How to offer a private rebate on a house sale?

[HsiaoChu]

Alright.... all you hotsh@t realty dudes..... I got a question.

Assuming that by the time I put my house on the market, all the $8K credit incentives are gone.....

How can I offer such an item as a rebate to a buyer? Do I offer to put something of high value in the house? Do I put something in escrow that can be taken as a part of the agreement within a certain time, such as T-Bills, or something else that is transferrable?

How would I offer the equivalent of an $8K tax credit and make it legally binding so the buyer knows I cannot weasel out after the sale? But so that it doesn't get covered by the mortgage company? Some kind of legally binding gift?

Z

 

[W2R]

I'm no realty guru, but couldn't you just come down $8,000 on the price? This could have the added advantage of lowering the property taxes for the buyer. And for you, the advantage would be selling more quickly.

Or, if your realtor says it is legal, maybe you could offer to pay the buyers' closing costs. Buyers who are having trouble coming up with the cash for a down payment and for closing, like that.

My daughter has her first house in escrow right now. She will be getting the tax credit. However, she told me that even if there is a problem during inspection or some such thing, she thinks some other sellers might be lowering their asking prices after the tax rebate deal expires.

 

[Nords]

But so that it doesn't get covered by the mortgage company?

I'm not sure what this means... can you elaborate?

If I see two identical houses, one priced at $208K with $8K "rebates" and the other at $200K, I'm going to go for the simpler transaction.

 

[chinaco]

IMO - just do it in the negotiation... You have an $8k tolerance. I would stay away from gimmicks. Most people know about comparable houses and pricing... if they do not the agent will show them comps to justify the price or to sell them another house. It usually comes down to price, location, and the appeal of the house (to the prospective buyer). If the appeal is going to be "a good deal"... then just cut the price to move it.

 

[HsiaoChu]

Lots of people are now buying a house because the government is giving the 8 grand later. They are using this to fix up the house. Or make additions, or paint and wall paper or just to buy something they really wanted.

If you reduce the price, then you don't get any cash because its just part of the mortgage and there's no really getting something at the end.

For example, I had a wedding photographer associate or gave every bride who was nice to him a crisp new 100 dollar bill at the end of each wedding. They didn't have to pay for this they thought, and since their parents were paying for the wedding it was money in their hands. The number of new weddings bookings he got from that was enormous.

Offering a way to put $8000 into the hands of a potential buyer may be a gimmick, but "free money" is free money. Maybe a way to do it would be to offer to pay for their mortgage for 6 months free mortgage paymets, after they buy the house by putting the money into escrow. They could have the money in installments from a bank escrow account every month for 6 months. It would be easy to set up. I would call it a gift. There was a company that was selling houses like hot cakes here before the $8K credit by offering a year of free mortgage payments if people bought the house, and this was right in the middle of the deepest part of the recession.

Z

 

[ziggy29]

If you sell a house for $200K but give $8K back, the buyer is really paying $192K for it. Especially these days, is a lender going to offer a loan based on $200K when it really sold for $192K? As far as the lender is concerned, the house sold for $192K, not $200K, which means the buyer will have to come up with the additional $8K somewhere -- oh yeah, the $8K you are going to give them...

 

[HsiaoChu]

I'm not sure what this means... can you elaborate?

If I see two identical houses, one priced at $208K with $8K "rebates" and the other at $200K, I'm going to go for the simpler transaction.

OK... It looks like in talking this out with you guys , I've answered my own question and gotten some answers from you.

AND I WOULD DO THIS IN NEGOTIATION not right off, and letting the broker know to tell the buyer that s/he could get some kind of special deal from us.

If I see two identical houses, both for $203,000 and one of them is going to pay my mortgage payments for 6 months , I'm going to take the second one.

I don't know about you.

That's what I'm talking about. I need to get rid of the house so I can move and retire. I'm really not interested in waiting around.

Many people will take a deal that is $8000 more if the buyer is going to pay the first 6 months of their mortgage "free". Moving into a new house is expensive with moving and getting fuel for the winter, and maybe buying some things you need. If the seller is going to pay for these things, just like UNCLE SAM is doing now, then this makes the deal way more sweeter that simply combining the it into a mortgage where a drop of 8K over 30 years will hardly be even noticable on their payment. Most first time home buyers are not as savvy as us 60 year olds. They have lots of new expenses and are wondering how they are going to pay the start up stuff that has to come out of pocket.

