Sellers Concessions Help Sell Houses in Slow Market

With the real estate market so slow these days, many Realtors are suggesting that the sellers offer incentives to the buyers who purchase their home. This can be a great way to separate your home from the many other homes on the market. These concessions are so popular now that I am going to revisit the issue I discussed in my June 11, 2007 article, “How can a “carpeting allowance” be a bad thing?"

There are right and wrong ways to give seller concessions. The way it is structured can make all the difference in the world.

Limits to seller concessions

Most mortgage programs set limits to the amount of concessions a seller can make to the buyer before it begins to affect the sales price of the home. For instance, with a conventional 30 year fixed rate mortgage, if you have a down payment of 10%, the seller can give you up to 6% of the sales price as a concession. If the concessions are greater than 10%, the sales price will be reduced by that amount when the lender calculates the down payment and loan-to-value ratios (LTV).

Types of acceptable seller concessions

Typically, sellers can pay for non-recurring closing costs up to the maximum allowed by the lender for the specific mortgage program. Also, sellers can pay points to help the buyer lower their interest rate or pay for a temporary buydown. Also, if the buyer and seller agree to a payment abatement program (see my posts on PITI Payment Abatement Programs and Interest-Only Payment Abatement Programs for more information on payment abatement programs) the seller can pay for the payments that the buyer will skip.

Types of unacceptable seller concessions

Sellers can never give the down payment for the purchase to the buyer nor can they give them allowances for decorating, carpeting, repairs, etc. Many real estate professionals do not understand this and write them into the sales contract. If you are going to do repairs or replace carpeting for the buyers, it will have to be done before closing, put into escrow for the buyers to do later, or paid directly to the contractor who is going to do the work. If not, it will affect the sales price used by the lender to calculate down payment and LTV.

Concessions are a great way to entice buyers to take a closer look at your property and make an offer. But, it must be done correctly for the buyer to get the full benefit of the conecssion.

Carnival of Real Estate

Welcome to the December 3, 2007
edition of the Carnival of Real Estate

Let's face it - it's a weird time to be in real estate. Foreclosures loom, property sits unsold, and nobody really knows what's getting better and what's getting worse.

You can't open a paper or click on a website without hearing about it, and consumers are downright scared and confused. This week's carnival focuses on things that can help us all in these uncertain times.

We have to begin this week with Joshua Dorkin's "Fish Story" posted at Real Estate Investing For Real. When it comes to foreclosure, we know the homeowners get angry. They yell at their real estate agents, they yell at their attorneys, and they certainly yell at their mortgage brokers. This family took their anger out on the entire world. Worth a read just for the chuckle. I'm glad it was you and not me in there, Joshua!

One thing is sure, there are still people making money in real estate. As Trevor Mauch explains in his post, Recent Survey on Self-Directed IRA's is great news for real estate wholesalers posted at The Real Estate Investing Brain, "for the savvy investor... even right now, real estate is the most sought after and solid investment… with all of the doom and gloom out there… this survey debunks the myth that the good ol’ days of real estate investing are done." I've been hearing from a lot of my investor clients who want to 'go shopping while property is on sale' and the idea of using a self-directed IRA is a smart one!

If there is a bright side to the subprime mortgage meltdown, it may be the re-emergence of FHA as a popular option for homeowners. BrandonL talks about the various options available through the FHA program in his blog, Different types of FHA Loans posted at FHA Mortgage Center Blog, saying, "Learn how to use an FHA mortgage to make your home loan safer and easier."

Remember, even though it seems - by listening to the media and reading the newspapers - that the entire country is spiraling out of control, real estate markets are local and not national. Doug Boggs talks about this in his blog and explains how people can find good deals if they don't buy into the fear and hype. Fear based or reality based... is posted at Boggs Development Group, LLC. Doug says "I have always stated that there is no such thing as a national real estate economy. I still believe this despite what seems to be happening throughout the United States, as reported in numerous newspapers, as well as, their television affiliate corporations. The perpetuation of fear through our news agencies gives me pause. It is too bad as there are some great deals out there for people who can see through the maze of media mayhem."

That concludes this edition. Submit your blog article to the next edition of
carnival of real estate using the carnival submission form.

Past posts and future hosts can be found on the blog carnival index page.

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