Flashy buyer incentives like a new car parked in the driveway or a flat-panel
TV might grab headlines but when it comes to actually enticing someone to buy a
home it's the more practical perks that count, real-estate professionals say.
"Serious buyers are looking for a place to buy a home, not a trip to Tahiti,"
said Dave Ladenburg, owner/broker of Mussel man Realty in East Lansing, Mich. On
top of that, lenders are leery of gimmicky incentives, fearing that they're
built into the price of the home and that loan dollars are being used to pay for
that tropical trip, he added.
Instead, effective incentives get to the heart of what's on the minds of
potential buyers -- the overall cost of the home and the monthly payments
they'll have to manage, he said.
Help in bringing down the interest rate of the mortgage for a year or two by
paying points, for example, can go a long way in giving one home an advantage
over another, said Dave Dalzell, owner/broker of Dalzell, Realtors in Abilene,
Texas. Contributions to the down payment and common closing costs could
especially be of help to a first-time home buyer, said Greg Adel, owner of Adel
Realty in Firestone, Colo.
Incentives can be considered when the home is first listed as a way to
distinguish it from the start, Dalzell said. They can also be added when the
home hasn't sold in two or three months as a way of enticing a buyer without
lowering the cost. Or incentives could arise in negotiations, when a buyer needs
that one extra little nudge to commit.
Make no mistake, the location and condition of a home are going to be its main
selling points. But if sellers "put on their buyer's cap" and really consider
what issues the buyer might have, it could make all the difference, Dalzell
said.
"I tell my seller to look at his bottom line," said Susan Ramsey, a Realtor with
Re/Max Integrity Realtors in the Phoenix area. A seller should figure how low he
or she is willing to go, factoring in both the selling price and other
incentives used to get a buyer to commit.
But also be aware that most seller concessions need to be disclosed. "Everything
should be in writing and attached to the contract," Dalzell added.
In addition, buyers and sellers need to make sure that they don't exceed the
lender's allowable seller-paid assistance, Ladenburg said.
Below are six of the most common incentives being used in markets today:
1. Reducing the price
A price reduction might be the most common buyer incentive, and often it is the
one that is looked at first, said Delores Conway, director of the Camden
Forecast at the University of Southern California's Lusk Center for Real Estate.
"The price is something that is a common currency -- it appeals to everybody,"
she said.
Gene Rivers, who owns four Keller Williams offices in Florida, agreed. If a
buyer has in her mind that she'll pay $350,000 for a home and the seller won't
budge from $375,000, "$5,000 in closing costs and a plasma TV isn't going to get
it done," he said.
But those extra little perks can grab the attention of a buyer; it also might
inspire a commitment from someone on the fence between two similarly priced
properties, Dalzell said.
"What we usually recommend before you reduce the price ... think about what you
can do with the same dollars in an incentive," Dalzell said.
2. Paying points
Sellers can offer to pay mortgage points for a buyer, an incentive that Dalzell
tends to use in environments like today's, when rising interest rates are at the
front of a buyer's mind. One point is 1% of the loan amount, charged as prepaid
interest.
For example, instead of having an interest rate at, say, 6.5%, a seller might be
able to pay points so that the rate is at 4.5% for the first year, Dalzell said.
"When a buyer sees a lower interest rate or monthly payment, that's something
they can relate to," he said. The setup makes sense for a buyer who has
furnishings to buy for the new place; it also can make for an easier
monthly-payment transition for families that are upsizing.
A word of caution to buyers considering this tactic, however: This assistance
doesn't last forever and usually spans about one to three years. Before
accepting, understand and plan for the point in time when the window closes and
payments return to their normal levels.
3. Down-payment aid
For some buyers, the hardest part of entering the ranks of homeownership is the
down payment -- also an area where a seller can help. It's mostly first-time
home buyers interested in this kind of assistance because they're often the ones
lacking in funds to complete a deal, Adel said.
"It gets people into homeownership," he said. "The disadvantage is that the
buyer is financing that additional amount," he added, because a seller would
likely come down in the price of the home if a chunk weren't dedicated to
down-payment assistance.
4. Help with closing costs
Closing costs include items ranging from taxes to title insurance and can add
up, ranging between 2% and 7% of the loan value, according to Freddie Mac. So
many buyers, especially those stretching to make a down payment, will be
interested in having a seller help out.
In Phoenix, buyers in every price range have been asking that these costs be
covered, according to Ramsey. "They ask for it because they know that they'll
get it," she said.
5. Adding a home warranty
A residential service contract is sometimes thrown in as an incentive because it
acts as insurance for a home's systems, often including plumbing, heating and
cooling.
At a cost of a few hundred dollars, some real-estate agents consider it an
inexpensive add-on that affords a buyer a little extra peace of mind, Dalzell
said. That peace of mind can be especially welcome during the first year in a
house.
Others take a different view, and say there's often confusion over what elements
are covered. If a problem is considered a pre-existing condition, assistance
could be limited.
Plus, a warranty might not be necessary for a handy buyer who would likely take
on projects himself, or " if you're buying a condo that's two years old, a home
warranty might not be that big of a deal," added Adel.
Those who accept a warranty should read the service contract and call the 1-800
number to ask questions, Dalzell said. If the seller pays for this add-on, he
recommends having the buyer choose which company to use.
6. The little things
Other perks will appeal to buyers, too, ranging from the common to the unique.
Payment of homeowner association fees -- typically associated with condo
developments -- are sometimes offered. Ramsey said that sellers with pools might
also offer a year's worth of upkeep for it, a welcome help to those worried
about the maintenance of the backyard attraction.
Or maybe if a corner of the home was designed to fit a grand piano, leaving that
instrument behind entices a buyer to go through with the deal, Conway said.
The important thing for buyers to remember, Conway added, is that they should
honestly want this add-on. Translation: A homeowner with no interest in music
probably should give up a piano for a more personalized incentive.
