Using Seller Concessions to Fight the Real Estate Market Crash
In the final years of the housing bubble, it was pretty much a sure thing that you could sell your house if you put it on the market. In particularly desirable markets even a very modest house would become the subject of a hot bidding war between rival buyers. Low interest rates made it easy and desirable to get into the housing market, both as a homeowner and as a speculator. Homeowners used the fast-growing markets to cash in paper equity, often to fund unaffordable lifestyles. Investors made fantastic profits by buying houses and doing minimal repairs, then reselling them.
However, bubbles cannot continue to grow forever. Because the prices have no fundamentals under them, it is inevitable that the bubble will burst and prices will adjust sharply downward, to a point that reflects the actual fundamentals of the market. After the 2008 housing bubble burst, hot markets declined rapidly, leaving investors and homeowners alike stuck with houses suddenly worth much less than the balance of their mortgages, thanks to the rapid collapse of prices as foreclosed homes glutted the market.
If you are a homeowner, can keep up with your monthly mortgage payments, and don't have a pressing need to relocate to another city, your best bet is probably to hang onto your home until housing markets recover. However, that course of action may not be possible for everyone. If you find that you absolutely cannot wait until the market turns around to sell your property and must sell it now, your best hope is to turn to creative marketing tactics.
The first thing you must understand about the current market is the fact that it is a buyers' market, with many houses for any given buyer to choose from. A few years ago buyers felt a decided pressure to make a decision quickly when searching for a property. Choices were few and the best properties were apt to be snatched up as soon as they hit the market. Today that is no longer the case. With so many properties on the market as a result of the foreclosures, buyers know they have the advantage of choice and can take their time looking. This means if you are going to be competitive in selling your property, you will need come up with something to set your property apart and entice buyers.
The key to being competitive in a buyer's market is to recognize that the balance of power has definitely shifted. Buyers hold the upper hand right now and sellers must be prepared to do what they can to attract them. If you have already taken the obvious steps to move your property such as sprucing it up and pricing it aggressively and it's still not selling, you may wish to consider making some concessions to increase the interest of buyers.
In the last few years before the market crashed, sellers had little incentive to use seller concessions. Typically, concessions were not offered until buyers and sellers were in the process of negotiating the details of the sale. In most cases, such concessions would not even be offered until something turned up in the inspection. By contrast, in areas where the inventory is high, seller concessions are becoming far more common.
Basically, a seller concession is anything that a property owner uses to curry favor with buyers. The range of possible seller concessions varies quite a bit. For example, you might provide a decorating allowance if your carpet is outdated or even provide a contribution toward closing costs in order to encourage first-time home buyers to consider your property.
One option would be to pay points for the buyer. This technique provides a win for both buyers and sellers. Let us say you have a property listed at $150,000. If you slashed the price 3% then you would be taking $4,500 off the price. Instead, you could use that same amount of money to purchase mortgage points for the buyers. In fact, you might even find that you can purchase a substantial amount of points for a bit less money. This strategy would allow buyers to obtain a much lower interest rate and as a result a far lower monthly payment. This would make your home more affordable than similar homes in the neighborhood and may just provide the incentive buyers need to buy your home instead of a smaller one at a lower asking price.
The strategic use of seller concessions can help you make your house stand out in a flooded market, and thus enable you to unload it and move on when changed life circumstances make it impossible to remain where you are.
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