Are buyers asking for help with monthly payments on your De Smet home, but you’re not sure whether to offer a rate buydown or cut the price? In a small, rural market, the right incentive can change your time on market and your final proceeds. This guide breaks down how each option works, how lenders and appraisers treat them, and what the numbers can look like. You’ll also get a simple checklist to structure a clean offer. Let’s dive in.
Seller buydown basics
A seller buydown is when you pay funds at or before closing to reduce the buyer’s mortgage interest rate. It can be temporary or permanent.
- Temporary buydowns: Common options include a 2-1 buydown, where the buyer’s rate is reduced by 2 points in year 1 and 1 point in year 2, then returns to the note rate. A 1-0 buydown lowers the rate only in year 1.
- Permanent buydowns: Also called points. You pay upfront to lower the note rate for the life of the loan.
- Handling of funds: Your credit is deposited to the lender or escrow to subsidize the buyer’s payments or buy points.
The sale price usually stays the same. That means comps, commission calculations, and public records still reflect the full contract price.
Price cut basics
A list-price reduction lowers the sale price. The buyer’s loan amount drops, and their monthly principal and interest decreases permanently, assuming the same interest rate. Price cuts show up in the MLS, affect market stats, and flow into the comparable sales that appraisers use.
Key differences that matter in De Smet
- Payment relief: A buydown gives bigger short-term relief on payments. A price cut lowers payments permanently.
- Recorded sale price: A buydown keeps the sale price higher on paper. A price cut lowers the recorded sale price and your comps.
- Commission math: Commissions are usually a percent of the sale price. A price cut can reduce commission dollars. A buydown does not, because the sale price stays higher.
- Cash at closing: A buydown is a direct seller-paid subsidy at closing. A price cut reduces gross proceeds but may also reduce commission expense.
How lenders and appraisers view each option
Underwriting treatment varies by lender and loan program.
- Qualifying: Ask the buyer’s lender whether they will qualify the buyer at the lower, subsidized payment during a temporary buydown or at the full note rate. This can differ across conventional, FHA, VA, and USDA loans.
- Concession limits: Each loan type has rules for seller concessions. Confirm what is allowed for the buyer’s program and down payment.
- Documentation: Expect lender instructions showing the source and use of buydown funds and how the escrow account will apply them.
Appraisals focus on market evidence.
- Price cuts: Lower the reported sale price, which may help align with recent comps and reduce appraisal risk.
- Buydowns: Do not directly change appraised value because the sale price is unchanged. If concessions are large, an appraiser may consider them in value reconciliation, but they are not a substitute for lower price comps.
What it costs you as a seller
Think about both your net and your marketing outcome.
- Commissions and fees: A price cut lowers gross price, which can reduce commission dollars. A buydown is paid in cash at closing and does not lower commission dollars because the sale price stays the same.
- Net proceeds: Compare offers with a net worksheet. Include the buydown subsidy amount, commission percentage, and standard seller costs. Small changes in commission rate or closing costs can flip which option nets you more.
Which option fits your De Smet listing
A seller buydown may make sense when:
- You want to keep the sale price higher in MLS and public records while making the first years more affordable for the buyer.
- The buyer pool is rate-sensitive and can qualify under the lender’s rules with a temporary subsidy.
- You prefer to invest cash to help near-term payments instead of cutting price.
A price reduction may make sense when:
- You need to attract more attention quickly, and price is the main filter buyers use in searches.
- Appraisal risk is high and aligning with comps can streamline the deal.
- You want to reduce commission dollars tied to the sale price and avoid additional cash outlay at closing.
- The buyer needs permanent payment relief from a lower principal balance.
Real-number comparison (illustrative)
Here is a simple set of numbers to show how a price cut compares with a seller-paid 2-1 buydown when both cost about the same out of your pocket.
