Where should a spec builder put twelve thousand dollars, a rate buydown or a price cut

Question

Take a finished spec, listed at 469, three weeks in with decent traffic and no offer. The builder's agent wants to advertise a permanent buydown, roughly 12k of points to the buyer's lender, which on a loan that size moves the payment enough to matter. The alternative is cutting to 457 and keeping the message simple. The case for the buydown is that buyers walking through can afford the house and can't afford the payment at a little over 6 percent. Twelve thousand spent on points does more for their monthly number than twelve thousand off the price does, so on pure payment math the buydown wins. It also protects the closed price, which matters when appraisals on the next two houses in the same subdivision will lean on this one. The case for the cut is that buydown advertising can read as a builder in trouble, the buyer has to use a lender who will actually execute it, and a share of traffic won't understand the offer well enough to be moved by it. A lower number is a lower number and it shows up in every search filter. Any concession structure has to be confirmed in writing with the buyer's lender since what a lender will allow toward points varies, and builders often learn that the hard way. On the raw question of where to spend the 12k, the answer usually comes down to how price sensitive versus payment sensitive the local buyer pool is running that month.

luis_carrera · Answer

The comp protection argument is the one worth weighing heaviest, and it's the one mentioned almost in passing. Building two more in the same subdivision changes the calculus. A recorded 469 with a concession is a different starting point than a recorded 457, and appraisers will find the concession but they don't always subtract it dollar for dollar. Worth noting that in a handful of states sale prices aren't public at all, so how much this matters depends entirely on location.

megan_doyle15 · Answer

Three weeks with traffic and no offers sounds short to me. What's normal on a new build before you'd expect a real offer?

gregpowell66 · Answer

Rigging, it varies hugely by market and price band, but three weeks with steady showings and zero offers is usually the market signaling the number is 2 or 3 percent high, not 10. Cairn, the thing worth checking before either move is whether the showings are dying at the same point. If people are walking out at the kitchen or the yard, that's a product complaint and no amount of payment engineering fixes it. If they love it and disappear afterward, it's the payment, and then the buydown is the sharper tool.

jessreyes12 · Answer

I'd have been embarrassed to ask this in person, so here goes. If you do the buydown, does the buyer have to keep that specific loan for it to be worth anything to them? A permanent buydown on a loan they refinance in eighteen months when rates ease seems like you spent 12k for eighteen months of benefit, whereas 12k off the price is theirs forever. Does that not cut against the buydown in a market where everyone expects rates to drift down?

tashaford30 · Answer

The real objection is usually about rate expectations. A buyer who believes rates will fall later tends to prefer a price cut, and a buyer who needs the payment to work today takes the buydown. Since a listing does not have one buyer, it has whichever type walks in, the useful question for the agent is which of those two profiles has actually been showing up in feedback. That is usually answerable from the showings already logged.

Where should a spec builder put twelve thousand dollars, a rate buydown or a price cut

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