Buying Under List Price Is Not “Walking Into Equity”

Get the house for $25,000 under asking and you have walked into $25,000 of equity. Realtors say it. Loan officers say it. It sounds like the kind of thing a smart buyer should want.

It is a myth, and it costs the buyer money every month.

Sosi Avila has been fighting this line for years. He is the President of Mamba Capital Lending, he came back to The Way this week to walk through his client consultation slide by slide, and the equity myth is the part of it that made me stop and write things down. Here is his argument, and mine.

What does “walking into equity” actually mean?

It means the difference between what the house is worth and what you paid for it. Buy a $1,200,000 home for $1,175,000 and the theory says you own $25,000 you did not pay for.

The theory is fine. The problem is what that $25,000 can do for you, which is nothing.

Why is equity you cannot use worth so little?

Equity is a number on a statement until you convert it to cash. You cannot spend it. You cannot make a payment with it. To touch it you sell the house or you borrow against it, and both of those cost money and take time.

Sosi says it more bluntly than I would:

“You’re not walking into equity. You’re throwing your equity away. Equity is worthless if you can’t convert it to cash. It’s just monopoly money.”

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Meanwhile the thing the buyer actually cares about, the monthly payment, barely moved. In the example Sosi built live on the show, that $25,000 price cut lowered the payment by about $169 a month. On a purchase that size, $169 does not change anybody’s life.

What should the buyer ask for instead?

The same $25,000, as a seller credit instead of a price cut.

A credit does not change the purchase price. It changes what the buyer walks in with, and a good loan officer can put it to work: covering closing costs, or funding a temporary buydown that lowers the payment for the first year or two while the buyer settles in.

In Sosi’s example, the credit version moved the first-year payment by more than $1,200 a month. Same $25,000 from the seller. Roughly seven times the monthly relief. And because the purchase price did not drop, neither did the value the appraiser is working from.

That last part is the trap most people never see coming.

What happens a year later?

Rates move. The buyer who took the price cut wants to refinance. The value the lender starts from is the lower price they negotiated, and now they have less room, a higher rate, or worse terms than the neighbor who kept the price and took the credit.

They did not walk into equity. They walked into a smaller loan on a smaller value, and they paid for the privilege every month in between.

Why do so many realtors still say it?

Because it feels like winning. A lower price is a visible scoreboard. A structured credit is invisible unless somebody explains it.

Sosi’s answer is to train his agents on the myth before the negotiation starts, so buyer, agent and lender are all asking for the same thing. He calls it financial planning through real estate. I would call it the difference between a loan officer who quotes and one who consults.

Does this always work?

No. On the turnkey house that everybody wants, the seller has no reason to give anything. Credits come and go with the market; Sosi said they disappeared in his area for about a month this summer and then came back on most of his files. And every program, property and lender has rules about what a credit can cover.

So this is not a rule to follow blindly. It is a question to ask before you negotiate: is the money worth more to me as a lower price, or as a credit? Most buyers never get asked. Their loan officer should be the one asking.

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Where to go next

The equity myth is one move inside a longer conversation. Sosi’s whole consultation, the question he asks before any number, the way he handles a rate objection, the pre-approval choice that closes almost everyone, is in the free playbook.

The complete system, all eight moves, is in The Perfect Consultation.

Impossible to
Forget covers what happens after the close: the retention system that turns one
client into the next one. 

And Known Before
Needed covers why the relationship has to exist before the transaction does.

The full
conversation with Sosi Avila is here. 

 Sosi’s first
appearance on The Way, Season 1, is here.

Who can we serve
today?

By Dino
Katsiametis, Founder & CEO, Ethos Lending · Host, The Way Podcast

Based on a
conversation with Sosi Avila, President of Mamba Capital Lending, on The Way
with Dino Katsiametis. Views expressed are the individual’s own and do not
represent their employer.

Ethos Lending,
Inc. · NMLS #1533336 · Equal Housing Lender