Another option might be to have the seller PAY ALL THE CLOSING COSTS and moving costs that the buyer normally has to pay. All they do is move in.

Z

 

[Animorph]

I'd be really careful about mortgage fraud with something like this. Cash back is like inflating the cost of the house for mortgage purposes, when the true value of the house is actually $8k lower. Be careful to OK this with someone you trust.

 

[DivinDave]

Could you offer furniture and appliances?

 

[walkinwood]

When we bought our house, the seller offered a few thousand towards the closing costs.

 

[Nords]

If I see two identical houses, both for $203,000 and one of them is going to pay my mortgage payments for 6 months , I'm going to take the second one.

You're limiting your buyers to the people who can qualify for financing based on a sale price of $203K. If you drop the price to $195K then you'd potentially attract more buyers.

I guess you'd also want to have an answer ready for the situation where you're giving $8K of incentives and then the appraisal comes in below your sales price.

Paying all closing costs and moving costs up to a total of $8K isn't unheard of, but you're essentially asking the mortgage company to give these people a chance to get cash out of their financing. While there are plenty of realtors & title companies who'd jump into this, I wonder if they're the type of people who you'd want to work with. But then, as the seller you only have to work with your realtor and you don't really choose the title company.

You say you're in a hurry to sell-- the fastest way to communicate that, and the fastest way to close the deal, is to drop the price. Everything else sounds a gimmicky rebate scheme.

 

[HsiaoChu]

Yeah.... it looks like the easiest way to deal with the whole thing is to offer to pay closing costs or to buy applicances or anything that the potential buyer would like to add but doesn't have the money. Both of these are perfectly legal and are not terribly gimmicky. The extra items can be specified in the contract before hand. Another choice would be that the money can be put into escrow to pay for them. For example we can offer to pay their moving expenses up to $2000, and put that money into escrow. It has nothing to do with the house or the mortgage, and if they don't produce valid receipts then the escrow account won't release the money.

We had a deal for our retirement house that the seller would escrow $5000 for 3 months for us to fix the water system. We used whatever we needed and had to give the rest back. We couldn't buy things we didn't need(like an ultraviolet purification system) if a test came up OK. So after using $4600 to put in a new submersible pump, run new lines to the house, and replace virtually every part of the system except drilling a new well, we had to give back 400 bucks. We had to do the work within three months after the sale or the escrow would revert back to the seller.

Z

 

[W2R]

If your local real estate market is a buyer's market, as ours is here, you may find that other sellers are lowering their prices after the tax credit becomes no longer available. I am wondering - - perhaps if you do not do the same, and lower the price of your house, it may become hard to sell.

 

[HsiaoChu]

Paying all closing costs and moving costs up to a total of $8K isn't unheard of, but you're essentially asking the mortgage company to give these people a chance to get cash out of their financing.

I'm sorry, Nords, I don't understand what this means. My paying of the closing costs, has nothing to do with my financing. Its additional money I have to come up with at closing to pay for the taxes, and costs. In my state its usually shared. How its shared is generally part of negotiation. The mortgage company has nothing to do with that. Paying their closing costs doesn't impact the mortgage company. Putting in new appliances at the request of the buyers has some impact on the appraisal but not a lot. I know what the houses where I live are appraised at.

So you got me a bit confused with your statement.

I may have made it sound like I'm a babe in the woods here, but over the past 20 years I have bought and sold 5 properties, 4 of them in the past 3 years.

I was only interested in some variations of creative offers to encourage purchase in a buyers market.

I have some of them already: arguably the best elementary school in the county(the only National Blue Ribbon Elementary School in the county), a full acre with shade trees and a small pine forest at the back, the lowest school taxes in the county, a desirable well kept neighborhood, a well insulated house with a wood stove that heats it to 75 degrees for only about $600 for the whole winter, with electric baseboard as back up, completely newly renovated kitchen with new dishwasher and floors, new hardwood floors and carpet, renovated bedrooms, 4 bdrs, 1.5 baths both newly renovated, garage, two decks, etc.

