The art of the deal
Your home is still not selling and you can’t understand why. You followed your agent’s advice and spent weeks de-cluttering, painting, and getting your home in tip-top condition. The house is staged like a Hollywood set and always available for showings. You’re getting tired of living in a fish bowl and have already reduced your original listed price. Still there have been no offers and no serious buyer interest. So now what?
Adjusting to a buyer’s market isn’t easy for sellers or their agents. It requires serious pricing strategy and creative thinking. While price is important in attracting homebuyers, so are the often-overlooked terms of the deal. Often buyers will pay a higher price for a home if the seller is offering other incentives.
Have your agent take another look at comparable properties and update your market analysis. New listings have likely come on the market and others recently sold or went into escrow. In a market with more inventory than buyers, it is important for your home to be priced within 2 percent of the current pending sales and priced in the lower half of all comparable homes currently listed. If the current listing price is within those parameters and your home is still not attracting any offers, it’s time to consider some serious buyer concessions. Before reducing the listing price, however, try offering to pay the buyer’s closing costs.
During the last bear housing market (1992-1996) the largest factor in preventing buyers from buying a home was the downpayment and closing costs. Today, many lenders no longer require a down payment as a prerequisite for a mortgage. Qualifying for one of the many loan programs is also easier than it was 10 years ago with limited or no verification of the applicant’s income. Closing costs continue to remain a large obstacle in the home buying process. Eliminating or substantially reducing the amount that a buyer will need to pay will provide an advantage in selling your home.
Closing costs for a homebuyer is usually 2.5 to 3 percent of the loan amount and will include title and escrow fees, lender fees, interest and tax adjustments and impounds for property taxes and insurance. As an example, I am currently working with a couple that are first time homebuyers. Their good credit will allow them to qualify for a no-down-payment loan on a purchase price of $450,000. The closing costs, however, will be $12,000, which includes: lender fees in the amount of $5,600, title and escrow $1,800, impounds for taxes and insurance $4,000 and interest and tax adjustments of $600. In addition most lenders require that the borrower have some cash reserves remaining after closing.
So while my clients can easily qualify for a $450,000 home without any downpayment, they will need $15,000 for closing costs, impounds and cash reserves. Pretty easy for a Bay Area buyer who just sold their million dollar home but less so for a first time home buyer. Sellers who can offset part or all of that expense will have a competitive advantage.
There are limits to how much credit a seller can provide to a buyer. Lenders will usually limit seller’s credits to 3 or 5 percent of the loan amount. The home’s value must also be substantiated by an appraisal.
Crediting a buyer for part or all of their closing costs will not sell an over-priced or poorly conditioned property. It will, if marketed correctly, attract additional interest from first time buyers and buyers with limited cash reserves. So before reducing the price in a race to the bottom of the market, sellers should look for alternatives. Paying the buyer’s closing costs is only one.
Adjusting to a buyer’s market isn’t easy for sellers or their agents. It requires serious pricing strategy and creative thinking. While price is important in attracting homebuyers, so are the often-overlooked terms of the deal. Often buyers will pay a higher price for a home if the seller is offering other incentives.
Have your agent take another look at comparable properties and update your market analysis. New listings have likely come on the market and others recently sold or went into escrow. In a market with more inventory than buyers, it is important for your home to be priced within 2 percent of the current pending sales and priced in the lower half of all comparable homes currently listed. If the current listing price is within those parameters and your home is still not attracting any offers, it’s time to consider some serious buyer concessions. Before reducing the listing price, however, try offering to pay the buyer’s closing costs.
During the last bear housing market (1992-1996) the largest factor in preventing buyers from buying a home was the downpayment and closing costs. Today, many lenders no longer require a down payment as a prerequisite for a mortgage. Qualifying for one of the many loan programs is also easier than it was 10 years ago with limited or no verification of the applicant’s income. Closing costs continue to remain a large obstacle in the home buying process. Eliminating or substantially reducing the amount that a buyer will need to pay will provide an advantage in selling your home.
Closing costs for a homebuyer is usually 2.5 to 3 percent of the loan amount and will include title and escrow fees, lender fees, interest and tax adjustments and impounds for property taxes and insurance. As an example, I am currently working with a couple that are first time homebuyers. Their good credit will allow them to qualify for a no-down-payment loan on a purchase price of $450,000. The closing costs, however, will be $12,000, which includes: lender fees in the amount of $5,600, title and escrow $1,800, impounds for taxes and insurance $4,000 and interest and tax adjustments of $600. In addition most lenders require that the borrower have some cash reserves remaining after closing.
So while my clients can easily qualify for a $450,000 home without any downpayment, they will need $15,000 for closing costs, impounds and cash reserves. Pretty easy for a Bay Area buyer who just sold their million dollar home but less so for a first time home buyer. Sellers who can offset part or all of that expense will have a competitive advantage.
There are limits to how much credit a seller can provide to a buyer. Lenders will usually limit seller’s credits to 3 or 5 percent of the loan amount. The home’s value must also be substantiated by an appraisal.
Crediting a buyer for part or all of their closing costs will not sell an over-priced or poorly conditioned property. It will, if marketed correctly, attract additional interest from first time buyers and buyers with limited cash reserves. So before reducing the price in a race to the bottom of the market, sellers should look for alternatives. Paying the buyer’s closing costs is only one.
posted by Ken Calhoon at 8:26 AM
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