Utilizing The Seller Buy Down (SBD) Option

What is the Seller Buy Down Strategy?

The special strategy works great for buyer’s markets — markets in which there are more sellers than buyers. That is to say that there is more supply than there is demand. That is NOT to say that it wouldn’t work in a seller’s market, it’s just harder. A buyer’s market works best because buyers typically have the negotiating leverage. A seller may only get one offer on their property, and it may take a long time to get that one offer.

So, without further ado, here are the meat and potatoes of this special strategy. It’s called the Seller Buy Down, or SBD for short.

The whole idea for the SBD is to get money back from the seller to permanently buy down the interest rate.  Most agents will try to negotiate to get money back from the seller in terms of recurring or non-recurring closing costs, but most don’t try to get the money to actually buy down the interest rate. Keep in mind that an agent should get as much back as humanly possible to help the buyer get in the property.

The majority of agents and mortgage professionals will distribute the seller funds to underwriting costs, escrow fees, and loan fees…not many of them think to permanently buy down the interest rate on the loan which significantly reduce the monthly mortgage payment as well as turn non-cash flow into cash-flow.

A Look at the Numbers

Let’s take a look at the numbers for a seller buy down, and then I’ll explain some of the nuances and benefits for everyone involved. In this example, we’re assuming the buyer to be putting in an offer to purchase a $300,000 house. The property has been on the market for a while, but the seller may not be willing to budge on the asking price (or maybe they can’t because they’ll break even with at this price).

The buyer has $60,000 to put down on the property, and this is the only property on the market worth buying to turn around and rent. The trouble is that a low ball offer would work, but it’s not likely the seller will lower the asking price.

The interest rate that the buyer will get with no SBD is 4.0%. If the selling agent is able to negotiate just $10,000 toward the SBD, then the interest rate will be bought down to 3.25% on the 30 year fixed mortgage.

Full Asking Price Offer

Low Ball Offer

Full Price Offer w/ SBD of $10,000

Purchase Price




Down Payment




Loan Amount




Interest Rate




Monthly Payment







Take a look at those numbers closely. As a buyer, you always want to get the lowest price possible, but that’s not always the case. As stated above in this example, the seller just cannot lower the price to the point where you can get in the deal. So what do you do? You do the SBD. As it turns out in this example, the benefits are many for everyone involved:

  • The seller is able to get full asking price for the property. Even though the net price they will get is $290,000, this actually helped the buyer qualify for more money to get into the property by reducing the interest rate. They essentially spent $10,000 to save $15,000 — and saved the deal.
  • The buyer is able to use the seller-paid closing costs to buy down the interest rate to 3.25%. Instead of a monthly payment of $1,145 per month, the buyer saves over $100 per month because of the rate buy down, even though they came in at full asking price. This SBD strategy could turn the deal from something that doesn’t cash flow, to one that does.

In the end, the whole reason this borderline deal works is because of the cost of money. The lower the interest rate, the less one is going to pay on the same amount of money. How to Make it Happen:

Here are the steps that I would take in order to make this happen for you as a buyer of residential real estate in the investment capacity:

  1. Find a mortgage professional in your area. Let them know that your Realtor will be working the Seller Buy Down strategy. If they don’t know the term right off the bat, find a different professional. Most outside-the-box thinking mortgage professionals should know and understand how the SBD works.
  2. Get pre-approved to purchase the property with traditional bank financing. 
  3. Find a selling agent (buyer’s agent) who “gets it.” No, seriously. You need an agent who gets what you’re trying to accomplish. A math-savvy Realtor or maybe a former financial professional would be a great place to start.
  4. Find a property where you can make the numbers works. Again, in a buyer’s market, this strategy works like a charm. In particular, look for properties that have been listed for an extended period of time. These are the types of properties where you can negotiate. Combine a low ball price WITH the SBD and you’ve got a smoking hot property to make the numbers work.

Finally, make some offers using this strategy. Use it for your primary residence, your vacation property or second home, and definitely use it for your investment properties. After all, the worst the seller can say is no.

Kevin Copeland

Email: [email protected]

Cell Phone: 970.368.0025

Office Phone: 719.838.7001



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