September 2011 Blogs

4 Buyer Incentives that Sell Homes:

In today's market, it's pretty easy for a seller to find themselves in a serious state of stuck: home stuck on the market with no bites from buyers, and family stuck in the home until the home sells. And that doesn't even account for the feeling of stuck that comes from having gone just about as low as you can go on price without turning your transaction into a short sale. If you're trying to sell, and you've lowered the price but still find your home struggling to compete against a bunch of other, similiarly priced homes with similar features, selling can seem difficult at best, impossible at worst.

The worst part of this particular flavor of stuck is the feeling that the whole situation is out of your control, that there's nothing within your power that will move your home off the market. You've already painted the place, replaced the carpet, tricked out the curb appeal and lowered the price as far as you can go. So what else is a seller to do?

OFFER INCENTIVES:  Incentives are perks - they can be big or little - that a seller offers to their home's eventual buyer. The most outlandish incentives are the ones that make the headlines, like the Ferrari one Malibu owner threw in with the sale of their condo last year, or the year's worth of cookies that actor George Hamilton reportedly negotiated into the sale of his home from a bakery owner. But the incentives with the most power to get your home sold tend to be much less exciting perks that actually fill a real need the average home buyer has.

Here are four basic, incentives you should consider offering if you're having a hard time getting your home sold:

1. Interest rate buy-down.  When you hear sellers say they will "pay points," what they are doing is offering to award the buyer a certain number of percentage points of the sales price, which will, in turn, be paid to the buyer's lender as discount points that bring the buyer's interest rate down. For the buyer, this is a big deal, as it decreases the pressure they feel to guess the right day to lock in their interest rate (a common source of serious stress among buyers), and sends the message that if they buy your home, they'll automatically beat the market rate. And what buyer doesn't want that?!

Seller-paid rate buy-downs also save buyers money on their monthly payment over the entire lifetime of their loan, and the seller-paid points are usually tax deductible, to the buyer, the next time they file taxes. You can see why these incentives are so powerful at attracting buyers!

2. Closing cost credit.  Many buyers trying to break into the market while prices are low are already scraping the bottom of their savings account barrels to come up with their down payment money. With most home loans, the buyer will have to come with anywhere from 3 to 6 percent of the loan amount, in cash, on top of their down payment, to cover closing costs like loan fees, escrow services and title or mortgage insurance. (And strangely enough, the buyers putting the 3.5 percent minimum down payment on an FHA loan are likely to have to come up with the higher end of the closing cost range, 6 percent, to cover their mortgage insurance.)

Some smart sellers (and their agents) include in their home's listing and marketing materials the offer to pay a credit of 3, 4, 5 or even 6 percent of the home's sale price at closing, to defray the buyer's closing costs. A closing cost credit is a great financial help to buyers and a strong differentiator that can make your home much more attractive than nearby listings. Your listing agent can help you run the numbers on how much of a credit you can afford to offer, and how to make an overall package - listing price and credit - that will be maximally magnetic to prospective buyers.

3. HOA dues credit.  If you are selling a home that is in a homeowners' association (HOA) that charges monthly or even annual dues, then surely you recall buying that home and being overwhelmed at the prospect of going from rent being your sole monthly housing expense, to having a laundry list of expenses starting with your mortgage, including property taxes and insurance and then having HOA dues as the unpleasant cherry on top.

One way to overcome that concern in the minds of buyers and to differentiate your unit from all the other, similar units for sale in your complex is to offer a credit at closing that covers the buyer's HOA dues for 6 months, a year, or even longer. Talk with your agent about how to do this strategically, in a way that will offer the maximum lure for buyers but will not run afoul of any guidelines for seller credits imposed by the buyer's lender.

4. Broker incentives.  Some savvy sellers who can't afford to offer buyers several percentage points' worth of the proceeds of sale toward closing costs take a different route, offering to pay a bonus percentage point (or more) in incentives to the eventual buyer's broker or agent - on top of the commission, rather than to the buyer themselves. Over 90 percent of buyers who are ready, willing and able to buy a home on today's market are represented by a broker. And brokers have to sort through sometimes hundreds of pretty similar listings to decide which ones to show a buyer any given Sunday.

