Drive through any snowy North Idaho neighborhood this weekend and you’ll see a fresh batch of riders atop the For Sale signs declaring: PRICE REDUCED!
A price reduction sends a message, in spite of whether it’s true or not, that the home was most likely overpriced or that there is something wrong with it. Statistically, homes that have been reduced in price will ultimately sell for the even less.
Sometimes, a price reduction isn’t the best way for anxious sellers to successfully attract the buyer they need. With a price reduction, usually the seller will net less, the buyer will have a higher payment and the home values in the neighborhood will take a hit. Assuming the home is priced correctly for our local market, there are smarter incentives that will make your home stand out among the throngs of sellers reducing their asking price.
Let’s look at one example. We will use a home priced at $200,000 with a buyer putting down 10% with a 700 FICO score. FICO is the credit scoring system that banks use to determine the creditworthiness of borrowers on everything from buying cars and homes and determining what your insurance premium should be. Nationally the average FICO score is 720, and 58% of buyers have a score over 700.
In our example, the buyer ends up with a lower payment, the seller ends up netting more, and the neighborhood SOLD comparable for future appraisals is $10,000 higher! This is what you call a win-win-win situation!
The seller, rather than take a $10,000 price reduction, offers to prepay the buyer’s mortgage insurance premium of $3,780 as part of closing costs. Final sales price: $200,000. Concession: $3,780. Loan amount: $180,000. 30 year fixed interest rate 6%. Monthly principal plus interest payment: $1,079.
Let’s see the difference if a $10,000 price reduction had been made instead. Final sales price: $190,000. Concession: $10,000. Loan amount $171,000. 30 year fixed interest rate 6%. Monthly principal plus interest payment: $1,025. Add PMI (Private Mortgage Insurance) of $88/mo for a total payment of $1,113.
In our current mortgage climate, more and more innovative deals are being struck. It just takes some creative thinking and a willingness to think outside of the box. Trades and exchanges, interest rate buydowns, seller paid payments, and even tropical vacations are being offered as incentives. Just today I saw an ad for a “buy one, get one free” deal on a California estate. Buy the $1,600,000 home and get a $400,000 condo free. All of these incentives are perfectly legal, but you will want to make sure your particular deal isn’t violating any housing or financing regulation.
With throngs of sellers putting up PRICE REDUCTION signs right now, your best chance for having your home stand out from the pack just may be to offer a savvy buyer’s incentive.
Janna Rankin Scharf, AB, GRI, CSP, CNS, CLHMS, provides a superior level of real estate services to home buyers and sellers in Coeur d'Alene and Kootenai County, Idaho. Visit www.JannaScharf.com to search for homes in the Coeur d'Alene MLS for anywhere in spectacular North Idaho.
Janna Rankin Scharf, 208.651.9700 NorthIdahoJanna@gmail.com
Janna Rankin Scharf provides a superior level of real estate services to home buyers and sellers in Coeur d'Alene and Kootenai County, Idaho. Visit www.JannaScharf.com to search for homes in the Coeur d'Alene MLS for anywhere in spectacular North Idaho.
No matter how grand or modest your real estate dreams may be, you can turn to me in confidence. Give me a call today and let me know what I can do to be of service to you!
Janna Rankin Scharf AB, GRI, CSP, CNS, CLHMS 208.651.9700
You are right Janna - it takes good incentives to sell a house today. Price reductions are not the only enticement to sell a home. Thanks for the good suggestion on the PMI.
Great suggestion! I would hope real estate agents would think about the big picture. Great post!
Morning Janna,
Sometimes an incentive gathers the little extra attention the listing needs to draw traffic and produce a Contract. First of all, however, the home has to be priced right. With so many short sales and foreclosures on the market agents for the seller need to be creative to gain the attention their listing needs and deserve.
Hal - You're absolutely right. Incentives can make all the difference in the world, but the home MUST be price correctly, too.
Hey, Janna. You should see some of the incentives here. They range from paying escrow costs to paying a year's worth of HOA fees, to paying for a one-week vacation to Hawaii to an $80,000 Mercedes. It's just amazing. Of course, IRS taxes are due on most of those "free" incentives.