cut their price to 4 0 5. You would say I’ll go 4, 12, 5. But what we’re seeing a lot is these homes are slightly above where the market wants to be. They get a price cut, and now there’s three offers. This makes you competitive. If there’s multiple bids, but if there’s not, you can do. A lower offer.

Josh Lewis: You give them full price. Hey, what I’m asking for? Plus the I’m gonna cover my own credit, that $7,500 roughly. So you say, I will give you 4 12, 5, and you’re getting that savings without having to go all the way to four 20 and that additional $7,500 with current interest rates gonna save you like another $40.

Josh Lewis: So they get what they asked for the second time around putting it into the MLS at 4 0 5. Or if you do get into multiple bidding situation. You’re now more competitive and can go higher with still having a lower monthly.

Scott Schang: Yeah. And you that’s a hundred percent right, Josh. The, we started this off by saying a successful negotiation is when all parties walk away and feel like they got the best deal, so you’re a hundred percent, you could just raise the offer $7,500 more and then ask them to refund that back to you. But there’s not a lot of incentive or anything to gain. By the seller doing that. And if there are any other offers, cuz you’re essentially what you’re doing in that scenario is you’re just offering 4 0 5, right?

Scott Schang: They’re gonna net the same as if they sold it at 4 0 5. So again, see this stuff is complex.

Josh Lewis: It’s complex, but Scott here let’s take a real world example. I have a client, very similar situation. They didn’t necessarily, they were comfortable with the payment. They didn’t want the buy down. This was a property, a lower price property in Northern California came on the market at 2 35.

Josh Lewis: And no one bought it. They had a price cut. They were down to two 15, I think is where they were at my buyer calls and says, Hey, it’s been on the market for 60 days. Went into escrow, fell out, they’d have a $20,000 price cut. I wanna offer ’em two 15, but I want, we went through for them. They needed $9,500 to come in with nothing but their down payment.

Josh Lewis: So it wasn’t about buying down the interest rate, but I’m talking about the negotiation here. So they went back and she said, I. $200,000. And I want $9,500 for my closing cost. And the seller said pound sand, because that’s not a win-win that’s I win. I get in with basics. I cut you even lower, but we had several rounds of back and forth and excellent realtor representing them and went with the same attitude that you were talking about saying.

Josh Lewis: Hold on. Let’s not throw the baby out with the bath bar and go, Hey, these guys are turds. Let’s go back and forth and say, what do you need? Where do you need to be? And now I’m gonna go back to my client and see if it works. And I believe we ended up at about $5,000 higher than what they were asking for with the $9,500 credit.

Josh Lewis: And my client gets in with exactly three and a half percent down payment is totally comfortable for her. So that was a win-win. So you’re a hundred percent. But. As where a professional realtor on your side comes into play because they’re having that interface with the seller’s agent and the seller saying, what’s their hot button.

Josh Lewis: Is it, do we close as quickly as possible? Do we net as quick, as much as possible? And we run through these numbers. So the number side, your loan officer, Scott, me, whoever you’re working with, this is a tool to help you negotiate. How do you get the payment as low as possible with the seller, getting what they’re gonna need to agree to

Scott Schang: accept your offer.

Scott Schang: And this is really. Financing strategy Josh. We talk about all the time. The reason why we built the find my way home expert network is to collect a community of experienced loan officers that are always looking for these types of strategies. Real estate agents may not know about this strategy.

Scott Schang: They may not have run into this a lot and they don’t do it that often, cuz it’s really a financing tool. So your lo your real estate agent may not suggest this to you. It may come from your loan officer, hopefully if you have a very experienced real estate agent and they’ve structured deals like that before then they’re absolutely going to make that offer to you.

Scott Schang: But. If either your real estate agent or your loan. Are unfamiliar with this strategy. You could need to upgrade your team potentially. We say this all the time, your options are always limited to the experience and the effort of the people that you decide to work with and they do and they do work for you.

Scott Schang: Let’s go onto this other one. Josh, because this one is also really interesting. This one was a 3 75 to three 50 reduction. So the seller out of the gate already took is willing to take $25,000 less. We’re gonna check and we’re gonna see if the property would appraise same type of scenario.

Scott Schang: 20% down, 6% 30 year fixed, you got a $1,678 payment. Or we could ask the seller to pay $8,400 in discount points. Get our interest rate down to actually we’re at 5.2, 5%. And our payment again is lower than is lower than. Our original what our original payment is. And in this particular scenario, the seller is giving is paying you $8,500.

Scott Schang: They’re netting, an additional $16,500. That is a really strong win-win for that for that seller. And to be honest, this is. Closer to the leverage that you will usually see based on for every dollar in discount points. The seller contributes to you. The return that they will get back in equity.