Offering a broker's incentive makes your home stand out among all those listings to the brokers and agents who put buyer's property tours together. While these aren't "buyer incentives," strictly speaking, but they do operate to boost the number of buyers that come view your home - in turn, boosting your home's likelihood of getting an offer.

The Top 3 Real Estate Deal-Killers - and How Buyers Can Avoid Them

Once upon a time, homebuying was a much less dramatic affair then it is today.  The house hunt was fun, if suspenseful, and then there was another exciting whirlwind of inspections, closing and moving in. Today, though, as soon as buyers get the gumption to jump off the rent vs. buy fence, they find themselves on another edge - the edge of their seats, through the entire escrow process waiting to see what obstacle will emerge next, and whether their transaction will survive it.

Deals get killed all the time, and buyers can't relax until they have keys actually in hand.  Here are three of the most common real estate deal-killers, and some steps buyers can take to deactivate them.

1. Appraisal too low.  Some buyers incorrectly believe that the best thing that could happen to them is for the property to appraise below the agreed-upon purchase price, expecting that a low appraisal forces the seller to bring the price down. In fact, so many of today’s sellers are barely breaking even, that a low appraisal is probably the most common deal-killer around. If an appraisal comes in just a tad bit lower than the contract price, usually the seller will come down if they can, or the buyer will kick in a few extra bucks. But when it comes in 5, 10 or even 20 percent low, most sellers can't - and most buyers won't.

Low appraisals also seem like the most difficult deal-killer to avoid, as this process is entirely out of both buyer's and seller's control. But there are two things buyers can do to minimize the risk.  First, check the comps - i.e., recent comparable homes that have sold in the area - before making an offer; your agent will help you do this. Then, don't make an offer bizarrely above the average range of the comparables, even if the property has multiple offers, unless you're prepared to deal with a low appraisal a couple of weeks out.

Also, consider working with a local mortgage broker who also originates loans through its own bank (vs. walking into a large bank's branch off the street); these lenders have the ability to choose from a smaller pool of appraisers that they know are qualified and knowledgeable about your area.

2. Property condition dramas.  When the market melted down, lenders found themselves with a lot of decrepit homes on their hands. This explains two things: (1) why lenders are more concerned about property condition now than ever, and (2) the raggedy condition of so many of the "distressed' homes on the market.  Homes that have extensive wood rot, dangerous decks or electrical systems, or peeling paint and missing systems (sinks, stoves and the like) are highly unlikely to pass muster when the appraiser walks through, even if they do qualify as being worth the purchase price.  And while an individual seller might be willing to do some work, many just can't afford to; short sale and REO sellers simply refuse to make fixes, 9 times out of 10.

Prevention is the best medicine for curing this transaction ailment.  If you are buying a short sale or REO property, be aware that when the selling bank says as-is, it really means as-is.  Ask your mortgage broker and agent to brief you on what sort of shape your lender will require your home to be in, at minimum, and keep that standard in mind during your house hunt.  Your agent can help manage your expectations about which properties will and won't likely pass muster.

3. Loan approval takes too long.  Every buyer knows they must get preapproved for a mortgage before they start house hunting, but many don't know that preapproval is just the first in a long list of steps that have to happen before the loan becomes a sure thing.  In fact, it's common now for buyers to get their loan preapproval many months before they end up in contract, and lots can change in the interim - further extending the time it may take for their loan approval to come in.

It's common for contracts to include a standard loan contingency period of 17 days, give or take a few.  But the appraisal might take longer than that to come in, or the underwriter might have lots of questions and seemingly random nitpicks about the appraisal, or about you: they want to see your driver's license, then your marriage license, then your divorce decree, and after that, a letter from your employer agreeing that you'll be keeping your job even though you're moving an hour away. It never seems like they ask for everything at once, thus it can take longer than 17 days to obtain all the requested items, turn them in and get the underwriter to sign off on them.