Baseline assumptions:
- Sale price: 300,000 dollars
- Buyer down payment: 10 percent (loan = 270,000 dollars)
- Note rate: 6.50 percent, 30-year fixed
- Total commission: 5.0 percent of sale price
- Other seller costs: 2.0 percent of sale price
- Compare two options that each cost you about 10,000 dollars
Example A — 10,000 dollar price reduction:
- New sale price: 290,000 dollars
- Loan amount (10 percent down): 261,000 dollars
- Buyer monthly principal and interest at 6.50 percent on 261,000 dollars: about 1,648 dollars
- Commission (5 percent): 14,500 dollars
- Other seller costs (2 percent): 5,800 dollars
- Estimated net proceeds: about 269,700 dollars
Example B — 10,000 dollar seller-paid 2-1 buydown:
- Sale price: 300,000 dollars; loan: 270,000 dollars at a 6.50 percent note rate
- Buyer’s effective monthly principal and interest:
- Year 1 at 4.50 percent: about 1,366 dollars
- Year 2 at 5.50 percent: about 1,533 dollars
- Year 3+ at 6.50 percent: about 1,706 dollars
- Commission (5 percent): 15,000 dollars
- Other seller costs (2 percent): 6,000 dollars
- Buydown subsidy at closing: 10,000 dollars
- Estimated net proceeds: about 269,000 dollars
What this shows:
- Buyer payments: The buydown gives larger short-term relief in years 1 and 2. The price cut provides smaller monthly relief, but it lasts for the life of the loan.
- Seller net: The price cut nets about 700 dollars more in this illustration. That gap can change based on commission percentage, closing costs, and buyer down payment. Always run a net-proceeds worksheet for your specific listing.
Steps to set up a clean buydown
Follow a clear process so the lender, appraiser, and closing team are aligned.
- Before offering a buydown:
- Confirm with the buyer’s lender how they will treat the buydown for underwriting and what documentation they need.
- Ask the lender for a written estimate of the buydown cost for the structure you plan to offer.
- In the purchase contract:
- Spell out the buydown amount and structure, such as a 2-1 with the exact rate reductions by year.
- State that the buydown does not change the contract sale price or standard seller-paid costs unless both parties agree.
- Attach or reference the lender’s escrow instructions and show the source of funds.
- Clarify who prepares the buydown agreement and how it will appear on the settlement statement.
- At closing:
- Confirm funds go to the correct escrow or lender account and that the Closing Disclosure shows the credit and its use.
- Make sure the buyer’s first payment reflects the buydown as agreed.
- Communication:
- Ensure the buyer understands when payments will step up.
- Let the appraiser and loan officer know the offer included a buydown, but do not expect it to substitute for lower comps.
- Contingencies:
- Consider language that allows you and the buyer to revisit terms if the appraisal comes in low or underwriting does not approve the structure.
What to verify locally before you decide
Your De Smet strategy should reflect current local conditions. Check these items with recent data and your buyer’s lender:
- Median sale price trend over the last 12 months
- Average days on market and months of inventory
- Typical financing mix in your area, such as conventional versus FHA, VA, or USDA, since concession limits differ
- Any transfer or recording fees specific to Kingsbury County that affect closing cost calculations
Bottom line for De Smet sellers
Both tools can work. A temporary buydown can boost near-term affordability without lowering the recorded sale price. A price cut can widen your buyer pool, reduce appraisal risk, and lower commission dollars tied to price. Use a net sheet to compare your true costs, talk with the buyer’s lender about qualifying rules, and choose the path that fits your timeline and goals.
If you want help modeling your numbers and crafting the right offer for De Smet and Kingsbury County, reach out to Elevate Real Estate to Schedule a Consultation.
FAQs
What is a seller buydown in a home sale?
- A seller buydown is money you pay at or before closing to reduce the buyer’s mortgage rate, either temporarily or permanently through points.
How does a price cut affect appraisal and comps?
- A price cut lowers the recorded sale price, which can help align with comparable sales and reduce appraisal risk.
Will a temporary buydown help a buyer qualify?
- It depends on the loan program and lender. Some underwrite at the note rate while others may consider the reduced payment. Always confirm with the lender.
Do buydowns reduce real estate commissions?
- No. Commissions are usually a percent of the sale price. A buydown keeps the sale price unchanged, so commission dollars do not drop.
Which option gives the buyer a lower long-term payment?
- A price cut lowers the buyer’s principal and reduces their monthly payment for the life of the loan, while a temporary buydown only lowers payments for the set buydown period.