Scott Schang: This is a lot closer to how most of this most of this math ends up working out. Again, this is what we said a successful negotiation is when everybody feels like they walked away and everybody feels like they got the best deal. It’s not the only strategy. But as you said earlier, Josh, in certain markets and definitely in certain markets around the country and.

Scott Schang: Under certain market conditions. This is just one more tool that you have in your quiver there in your arsenal when you’re going out there, because it’s not that there’s no competition anymore. But this is a really cool way for you to manufacture some distance between you and what all the other buyers in the market are expecting, which is to make an offer on the house at the reduced price.

Josh Lewis: And Scott here’s an interesting point that I want you guys that are watching this to understand this really benefits the seller. So as a salesperson person who sells mortgages professionally for a living, I want to go and explain it to people with listings, cuz we’re saying, Hey, you cut the price.

Josh Lewis: $25,000. We can offer the same benefit to a buyer with a third of. Cut of 40% of that cut and find a win-win where everyone comes out ahead. But the seller’s agent, the listing agent, the person who sign is in the yard for the home, rarely controls the financing you are showing up with your lender in line with your realtor.

Josh Lewis: So it’s almost it’s hard for us to get the message. Other than two realtors who are working both sides of the fence. If they understand this, how this works for their listing, they’re gonna be able to understand and explain it to their buyers. And we’re not by any stretch sitting here saying, Hey, this is the one and only are the best solution for the current market.

Josh Lewis: And you’ll notice the examples that Scott gave here. The Austin market is hot. I have no idea where Flickerville is. I’m assuming it’s somewhere near Austin, but it is still a hot, it still is a hot market. And yet in that market because of rates, haven’t gone up because of prices appreciating so much.

Josh Lewis: There are homes for the first time in two or three years where that selling agent and the seller have tipped their hand that, Hey, this didn’t sell for what we thought it was. We’re open to negotiation. Think about the last two years, if you had said, Hey seller, would you like to negotiate with me? It may not be as rude as a middle finger, but you’re gonna get a response that is very similar to gold pound sand.

Josh Lewis: I have no interest in negotiating. I’m waiting to see which supermodel shows up to pick me up and take me out on the town. So we’re entering a different market where some sellers to get the number that is comfortable for them need to negotiate. So if you’re out there looking, if a home’s been on the market for one day, this is not a good strategy.

Josh Lewis: It’s not gonna work immediately, but if you’re on the market for two weeks, you’ve been on the market for six weeks. If they’ve had a price reduction, these are great targets for this and you and your realtor are probably gonna have to educate the listing agent on why are we doing this? And how is this a win-win for.

Scott Schang: Yeah. Yeah. It, you said a lot of things there that I really wanna expand on and the reason why this is complex and the reason why it doesn’t get used a lot is because there’s a lot of parties that need to be educated. If the buyer’s agent, if the, if. If your agent representing you has never heard about it.

Scott Schang: Then the lender has to explain this math to you, then the buyer’s agent, then your agent is expected to go talk to the seller’s agent. And then the seller’s agent is expected to have to explain it to the buyer or to the seller of the home. So what happens in most cases is, again, this is a financing tool, your loan.

Scott Schang: Should be able to explain this and your loan officer can put together a spreadsheet and show the math and show the numbers and show exactly how this works. Then what you wanna do is get your loan officer on the phone with the listing agent, with the agent that represents the seller. That’s the best way to approach this and have them do.

Scott Schang: A conference call with your real estate agent and their real estate agent and the lender and discuss this strategy and really talk it out, show the math and give everybody an opportunity to see, another part of this Josh is timing has a lot to do with this because the single most important aspect of this strategy is that the house will still appraise for what the original list price was and the way that we determine.

Scott Schang: In real estate, the way that the value of the home is determined is it’s by what somebody would pay for it. And what somebody is willing to pay for a house in the similar area with similar features, similar amenities within the last six months. So right now, We’re just seeing these price reductions.

Scott Schang: So all of our sales comparables are based off of this really hot market in the last six months before interest rates shut up. So in six months from today or 12 months from today, if there’s been a lot of price reductions, and nobody knows about this strategy, you’re gonna start seeing these home values coming down and you’re gonna start running into challenges.

Scott Schang: With getting the appraisal done. So real quick, let’s let’s kind of bullet point here, how everybody wins in this scenario. So as a buyer you win first of all, because your offer stands out. If you can put yourself in the seller’s shoes for a moment that seller whatever is going on in their life, made a decision to accept.

Scott Schang: Tens of thousands of dollars, less than what they originally expected to receive. So they’re already in this mental state of I had to give something up, my agent promised I could sell it at this, and now we’ve gotta sell it at this so you really get an opportunity to turn heads and your offer’s gonna stand out amongst any other offers that come in.