Until you get that green light, it's foolhardy to remove your loan contingency, as that step renders your earnest money deposit non-refundable, under most contracts.  Many a buyer is forced to either secure an extension from the seller or to let the transaction die, rather than forfeiting their deposit funds.  And again, some sellers understand and will play ball, but bank sellers can be particularly resistant to loan contingency extensions, especially if there are backup offers on the table.

Best practice for buyers to minimize the chances of an overtime loan approval process killing the deal? Be ready: be ready for lots of bizarre documentation requests, be ready to provide things you've already been asked for, and be ready to do so quick-like - without pushing back.  The faster you can turn around the things the underwriter wants, the better.

Also, it can be very helpful to work with a mortgage broker and agent that have worked together before and have close communications, so that your agent can stay abreast of any and all loan process glitches and keep the listing agent apprised of the legitimate reasons you may need an extension throughout the contingency period, rather than assuring them everything's speeding along then having to ask for a last-minute extension.

6 Insider Secrets for Open House Prep

You’ve heard the same old tips for getting your place ready for an open house a million times: repair, spruce, stage, clean, deodorize. (And with good reason, because they work!)  But beyond these bare minimum absolute musts, here are some less obvious things you should consider doing if you are aiming to pull off an Open House that showcases your home at its absolute best.

1. Visit other open houses in your neighborhood, city and/or price range.  Get a feel for how the competition is putting its best foot forward to prospective buyers - or not, as the case may be. This exercise of seeing how clean and pristine, well-decorated and neutralized (in odor and decor) some listings are, and seeing how basically clean, but well-lived in properties, appear to be down at the heels by comparison, will help you see your own place through new eyes: the eyes of prospective buyers who will be making those same comparisons with your house.

2. Move.  Okay, you don’t have to move all the way out, but you should do a pre-move packing session. Literally, pretend you’re moving (if things go well, you will be) and pack up almost everything you like or need to use on a daily basis.  Toiletries, pictures of your dear old granny and her kitties, your Tron posters -- none of this stuff should be visible to Open House hunters.  And remember - they open closets, drawers, cupboards and garages. Consider renting a storage space if you need to.

3. Invite the neighbors.  Yes, your neighbors are probably looky loos, just salivating to get a glimpse into how you live. But there’s a good chance they are also (a) aware of other people who want to live in their neighborhood, and (b) vested in your getting good neighbors. So, invite them - stranger things have happened than a neighbor attending an open house, then letting a house hunting friend know that they must go take a look.

4. Enlist the neighbors.  Even if your neighbors don’t personally know someone who is in the market for a place in your neck of the woods, they want your home to sell at top dollar - remember, your home’s sale will form the basis for their home’s value! So, while you're inviting the neighbors to attend, be aware of whether there's anything they can do to make your Open House run smoothly - and ask! Things like moving their cars to free up street parking for attendees and not having their kid practice his trombone in the backyard during that particular 3 hours Sunday afternoon are favors almost any good neighbor will be happy to do.

5. Mow your neighbor’s lawn.  This one’s not for everyone, and you’ll have to exercise good judgment to decide how far to go with it, but if you happen to live next door to the blighted house on the block - the one with waist high grass and cars parked on it - it might make sense to reach out and offer some help to your struggling neighbor. (Even if your home is amazing, some buyers will just not live next to a place like that.)  Now - some residents of these types of places can be, shall we say, sensitive to the idea that you might be insulting the way they live. But other times, they are just elderly, down-on-their-luck, ill, or otherwise overwhelmed people who would welcome some help.  If you have reason to think that your neighbors fall into this last group, take some cookies or their newspaper over and see if you can help them - and help yourself in the process.

6. Get over yourself.  You know how you like to brag that your taste, your personal style, is eclectic?  That you’re a trendsetter? The flip side of that is that you might have a bunch of stuff - like the sequined, tasseled, feathered, sculpted, man-sized butterfly wall hanging I once saw at an open house - that no one else would like. The goal in preparing your home for an Open House is to neutralize the decor, so that the broadest possible number of people will crave to live there. So, instead of insisting on using this moment in time to express your, mmm, unique design leanings, let your agent (or a pro stager) help you decide what should stay and what should go.

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