Another month, another “home sales” decline, as the real estate markets in many parts of the country decelerate and transition into something less than the hyperactive state of the past few years.
Lower interest rates and frantic buyers translated into multiple offers on even modest homes, and builders holding lotteries for homes in new subdivisions. Now, many marketplaces around the country appear to have flattened out.
How this cycle will play out will depend on a lot of different variables we cannot readily predict: Inflation, higher materials costs, interest rates, how the economy deals with the slower housing market, how much new home builders keep building, as well as how much existing inventory continues to rise.
There is no longer a bottomless pool of buyers. As fewer home shoppers vie for a larger number of homes, it appears that as more time goes by, anxious property sellers are slashing prices.
With the pending slow down, as a property seller you can consider doing some things to distinguish your property from your competition’s. What can you do? First and foremost–the property asking price must be in line with the competition in your market. Establish too high a price and your property will sit.
Offer material incentives
Some builders are offering the following incentives:
- Upgraded or higher end appliances
- Free security systems and-or monitoring
- An in ground pool and free pool service
- Granite counter tops
- A prepaid lease on a vehicle
- A free Hawaii vacation, etc.
Offer financing incentives
Offer to buy down the interest rate for the buyer–or better yet, offer your own turn-key seller financing program, which carries a ton of benefits for you and prospective buyers.
The benefits of seller financing:
- Typically, you can ask for the FULL RETAIL sales price with little (if any) concessions, since you are offering financing.
- A larger pool of potential buyers exist, as opposed to those who must go out and obtain their own financing.
- No loan points for either the seller or buyer to pay.
- Limited closing expenses and no, so called, “junk fees” for all of the additional expenses mortgage brokers and lenders have come up with lately. (Costs like document review fees, warehouse fee, underwriting fee, tax service fees, etc.)
- A FAST closing, since numerous buyers want the property when financing is offered.
- No prepayment penalty for the buyer. The buyer can “opt out” of your seller financing program and refinance the loan to the best rates they can get without the fear of a prepayment penalty.
- Owner-offered financing can be immediately converted into CASH, often at the same time the closing takes place when the property is sold.
- The “discount” of the mortgage for immediate cash today can be minimized by properly selecting the right property, buyer, and structure for the seller financed loan to be sold.
- Being able to offer long-term fixed interest rate financing with no balloon payment is a plus many eager buyers will appreciate.
- As a seller, you can make a deal work almost on the spot instead of requiring a prospective buyer to get financing. You can now offer a “turn-key” program that includes your own internal financing. This alone provides a greater degree of control over the entire process.
- One way you can really shine is to offer an initial lower-than-normal “teaser” rate for a short period of time that adjusts upward to a long-term fixed rate.
Your young, first-time home buyers are willing to pay $200,000 for a home that is for sale, and they have 10% (or $20,000) to put down. They have good employment stability and reasonably good credit.
You offer to finance the balance of $180,000 over 360 months (30 years) at a slightly higher than market interest rate of 7.5%, which will require a monthly installment payment of $1,258.59.
They have a problem with this because the payment is too high for them as they get accustom to home ownership. They would like to keep their initial monthly installment payment right at $925.00. So you figure out what initial “teaser” interest rate you can offer them for the first twelve months of installment payments, which will keep their payment right at $925.00.
This will be an interest only installment of $925.00 per month or $11,100 of interest due for the 1st year on $180,000. If you divide the $11,100.00 of annual interest into the $180,000.00 principal amount you will get 6.1% as the initial interest only “teaser rate” which can be offered to these first time home buyers.
Then from year two and forward, their monthly installment will jump to the $1,258.59 monthly installment that is due on a 30-year loan at 7.5%.
Here are the calculations on a financial calculator:
|360||7.5%||$180,000||$1,258.59||0||*Payment too high|
|6.1%||$180,000||$925.00||0||*Payment they can afford|
As you can see, $180,000 can still be financed for this buyer while providing them with an initial monthly installment that is acceptable to them. Two years from now, after they have settled into home ownership, the installment payments and interest rate will rise.
Convert the “paper” into “cash in hand”
Now clearly you do not want to hold on to this seller-financed “paper” for the duration of its term. So you sell and convert the seller-financed “paper” into a lump cash sum at the discounted amount of $160,000.
By selling off the seller financed loan you have collected the buyer’s $20,000 down payment, plusgenerated an additional $160,000 of lump sum cash for a total of $180,000 on a property you sold and financed at $200,000. More importantly, you have cash in hand.
With buyers gaining the upper hand in many marketplaces around the country, why not try to distinguish your properties from your competition by offering some incentives instead of simply lowering the asking price.