Z

 

[Animorph]

I'm sorry, Nords, I don't understand what this means. My paying of the closing costs, has nothing to do with my financing. Its additional money I have to come up with at closing to pay for the taxes, and costs. In my state its usually shared. How its shared is generally part of negotiation. The mortgage company has nothing to do with that. Paying their closing costs doesn't impact the mortgage company. Putting in new appliances at the request of the buyers has some impact on the appraisal but not a lot. I know what the houses where I live are appraised at.

Not your financing, the buyer's financing. Paying closing costs is fine, but say you add $100k to the house price, get a fake appraisal, and then rebate that $100k to the buyer who has financed 80% of the larger buy price. The buyer is getting cash out financing and may be underwater on the mortgage already without the lender's knowledge. They might even just abandon the house and take the money. That was a big problem here during the last few years of housing turmoil. So you need to make sure you don't look anything like that to the buyer's mortgage company or the state.

 

[Nords]

I'm sorry, Nords, I don't understand what this means. My paying of the closing costs, has nothing to do with my financing.

Correct, but your paying their closing costs affects their financing.

When you sell the place for $200K and rebate $8K on the side, they have to get a $200K mortgage (or some percentage of that) and they end up with $8K in their pockets.

When you sell the place for $192K with no rebates, they have to get a $192K mortgage (or some percentage) and they have no money in their pockets.

Your intent to ask a higher price and rebate $8K is the same as a homeowner refinancing their home with a higher mortgage amount and taking cash out. They get $8K in their pockets but they're going to be paying interest on it.

You could take this "good deal" to extremes. Maybe you should price the home for $250K and offer a $58K rebate after closing. Surely buyers having $58K in their pockets is a better deal than just having a measly $8K in their pockets!

Oh, wait, they have to be able to qualify for a $258K mortgage. Maybe it's a good thing that the home's not priced at $500K.

So again, you could drop your price by $8K to market your home to appeal to people who can't afford large cash down payments or who can't afford $200K mortgages. Or you keep your price at $200K to market your home to people who think $8K cash back is a great deal. I suspect that the former population of potential buyers is a lot larger than the latter population of potential buyers.

 

[HsiaoChu]

Correct, but your paying their closing costs affects their financing.

When you sell the place for $200K and rebate $8K on the side, they have to get a $200K mortgage (or some percentage of that) and they end up with $8K in their pockets.

Maybe.... but when I purchased my retirement home in Maine, the house cost was $XXX,000. I financed 80% of $XXX,000. My closing costs were extra and had to be paid by me outside of the financing of the house. The closing costs(title fees, county taxes, state taxes, etc) were not part of the financing deal. I remember this because I was concerned about making sure I had enough money to pay for those things. I had to write an additional check to cover my part of the closing fees.

Maybe its different in different places. Surely if the buyers get a financing deal that pays everything including closing fees, maybe...... but my S&L wasn't interested in helping me pay for anything that wasn't the actual house itself.

Z

 

[HsiaoChu]

If your local real estate market is a buyer's market, as ours is here, you may find that other sellers are lowering their prices after the tax credit becomes no longer available. I am wondering - - perhaps if you do not do the same, and lower the price of your house, it may become hard to sell.

Not a problem for me. When we bought the house 24 years ago it was 1/4 of the price that houses are selling for now. I don't have a mortgage on it, and since its my primarily dwelling, I won't pay capital gains tax. I need to pay off my mortgage in Maine and have enough extra for a small nest egg and some renovations and repairs to the new house, most of which I am perfectly capable of doing myself without contractor assistance(need a roofer maybe since I'm scare cr@pless of heights above 8 feet or so). I built my own 20 x 24 foot two story cabin with plumbing and electricity with almost no additional assistance.

So we can price it very very competitively. I just like to have my eventualities covered. Don't like surprises. Don't like surprise parties. Won't have a surprise retirement dinner that turns into a roast. Will go to great lengths to have all the possible scenarios already figured out.

Z

 

[W2R]

So we can price it very very competitively. I just like to have my eventualities covered.

Oh, good! Glad to hear it. Whew.

 

[ziggy29]

So we can price it very very competitively. I just like to have my eventualities covered. Don't like surprises. Don't like surprise parties. Won't have a surprise retirement dinner that turns into a roast. Will go to great lengths to have all the possible scenarios already figured out.

That's good. Frankly, if your primary motivation is to sell quickly and you have a lot of equity, the best thing to do is simply price it for quick sale (but not so low that potential buyers think something is wrong with it).

