Effective Incentives to Woo Buyers and Sell Your Home

By Amy Hoak
From MarketWatch

Flashy incentives like a new car parked in the driveway or a flat-panel television hanging in the den might sound like a good way for home sellers to woo buyers in a dismal real-estate market.

But when it comes to actually enticing someone to buy a home, it's the more practical perks that count, real-estate professionals say.

"Serious buyers are looking for a place to buy a home, not a trip to Tahiti," says Dave Ledebuhr, owner of Musselman Realty in East Lansing, Mich. Moreover, lenders are leery of gimmicky incentives, fearing that they're built into the price of the home and that loan dollars are being used to pay for that tropical trip, he adds.

Instead, effective incentives address what's on the minds of potential buyers -- the overall cost of the home and the monthly payments they'll have to manage, he says.

Help in bringing down the interest rate of the mortgage by paying points, for example, can give one home an advantage over another, says Dave Dalzell, owner of Dalzell Realtors in Abilene, Texas.
And contributions to the down payment and closing costs could especially be of help to a first-time home buyer, says Greg Zadel, owner of Zadel Realty in Firestone, Colo.

Incentives can be considered when the home is first listed, as a way to distinguish it from the start, Mr. Dalzell says.

They can also be added when the home hasn't sold in two or three months, as a way of enticing a buyer without lowering the price. Or the incentives could arise in negotiations, when a buyer needs that one extra little nudge to commit.

Make no mistake, the location and condition of a home are going to be its main selling points. But if sellers "put on their buyer's cap" and really consider what issues the buyer might have, it could make all the difference, Mr. Dalzell adds.

"I tell my seller to look at his bottom line," says Susan Ramsey, a Realtor with Re/Max Integrity Realtors in the Phoenix area. A seller should figure how low he or she is willing to go, factoring in both the selling price and other incentives used to get a buyer to commit.

But also be aware that most seller concessions need to be disclosed. "Everything should be in writing and attached to the contract," Mr. Dalzell adds. When someone says, "let's not tell anybody" about an incentive, it could signal imprudence, he says.

In addition, buyers and sellers need to make sure that they don't exceed the lender's allowable seller-paid assistance, Mr. Ledebuhr says.

Below are six of the most common incentives being used in markets today.

Reducing the Price

A price reduction is often the incentive that is looked at first, says Delores Conway, director of the Casden Forecast at the University of Southern California's Lusk Center for Real Estate.
"The price is something that is a common currency -- it appeals to everybody," she says.

Gene Rivers, who owns four Keller Williams real-estate offices in Florida, agrees. If a buyer has in her mind that she'll pay $350,000 for a home and the seller won't budge from $375,000, "$5,000 in closing costs and a plasma TV ain't going to get it done," he says.

Paying Points

Sellers can offer to pay mortgage points for a buyer, an incentive that Mr. Dalzell tends to use in environments like today's, when rising interest rates are at the front of a buyer's mind. One point is 1% of the loan amount, charged as prepaid interest.

"When a buyer sees a lower interest rate or monthly payment, that's something they can relate to," he says. The setup makes sense for a buyer who has to buy furnishings for the new place; it also can make for an easier monthly payment transition for families that are upsizing.

Buyers should understand, however, that the lower rate often lasts only from one to three years. Before accepting, understand and plan for the point in time when the mortgage bill will increase.

Down-Payment Aid

For some buyers, the hardest part of entering the ranks of homeownership is the down payment -- also an area where a seller can help. It's mostly first-time home buyers interested in this kind of assistance because they're often the ones lacking in funds to complete a deal, Mr. Zadel says.

"It gets people into homeownership," he says. "The disadvantage is that the buyer is financing that additional amount," he adds, because a seller would likely come down in the price of the home if a chunk weren't dedicated to down-payment assistance.

Closing-Costs Help

Closing costs include items ranging from legal fees to title insurance and can add up, ranging between 2% and 7% of the loan value, according to Freddie Mac. So many buyers, especially those stretching to make a down payment, will be interested in having a seller help out.

In Phoenix, buyers in every price range have been asking that these costs be covered, according to Re/Max's Ms. Ramsey. "They ask for it because they know that they'll get it," she says.

Adding a Warranty

A residential-service contract is sometimes thrown in as an incentive because it acts as insurance for a home's systems, often including plumbing, heating and cooling. At a cost of a few hundred dollars, some real-estate agents consider it an inexpensive add-on that affords a buyer a little extra peace of mind, Mr. Dalzell says. That peace of mind can be especially welcome during the first year in a house.

The Little Things

Other perks will appeal to buyers, too, ranging from the common to the unique. Payment of homeowner association fees -- typically associated with condo developments -- are sometimes offered. Ms. Ramsey says that a seller with a swimming pool might also offer a year's worth of upkeep for it, a welcome help for those worried about the maintenance of the backyard attraction.

Or maybe, if a corner of the home was designed for a grand piano, leaving that instrument behind entices a buyer to go through with the deal, USC's Ms. Conway says.