Real Estate Insight

Top 6 Incentives for Home Sellers

To frustrated home owners trying to sell their homes in this market, it seems like the market continues to worsen daily as they are subjected to an endless media barrage of gloom and doom. These owners already know there’s a glut of properties on the market this spring. As if it wasn’t hard enough competing with highly motivated sellers for the shrinking universe of buyers, they now find themselves competing with banks and large lending institutions that are both willing and able to drastically slash prices to unload the record number of homes they’re getting back from foreclosure.

As of March 2008, there were nearly 4 million homes for sale in the U.S., up one-third from just two years ago. Parts of California have more than two years of remaining inventory now on the market.

Just because sellers have shifted into survival mode doesn’t mean they need to push the panic button as well. However, it does mean sellers have to get creative to make their home stand out from the others. Sometimes desperate times call for desperate or even bizarre measures and incentives. Stories surfacing include a seller who threw in his classic 1967 Pontiac GTO, others buying $10 St. Joseph Statue Home Sales Kits, featuring a small plastic statue of the saint that owners are supposed to bury under for-sale signs. (If you’re into that sort of thing, the company’s phone number is 1-888-bury-joe), and even a woman in California who offered to bake cookies for a would-be buyer every week for a year.

But before they even get to that point, many sellers have considered offering a variety of incentives to sweeten the pot in this buyer’s market. Two distinct sets of guidelines seem to be emerging for sellers: one for those who need to sell almost immediately and another for slightly less-pressured sellers. The following is to help the first group of desperate sellers.

Top 6 Incentives for the Must-Sell Seller

For owners who absolutely, positively must sell, here are the top incentives and strategies currently in use:

1. Paying the buyer’s down payment: With the elimination of nearly all 100% financing loans came the elimination of a large pool of buyers with no cash for the now required down payment. While most loans don’t allow the seller to furnish the down payment for the buyer, a seller is allowed to do it in conjunction with certain types of loans. Sellers who need to sell are putting their homes onto a list of homes that are participating with DPA programs. While most people know about FHA loans, few have heard of “down-payment assistance” (DPA) programs. Buyers needing 100% financing can purchase a home using this method, and since FHA limits were raised, it’s now possible to get 100% financing on a rather large purchase. To participate, sellers must agree to contribute 1%-6% of the selling price to the DPA who in turn gifts the down payment to the buyer. The normal amount is about 3%; a drop in the bucket compared to the price reductions many sellers are making in this market. As a bonus, the contribution amount is tax deductible. Go to The Nehemiah Program to learn more about the largest DPA.

2. Cash-back offers: These include offering to pay a year’s worth of property taxes or even a year’s worth of mortgage payments. How much attention do you think a seller offering to pay the buyer’s first year of mortgage payments would attract? Sounds like a lot? It amounts to about 5%-7% of the purchase price. Again, depending on the urgency, that’s not much compared to the alternative of not selling. Also increasingly common are "cash-back" offers that can be credited towards repairs, landscaping, closing costs or mortgage points.

3. Glamour and glitz: Exotic vacations, timeshares, cars, season tickets for professional sports or even the opera, art, high-definition TVs, thousand-dollar gift cards for gasoline, and more. The more exotic, the better your chances of luring that dwindling number of buyers.

4. Lease-to-own options: This can be a motivator for tentative buyers who fear the market will drop further or for buyers who are short on down payments or who can’t get traditional financing in tightening credit markets. Option structures differ greatly. A rent-to-own agreement, also called "lease-to-own" or "lease-purchase," is generally a binding agreement to buy a home at a set price at the end of a set period. It offers a little better security for the seller. A lease-option arrangement gives the renter a legal buy-option after a given period, but isn’t an obligation.

5. Increase, not decrease the commission: Not all incentives have to be for the buyer. During the last real estate frenzy in which sellers enjoyed multiple offers before the home was even listed and buyers lining up to offer more than the list price for their homes, it started to seem like all you had to do to sell your home was put it on the MLS. The commissions could hardly be justified which led to sellers expecting discounted commissions. That same mindset doesn’t work in this market. With a glut of homes offering full commissions, agents aren’t having to show homes that aren’t offering full commissions anymore. Sellers that need to sell should think about offering bonuses or higher percentages, not less.

6. "Mr. Big" of incentives — proper pricing: It’s pretty simple, a home is going to have to be priced correctly in relation to comparable sales as they exist today, not the 2004-2005 pricing that your neighbors got. Incentives and everything else take a back seat to a home priced correctly.

The Value of Staging

Many developers are offering big incentive packages. While many of those can add up to tens of thousands of dollars in the form of price breaks, throw-ins, credits and add-ons, buyers should be aware that the biggest home-value drops also occur in those same areas where there’s an abundance of new construction. Incentives offered by owners in more established, mature markets carry more relative weight.

Too many concessions and incentives on the other hand can backfire by making buyers suspicious. It can lead to some buyers thinking the seller must really be desperate. And then begin to wonder, ‘What’s wrong with this house?’" Bottom line is, two things really sell a house, pricing and staging.

Don’t under-estimate staging. A home that’s priced correctly but sits on the market is typically cluttered, dirty and poorly presented and have been branded as tough sells by agents. Agents don’t show these because they are embarrassing and a waste of people’s time.

The average cost of staging a home is about $2000 — far less than a price reduction on the average home. Staging focuses on the "three C’s": cleaning, clutter removal and colors – mostly neutral colors with bright accents thrown in for balance. Staging reveals the benefits of the home and helps the buyer "imagine themselves living there."

A 2007 survey encompassing all regions of the U.S. indicated that staging a for-sale home nets a 343 percent return on investment . Another survey of 400 homes in the U.S and Canada revealed that homes prepped for sale by an accredited staging professional sold in an average 31.8 days compared with 161 days for non-staged homes.

Hope this helps. Until next time, happy house hunting!

Elliot Lau