615 Newhall Drive

After 20 months of gradual interest rate increases and rates reaching a 22-year high, many sellers are offering innovative strategies to make their properties more attractive.

One of those plans is a 2-1 buydown, which offers a rate of 2% lower during the first year of the mortgage, then 1% lower the second year before settling on the market rate for the remainder of the loan.

That worked for the first six or eight increases when rates were driven up as high as 6%, and those rates look good in the current market with rates running into the 7.67% range.

In the early days of the buydowns, there was confidence that interest rates would simmer over the ensuing two years, allowing a refinance at an attractive rate. That confidence has dissipated, and the prolonged death by 11 rate hikes is not here yet, but the market is in a coma.

Another factor that exacerbates the interest rate increases is that most homeowners currently have rates ranging from 4% to as low at 2.875% if they bought or refinanced from 2016 to 2022. They are not moving and taking on a higher interest rate, even if they have considerable equity in their homes.

Greater Nashville Realtors statistics for September show 2,807 properties sold, down from 3,305 in August and 3,533 in June. In September 2021, there were 4,022 sales. There were 3,478 in September 2022.

Even at the height of COVID, September 2020, there were 4,336 sales.

With rising rates sinking sales, those marketing houses must implement incentives to encourage buyers to take a look. Kelly Fisher, the creative real estate veteran with Parks, and her seller on 615 Newhall Drive introduced a technique that proved effective.

615 Newhall Drive

The Shelby Park property has five bedrooms, four full bathrooms and one half bathroom within its 3,741 square feet. The house included a studio apartment, oversized walk-in closets, a kitchen island with waterfall quartz, two laundry areas, a wine refrigerator and a wet bar, all located on a quiet cul-de-sac. This house would have sold in a matter of hours in 2021. But this is 2023.

When is $1,049,000 less than $995,000? When Kelly Fisher is involved.

Fisher marketed the house with a list price of $995,000 if the person wanted to obtain financing or pay cash for the house. The seller apparently was in a financial position to offer owner terms. If a buyer would pay $1,049,000 – $50,000 more than cash price – the seller would carry the mortgage under terms more favorable than the market rate.

With the elevated purchase price, the seller would finance the house under the following terms: 20% down payment and a 6% interest rate based on a 30-year amortization schedule, which is about the same as a 2-1 buydown.

In this case, the difference is the seller was willing to lock that rate for seven years. After seven years, there is a balloon payment for the balance owed.

The seller charged no discount points or origination fees, and there was no prepayment penalty. Those fees on an $800,00 mortgage could be as high as $12,000. That means the buyer would owe $38,000 at closing. However, based on today’s rates, the payment would be $1,000 less each month for 84 months, or a savings of $84,000 over the life of the loan.

Most of the loan officers feel 6% loans will eventually return to the market – financial prognosticators feel that could take as long as three years – and this loan has no prepayment penalty.

The property sold for the $1,049,000, and the buyer obviously took the terms offered. With $209,800 of his own money in the deal, it is highly unlikely a buyer will default. Even if they did, the seller would be able to take possession of the house to sell again.

Ty Marinkov with Curb Realty represented the buyer, who benefited from this untraditional financing. To Marinkov’s credit, there are relatively few people who know that $1,049,000 can be less than $995,000.

Richard Courtney is a licensed real estate broker with Fridrich and Clark Realty and can be reached at [email protected].