Scott Schang: You’re gonna get your lower interest rate. You’re going to, you’re gonna step into that interest rate time machine, and you’re gonna get the rate we had two weeks ago, I guess last week was brutal. So you’re gonna turn that. You’re gonna turn that back and it’s permanent. So Josh. On a scale of one to 10, what would you say the probability is of interest rates going down at some point in the future?

Josh Lewis: 99.9, nine, 9%. Okay.

Scott Schang: So on a scale of one to 10, it’s a 10 and a half.

Josh Lewis: Yeah. Yeah, no, they’re actually, they’re absolutely going to be lower. The only question that we have is what does the timeline look? Yeah. And that’s part of the reason why people are a little bit uncertain of saying, Hey, our home price is gonna come down.

Josh Lewis: If interest rates were to stay at 6% for a prolonged period of time, I do believe they would come down. I don’t believe home prices are going to come down because I believe rates are going to normalize. Does normalize mean 3% again? Probably not until the next crisis, but is a 4% rate is a 4.5% rate, a little more reasonable than where we’re at today.

Josh Lewis: And is that supportive of home prices at the levels? They are, it would still cool. The market off, we wouldn’t see the 16, 18% year over year appreciation that we had been seeing, but that’s probably what normal looks like. We’re in a. Position in the economy right now, where inflation is completely out of control and the fed allowed that to happen by stimulating too far into the recovery.

Josh Lewis: And what they’re gonna do is they’re going to put the foot on the brake too far into the slowdown. So I don’t expect them to reverse course anytime soon, but they will put their foot on the brake way too far into a downturn. And as a result, Rates will go and correct course back lower. It’s you, when your blind 90 year old grandma gets behind the wheel and she hits the gas too hard and then hits the brake too hard.

Josh Lewis: That’s the fed, trying to drive our economy. it’s never the nice, smooth down road drive down the road. So the last few years they’ve been flying down the road with both feet on the gas, not knowing there’s a brake pedal, and now we’re dealing with the repercussions of it. But for the last month or two, and for the foreseeable future, they’re stomping on the brake pedal with both feet and that’s gonna have repercussions as well.

Josh Lewis: So in the context of this where are we going? What are we saying? I think home prices are absolutely going to level off. I don’t see another big spurt of home price inflation or home price appreciation. But I also don’t see a big downturn either. So that’s where these win-win solutions come into play.

Josh Lewis: How do we get the seller, what they want and need, and a payment that you want and need that you are comfortable with and that your family can live with. A big thing in the paper, oh, adjustable rate mortgages are making a comeback. Would you rather have an adjustable rate mortgage?

Josh Lewis: And. If it’s 2, 3, 4 years before rates go down that adjusts up and you end up paying a bunch more money, or would you rather have some type of fixed rate mortgage like this, where you have the certainty? Here’s my worst case. And if things go in my direction like I believe they will, I’ll have a, an opportunity to refinance to a lower interest rate.

Scott Schang: Yep. Yep. So obviously you get the lower payment, you get the long term savings and while this doesn’t apply as much anymore, when they raise the minimum the minimum tax deduction discount points technically are can be written off on your, on, on your taxes. Is that correct? Josh? Yeah.

Josh Lewis: Yeah.

Josh Lewis: If you, on, on a purchase they’re deductible in the year that you purchased the home. So these are our big benefits. So let’s say it’s a $500,000 home seller pays two points. It’s $10,000 deduction. You’re gonna know where I’m located when I tell you cuz to me, I go, Hey, that’s 40% of that between state and federal.

Josh Lewis: In Texas, you’re just looking at your federal taxes. So it could be anywhere from 20% to a 40% of that $10,000 savings in your first year. Of your taxes consult your tax professional so that they can go through your situation. But if you’re itemizing, there’s no limitation on those deduct.

Scott Schang: Yeah. Yeah. So that’s a huge win. The seller wins, we talked about maximizing the sales price, which really just means which really just means that they’re going to get a higher net and what this serves as the, for the seller. And this is really for the real estate agent is it’s a good counter offer strategy.

Scott Schang: So I, in a market where if prices do continue to cool down and a buyer. Offers a below a much lower price and the seller can come back and say, Hey, how about if we go back to this price and we offer to buy down your interest rate it’s a PO it’s a potential benefit. Really? The benefit to the seller here is that they get a high, they take home higher more money when they sell the home than they would have if they sold it at the reduced price.

Scott Schang: And this is important. It, some of this sounds it just benefits them, but it really doesn’t. So here’s a couple things. If you’re the buyer’s agent, your offer is gonna absolutely stand out when you give it to the pre the agent that’s selling the home. The now real estate agents make their money off of a percentage of what the house sells for.

