From Newsday:
Seller incentives attractive in buyer’s market
Homeowners eager to sell in a buyer’s market have found a new angle, offering to sellers incentives such as cash to help defray the cost of the closing or even to pay for a new roof or driveway.
The givebacks, which are legal if disclosed to lenders, have become so common that the multiple listing service where real estate agents list and track home sales data now includes an entry line for seller concessions. In the last four months of 2007, for example, 35 of 191 homes that sold in West Hartford had seller concessions.
“It’s very common, especially among first-time home buyers and any buyer who doesn’t have a lot of cash in hand,” said Tom Abbate, an agent at William Raveis Real Estate. “Buyers like to walk away from a closing and still have cash in their pocket.”
A Middletown agent, for example, estimated that half of all his home sales have some sort of seller incentive that does not show up in the final sales price.
The benefits are obvious for buyers who are struggling to come up with enough money for a down payment, closing costs and home renovations. Buyers can take out a slightly larger mortgage, based on the recorded sale price, and move into their new house with more money.
However, the inducements make it harder to calculate the real selling price of homes and determine if prices are declining in a soft market, and by how much.
For example, a three-bedroom ranch-style house in Bristol sold for 193,000 and the sellers gave the buyer $5,000 at closing. The purchase price was recorded as $193,000, but the true sales price after the cash transaction was $188,000.
The result is that home sale prices are propped up artificially, running counter to what typically happens in a housing slowdown.
“It’s a big deal because prices are, in fact, falling,” said Ron Van Winkle, a West Hartford economist and town official. “We know they are falling, but that is not reflected in the numbers we see.”
Grim – I read that piece yesterday (#4) as well about “givebacks” and “throwins.”
Builders here in California are throwing in granite countertops, front and back landscaping, upgraded everything in an effort to entice buyers. I even saw a builder advertise free Hawaiian vacations and “we will pay moving expenses.” The guy in the ad stands there with a clipboard and asks the potential buyers “what would you like to see included in the sales price?”
Then he says “check” – “check” as he marks them off.
The whole “cash back at closing” feels like cheating, though. Not so up-front. At least now folks are reading about the practice.
Yesterday’s Fresno Bee – Wilson Homes –
“Was $496,093 – Now: $429,000.” @
4.875% 30-year fixed.”
Funny, I don’t see the “clip-board” folks advertising at all yesterday and haven’t seen them on the TV in a bit.
The new home folks are scrambling. “Yes, we pay closing costs.” “Up to $80,000. in price reductions.” etc. We are so “over built” that I wonder if, here locally, buyers may be able to get a better deal with new construction because the builders are offering these low interest rates as well as upgrades. It probably compounds the problem for our resale market.
I don’t get this. Why not just lower the damn price? I know for builders this could set a bad precedent as that brings down the “value” for other properties not sold, but for individual homeowners I just don’t understand. Could it be ego? “…I got 600 for my house.”