As a buyer should I take Seller Price Reduction or Closing Credit

[Adeline Tai]

Hi, First post here. :)

First time home buyer in California, seller is willing to credit back $10K on a million dollar sale price. What's the pros and con on price reduction vs. closing credit? I received a lot of mixed feedback. So far my understanding is this is based on weather I need cash right now or later? and how long I plan to hold the property for? Pros of price reduction is high price and taxes increase each year. Pro for closing credit is that you get the $10K now that you can invest elsewhere and likely get a higher return than the current mortgage rate and it'll takes years before capturing the $10K back. Not sure if someone can help me with the numbers as well, like what to take into account. 

Sell price:990000 vs. Price reduction of 980000

property tax :1%

special assessment: TBD

rate 2.375%

30 years loan

20% down

Thanks!

[Will Fraser]

Hi @Adeline Tai, the distinction is actually quite simple.  Would you benefit more from $10,000 towards some repair or improvement on the home right now, or $19.80 (more or less) each month?  

There's not a wrong answer here.  In general when I have clients in this situation there are almost always things that they want/need to fix with the home to make it just right (for them), so personally I'd rather "borrow" that $10k for the repairs at a rate of 2.375% interest instead of locking more of my capital into the same asset.

[James Carlson]

@Adeline Tai

Like @Will Fraser said, there's no wrong answer. That said, I'm all about taking it at today's interest rates, especially 2.375%. (That's nuts!) That's as close to free money as it gets. Do the repairs with that money ... or save it for your next purchase. 

Again, though, it depends on what you want. The experienced investors and buyers we work with in Colorado Springs where we work might have a lot of cash on hand and don't need that extra amount. They'd rather take it off the mortgage. But our younger house-hackers often don't have the huge savings yet, so that money-in-pocket is huge. 

[Allen L.]

Agreed, no right or wrong answer here. But personally I feel borrowing an extra $10K at <3% is a great deal, despite the incremental property taxes you'd have to pay. You can use this money to do repairs, offset closing costs, invest, or even start putting it towards savings for your next property. ;) 

[Brian Garlington]

No right or wrong answer here. The seller may feel good being able to boast to their friends that they sold the property at a certain price...........