Were there fees and an appraisal involved to get the 3.125%?  Were you able to get that interest with an 18% down payment? (Even less if part of the $100,000 available went to loan costs and an appraisal.) My guess is that the deal is at worst a wash for the buyer. The seller might have liked getting more interest than she could in a CD, but 4% with no loan fees or  appraisal is not cheating a buyer.