NASHVILLE, Tenn. (WKRN) – Closing deals is what realtor Annie Hayes does best, but getting to the finish line takes more effort now than it did even six months ago with interest rates limiting what buyers can actually afford.

“For every 1% increase in the interest rate, that’s a 10% decrease in buyers’ purchasing power,” Hayes explained. “If you’re paying 3% in 2020, versus 6% to 7% now, we’re talking about at least a $1,000 increase.”

That cost is added to the buyer’s monthly payment. To make the numbers work, Hayes finds herself managing the changing budget while also managing people’s expectations.

“We’re coming off of a year where it was cheap to borrow money. What you’re going to qualify for now is going to be different, but there are ways to work around that,” Hayes says.

Creative contracts have become the new wave in real estate so both parties walk away feeling good. One tactic is called a “2-1 Buy Down.”

Sellers shell out a little more at closing to help immediately lower interest rates for buyers.
This way, the sale price stays close to asking yet buyers can afford to make the purchase.

“You can reduce your interest rate for the first two years by 2% in the first year and by 1% in the second year,” Hayes explained. “After that, it goes back to its original rate or you can refinance.”

Without the buy down on interest rates, sellers would need to make considerable drops in the asking price, which most aren’t willing to do as sellers still think it’s 2021 with home values reaching unprecedented values all while buyers think it’s 2008 with a potential recession looming.

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“For buyers right now, we have a lot more leverage than we did say two years ago,” Hayes said. “But sellers are needing to adjust their expectations and be more amenable to some of these concessions that buyers are asking.”