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

HUD has released a document, 24 CFR Parts 203 and 3500 Real Estate Settlement Procedures Act (RESPA): Proposed Rule To Simplify and Improve the Process of Obtaining Mortgages and Reduce Consumer Settlement Costs; Proposed Rule.

HUD is looking for comments and/or suggestions before deciding to implement it.

The first thing one notices is that this proposal to simplify is 96 pages long. The current RESPA rules already cover what they are trying to “simplify”. Clear disclosure of costs and terms and disclosure of yield spread premiums are already required by the current regulations. HUD states “The mortgage industry has changed considerably since RESPA was enacted in 1974, and the regulations implementing RESPA’s original disclosure requirements are no longer adequate.”

Having been in the industry for over 20 years, I can tell you that the mortgage industry has not changed all that much. Loans still cost money, and it is either paid for by the borrower or by the lender in the form of a yield spread premium.

HUD thinks that their current RESPA rules do not facilitate shopping or competition to lower the costs of getting a loan. I say that, if properly prepared, the Good Faith Estimate (that is already required to be provided by the lender or mortgage broker within 3 days of taking the loan application) is an excellent tool to use in comparing loans. It is lenders and brokers that do not properly prepare this document that make it difficult to compare loan to loan. If the current regulations were enforced, a modification would not be necessary.

This proposal states:

HUD’s regulatory reform and enforcement efforts for RESPA remain guided by the following principles:

1. Borrowers should receive loan terms and settlement cost information early enough in the process to allow them to shop for the mortgage product and settlement services that best meet their needs;

2. Costs should be disclosed and should be as firm as possible to avoid surprise charges at settlement;

3. Many of the current problems arise from the complexity of the mortgage loan settlement process. The process can be improved with simplification of disclosures and better borrower information;

4. Increased shopping by borrowers will lead to greater pricing competition, so that market forces will lower prices and lessen the need for regulatory enforcement;

5. The key final terms of the loan a borrower receives should be disclosed to the borrower in an understandable way at closing; and

6. HUD will continue to vigorously enforce RESPA to protect borrowers and ensure that honest settlement service providers can compete for business on a level playing field.

Let me address these issues one by one:

1. Borrowers are already supposed to receive the loan terms and costs early in the process. As for shopping for settlement services, this is only allowed on a refinance. In a purchase transaction, it is always the seller’s choice of escrow and title service providers. In addition, most borrowers would not know where to start in seeking out alternate settlement services. Those that do are and should be allowed to specify their choice. Good brokers and lenders accommodate their customers’ desires.

2. Costs over which the lender/broker have control are generally quite firm, and should only change if there is a change in terms, i.e. buying down the rate by paying a discount fee that was not initially requested by the borrower.

3. The currently required disclosures are as user-friendly as they can be, given the admitted complexity of the process, with the exception of the Truth-In-Lending form. That is one document that confuses every borrower I have ever dealt with. A change to that would be welcome.

4. If this goes into effect, borrowers will have no greater ability to shop than they have right now. I have dealt with many serious “shoppers” in my career, and I have dealt with many people who are not interested into putting that much energy into the process. People will still be people and these changes will not improve that.

5. The key final terms of the loan a borrower receives at closing are clearly spelled out in the most basic document of the loan set, the Note. It spells out the amount borrowed, the interest rate, the payment amount, and when payments begin and end. If the loan is of an adjustable nature, the Note is called an Adjustable Rate Note. Those, too, clearly spell out the terms of the adjustments, when and how much. In addition, there is usually an Adjustable Rate disclosure that reiterates the terms.

6. HUD does not need any new regulations to be able to enforce the current regulations. If they simply enforce the rules that are already in place, that would serve to level the playing field. It is unscrupulous brokers that do not disclose their true fees until the closing table that take loans away from honest agents who do properly disclose. Unfortunately, but the time this is found out, most borrowers are so anxious to get the loan closed that they bite the bullet and sign anyway. If more borrowers walked away from the closing table and reported the offending brokers, HUD would have an easier time enforcing the existing rules. That is the key to leveling the playing field.