Seller Credit vs Price Reduction vs Rate Buydown Tradeoff Tool
Buyer Payment and Seller Net Proceeds Comparison
| Scenario | Buyer Loan Amount ($) | Interest Rate (%) | First-Year Payment ($) | Seller Net Proceeds ($) | Five-Year Buyer Cost ($) |
|---|
Negotiating Concessions with Data
Sellers and buyers often struggle to quantify the trade-offs between a price reduction, a seller credit, or using funds to buy down the buyer’s mortgage rate. Each tactic has a different impact on the buyer’s monthly payment and the seller’s net proceeds. A price reduction lowers everyone’s basis but may not move the monthly payment needle as much as a well-structured buydown. A seller credit can cover closing costs and discount points but is capped by program rules. This calculator brings clarity to those negotiations by modeling all three approaches simultaneously.
The tool helps listing agents and buyers script compelling offers. For instance, a seller might prefer a credit because it preserves comparable sale prices, while a buyer wants predictable payments. By showing how each option affects cash flow and net proceeds, both parties can strike a win-win agreement backed by math instead of gut feel.
How the Tool Works
Enter the list price, estimated seller closing costs (such as agent commissions and transfer taxes), and the buyer’s down payment. The calculator then computes the buyer’s base loan amount and monthly payment at the market interest rate. Next, it applies your concession scenarios:
- Seller Credit: Reduces the buyer’s upfront closing costs but keeps the price intact.
- Price Reduction: Lowers the purchase price, thereby reducing loan principal and seller proceeds.
- Rate Buydown: Applies funds toward discount points or a temporary buydown structure (2-1, 1-0, or 3-2-1).
The script also factors in seller net proceeds after covering closing costs and concessions. Buyer costs include principal and interest payments over five years plus upfront closing costs net of credits.
Mortgage Math Refresher
The monthly payment formula is identical to other mortgage calculators:
where P is the loan amount, r is the monthly interest rate, and n is the number of payments. For temporary buydowns, the effective rate is reduced by the chosen structure (for example, a 2-1 buydown lowers the rate by 2 percentage points in year one and 1 point in year two).
Worked Scenario
Suppose a $525,000 listing has been on the market for 30 days. The buyer can afford a 10% down payment and qualifies at a 6.75% rate. The seller weighs three offers:
- Provide a $10,000 seller credit.
- Accept a $15,000 price reduction.
- Fund a 2-1 buydown costing $12,000 and 1.5 discount points that permanently reduce the rate by 0.375 percentage points.
The calculator reveals that the seller credit trims the buyer’s upfront costs but leaves monthly payments unchanged. The price reduction saves roughly $97 per month. The buydown, meanwhile, cuts the first-year payment by over $350 and still reduces the seller’s proceeds less than the price drop. With this context, the seller might opt to fund the buydown to attract offers while preserving a stronger comp.
Interpreting the Output
The results panel highlights the monthly payment under each strategy, the seller’s net proceeds after concessions, and the buyer’s five-year cost. When you download the CSV, you can extend the analysis by modeling additional years or factoring in expected refinance dates. Listing agents can also use the data to craft marketing material that shows prospective buyers how a buydown shapes affordability.
Comparison Table
This example summarizes the trade-offs for a mid-priced home.
| Scenario | Buyer Payment Year 1 | Buyer Payment After Reset | Seller Net | Five-Year Buyer Cost |
|---|---|---|---|---|
| No Concession | $3,068 | $3,068 | $511,125 | $196,080 |
| $15k Price Reduction | $2,971 | $2,971 | $495,975 | $190,260 |
| $10k Credit + 1.5 pts | $2,809 | $2,981 | $500,325 | $187,140 |
| 2-1 Buydown ($12k) | $2,712 | $3,068 | $503,925 | $188,460 |
Limitations
The tool assumes lender underwriting allows the proposed credit, price reduction, or buydown. Agency and investor guidelines cap credits relative to down payment size. It also treats buydown costs as fully funded by the seller and ignores potential escrow requirements. Taxes, insurance, and mortgage insurance premiums are excluded. Always coordinate with your lender and real estate professionals before finalizing offers.