That's what we did when we sold our house in California. I already had the transfer to Texas lined up so we were pretty motivated to just get it sold, and had it under contract in 6 days. Of course, that was into a seller's market.

 

[clifp]

In many guess offering a rebate works better than lower the price. Typically, offering to pay closing cost, a credit for appliance or new roof or whatever is a strong incentive for cash poor buyers.

On the other hand in an equal number of case a lower price is better. For example on 250K house a 200K mortgage would be harder to qualify than 192K mortgage with a 8K credit it would also result in slightly higher fees and property taxes (at least in places like California).

So I think the simplest thing is to use a credit as part of the counter offer if the buyers need cash.

 

[HsiaoChu]

That's good. Frankly, if your primary motivation is to sell quickly and you have a lot of equity, the best thing to do is simply price it for quick sale (but not so low that potential buyers think something is wrong with it).

That's what we did when we sold our house in California. I already had the transfer to Texas lined up so we were pretty motivated to just get it sold, and had it under contract in 6 days. Of course, that was into a seller's market.

Last November we sold our other properties in the deepest part of the housing yucky ness. We priced the other property for quick sale, and what we got was incredibly low balling offers that were 20% below our quick sale price. We learned that we need to be able to have a good 15-20% leeway below our on the market price so that the buyer believes he's getting a deal when he low balls by 15%. The broker can play the games with them.

Actually we sold the property on Craigslist. The broker simply handled the transaction. We visited them and went over all the information about it how it was built, and did all her leg work for her. But she had shown it to many people before the one we found on Craigslist worked it.

I'm sure if we put it out for 20% below the price that the guy across the street got, we sell it in days. But we need more than that. We aren't that desperate. The problem is that if we offer it at 20% below the average local offered price and then they offer 10% below that its to low to do what we need.

Its all a game. If you price it too high you'll get no offers. If you price it too low, people will think something is wrong with it. Finding a savvy broker is not easy.

Z

 

[Texas Proud]

I have an agreement to sell my old house and the offer was they were going to pay X for the house, but I had to pay $7K to them for ANY kind of cost they found... so I was really getting X-7.... I said X-5 and we struck the deal..

Now, the only problem is will the house appraise for X... if it does... done deal... if it does not... then we have a problem...

The other thing you can do is have some money put into escrow for 'fixing' up the place... but loose enough terms that everybody knows they are getting the money.. This is what I did when I bought the house I am selling 25 years ago... I gave them a list of what was wrong (and believe me... anybody who inspects a house now can find a LOT... I was surprised how much they 'found' at my old house... made it seem like I had not put in a penny in 25 years... even though I fixed it up with hardi plank... put on a 40 year roof.. and recently redid a lot of the floors and stuff in the kitchen and baths...)...

 

[HsiaoChu]

The bottom line for us is that its probably not an issue. If we offered the house for even 10% above what is the bottom line number we need, the neighbors would probably be angry since it would set a bad precedent for sales in the neighborhood. We have 100% equity. If we sold it on Craigslist, without a broker's commission of 6%, and didn't do any renovations that we still plan to do..... well there are trailers in local trailer parks that would cost more. We have almost a full acre with mature trees, and even a small pine forest at the bottom of the yard.

Z

 

[ziggy29]

We learned that we need to be able to have a good 15-20% leeway below our on the market price so that the buyer believes he's getting a deal when he low balls by 15%. The broker can play the games with them.

I don't know about 15-20%, but yeah -- I would never list at a price that was the absolute minimum I would take. Too many people think everything has to be negotiable and will not buy, no matter how good the price, unless they can haggle you down. I despise those games, but it is what it is, so I have to do as the Romans when I'm in Rome. Wishing people would just respond to an already pretty good deal with a firm, no-haggle price won't make it so. Some people would feel better about haggling a seller down from $200K to $190K than about paying $185K firm with no haggling. Silly.

In the example I gave, I actually accepted an offer $10,000 below my asking price; though our initial listing price was on the low side of the suggested range it wasn't the lowest we'd accept.

If we offered the house for even 10% above what is the bottom line number we need, the neighbors would probably be angry since it would set a bad precedent for sales in the neighborhood.

Me? I'd be happy because I'd have some ammunition to challenge my property tax assessment.