Home Buyer Sweeteners Offer Givebacks But Cloud Values


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In 2006 with many residential real estate markets in the doldrums, real estate agents and home sellers decided giving buyers; flat-screen televisions, tropical vacations, automobiles both new and used, closing costs and a myriad of other freebies would perk up buyers interest in a competitive marketplace.

But many buyers were not buying the incentive hype. And, legally the practice was first questioned as a violation of The Real Estate Settlement Act and professional appraisal standards. Some incentive-filled contracts were executed, but filled with disclosures to mortgage lenders and tax accountants.

Typical sweeteners to buyers:

-One year free condo assessments.

-One year free property taxes.

-Closing costs credit up to five thousand dollars.

-Free home theater or flat-screen television.

-Free new or used automobile. The gamut ran from 2007 Ford Focus to 2005 Jaguar S Type.

-Free all expense paid trip to Mexico for 2 or a Hawaiian vacation for four.

-Incentives as a percentage of the homes value ranged from 1.5% to 6 %.

The problem with these givebacks is that they don’t always get properly recorded when the home is sold. Real estate appraisers find themselves in a difficult position using a home that they heard, but can’t verify, was sold with significant credits to the buyer as a result of seller sweeteners. On a two-hundred thousand dollar home, a five-percent incentive is ten-thousand dollars; which in effect makes the true sale price $190,000. That’s a large difference, especially considering a seller looking to sell their home and using the $200,000, when the home’s real value to the market is $190,000. Plus, the buyer will still pay property taxes based on the $200,000 recorded sale price.

Mortgage lenders don’t look favorably either on sweeteners. If you are considering using incentives in a home sale or purchase, talk to an experienced real estate attorney before advertising any givebacks. The majority of buyers today really look for savvy home sellers who avoid gimmicks and price a home where sold comparables from the last six-months indicate it should be priced. Many buyers feel home prices are raised to cover the costs of buyer incentives.

Mark Nash is the author of five real estate books, new for 2007; Real Estate A-Z for Buying & Selling a Home. William J. Sittig, Chief of the Science, Technology and Business Division of The Library of Congress has invited Mark to make a presentation on 1001 Tips for Buying and Selling a Home to the members, public and staff of the Library on March 21, 2007. Nash has been featured on Bloomberg Video-on-Demand, CBS The Early Show, CNN, and The Today Show. He is a syndicated columnist for RealtyTimes.com and reviews books for MyShelf.com and The Midwest Review of Books. To subscribe to his free monthly ezine; Agent to Agent visit: http://www.AgenttoAgentezine.com


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