Scott Schang: So if we want to appeal to their, let’s say their capitalistic side, there is an incentive there for them to sell the, go ahead, hold.

Josh Lewis: Yeah, I’ll put the kibosh on that one. And I don’t mean to be a Dick to you on that, but let’s be realistic. 2% of $15,000 is 300 bucks. I don’t know any realtor. Who’s willing to risk their reputation over 300 bucks, but what they are very interested in if this lovely young lady here is farming that neighborhood in flu Flickerville, she’s very interested in not having a lower sale go up as.

Josh Lewis: In that neighborhood. So they absolutely want to protect home values in that neighborhood. And it is in their best interest to do everything they can to find a win-win number that’s as high as the buyer’s gonna

Scott Schang: tolerate. I’m totally with you. I’m totally with you on that one. The there’s a, there’s another figure that.

Scott Schang: Real estate agents that focus on selling homes, especially in their neighborhood which is the list to sell ratio. And they depend on that heavily. And they say, I list, I typically li sell my homes for 97% of what we list them for, or 105% of what. They list it for. So if they’re going in and it’s continuously selling for lower than what they listing for, when they’re trying to win that next listing, the seller’s gonna look at that and say you always sell it for less than what you list it for.

Scott Schang: So this protects this their cl their client is Stok. Oh, I went right to the beginning. The, everybody is stoked. The buyer is excited, the seller is excited. And then what you just said, Josh, you’re not putting any low sales comparables in that community, which means that real estate agent is helping to preserve the home values in the neighborhood that you’re trying to buy in.

Scott Schang: And that’s

Josh Lewis: really what it, which is good for you as well as you are now a homeowner in that neighborhood, you want home values as high as possible

Scott Schang: as. . Yeah. Yeah. So that’s basically it. And I wanted to celebrate with this last slide because Josh, this is your favorite picture and we call you the Yoda because of your all knowingness.

Scott Schang: And I just wanna know that when you woke up this morning, did you say. All I want for my birthday today is to talk about seller, buy down strategies. That is

Josh Lewis: exactly it. Like it was, I couldn’t wait to wake up. Like it was dancing in my head all night, like a kid on Christmas Eve, like sugar plums dancing around in my head was seller buy down.

Scott Schang: Yeah. So that’s it. So happy birthday, Josh. And thanks for and everyone

Josh Lewis: asking the question. Yes, I am 29. Dig.

Scott Schang: Again? Yes. Yes. So if we don’t have any questions, we will we will wrap this up and just wanna say thank you for for joining us. Like Josh said, we’re here most weeks live and we’re talking about what’s going on in the market today.

Scott Schang: What’s happening with the market, what kind of opportunities there are, and really trying to unpack and help you understand this. Because you’ve gotta understand when something like housing is in the news every night, if it bleeds, it leads, you’re getting click bait headlines.

Scott Schang: Every single time headlines are designed to get an emotional response from you. Yes, this is a time of uncertainty. The inflation is uncertain. Recession is uncertain. What’s going on with interest rates, there’s uncertainty, but there are always opportunities in the midst of uncertainty. And so we are here to really try to bring you bring this information.

Scott Schang: Bring this information to you in just a listen, you’re never gonna hear us say, we know what’s going to happen because we don’t and anybody that tells you that they know what’s gonna happen, they’re guessing, and their guess is as good as anybody else’s educated guess. But if they work for a newspaper or a or a TV station, That’s not an educated guess.

Scott Schang: That’s something to get you to read an article so that they can sell ads on it. Join us every week where we’ll have people like Josh been in the market for 25 years and we have an entire network of experts that are here to answer your questions. Do we have. Do we have our yes.

Scott Schang: So if you are in the market, if you have questions about affordability, what’s going on with interest rates, you want more information on the seller buy down strategy so that you can talk to your real estate agent about it. You can go to find my way home.com. You can search by state and you can find an expert in your area.

Scott Schang: And you can watch all of their videos and see what they specialize in. And you can determine for yourself whether or not they’re somebody that you want to work with. And that is what the find my way home network is.

Josh Lewis: And Scott let’s make sure we give a special shout out and thank you to our friend, Jennifer Lego.

Josh Lewis: Who’s here every week. We could, I think we could stream it like two in the morning. And Jennifer has a permanent YouTube feed to her that everything housing related, she is on it. So appreciate you being here and supporting us and and the live stream and everything you do for our channel for Jeb’s channel and many of the other good real estate YouTubers out.

Scott Schang: Yes. Thank you so much, Jennifer. And thanks Josh for making time to do this tonight. And for everybody watching I hope this was helpful and we will see you next time. See you.

About the Author

Scott Schang

A 20+ year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues and making sense of complicated real estate and mortgage topics on this website since 2007

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