Seller incentives not so common afterall

Homeowners eager to sell their homes may wonder if they should follow the lead of the many home builders who have been very aggressive in offering incentives to move their inventory during the last 18 months. However, in the residential resale market, seller incentives remain the exception rather than the rule, according to a survey of its agents recently completed by RE/MAX Northern Illinois.

Sellers and their agents have been much more restrained than home builders about using incentives, and for good reason, according to Jim Merrion, regional director of RE/MAX Northern Illinois.

When the pace of the real estate market began to slow in 2006, many sellers and agents experimented with incentives -- offering free plasma TVs or even cars to someone who would buy their home at the asking price. In effect, the buyer was able to roll the cost of the TV or the car into the home mortgage, Merrion recalled.

"Today, most buyers realize that paying for a car or a TV with a 30-year mortgage may be a very expensive proposition. They'd still be paying it off long after disposing of the car or TV," he said. "Offering a well maintained home at a competitive price is still the best way to attract a buyer."

Incentives, however, have not vanished. Instead, they are being used more selectively, according to a sampling of RE/MAX agents in northern Illinois.

"In our market area, incentives are generally of two types," reports Michael Loiacono of RE/MAX Acclaimed in Bensenville. "Some sellers offer to help pay the buyer's closing costs up to some fixed percentage of the purchase price, which might be 2 or 3 percent. Others offer repair credits for updating an older property. Those could be credits for fresh carpeting, new kitchen cabinets or a number of other things. In any event, all money that goes back to the buyer at closing must be noted in the closing statement, and most lenders won't allow it to exceed 3 percent of the purchase price. Of course, if the buyer is paying cash, and there is no mortgage, the limits don't apply."

According to Loiacono, incentives were more common a year ago. At that time, buyers still found it relatively easy to obtain 100 percent financing, and many of them didn't have the cash to pay for closing costs. That made cash-back incentives quite attractive.

"Now, buyers must have money for a down payment, so they are more interested in the actual price of the house and less interested in incentives," Loiacono said.

In contrast, Lauralee McElroy of RE/MAX Great American II in Yorkville, reports that incentives have become more common in her area.

"There is a ton of new construction here, and builders are offering an unheard of level of incentives. Owners of existing homes wonder how they can compete, especially if they have a home in a recent development that is comparable to what builders are offering," she said. "On the other hand, if you are selling 15 acres with a house and a barn, you aren't competing directly against builders, so incentives don't matter as much."

McElroy said she usually asks sellers if they would consider providing financing to the buyer for the first year or two, if not longer. It is a way to expand the number of buyers who might be able to afford the home.

"Seller financing isn't for everyone," McElroy said. "It works best for those who don't have a mortgage or have a small one and can use the down payment they receive to retire the outstanding debt."

For other sellers, the typical incentive is a willingness to pay the buyer's closing costs up to some set amount, according to McElroy,

"It's now more difficult to find 98 percent or 100 percent financing than it was a year ago, but people with reasonably decent credit still can buy a home today and walk away from the closing table without digging very deeply into their own pockets," says Suzanne Stempinski of RE/MAX 2000 in Crete. "They can do it because sellers will help pay the closing costs and loan fees. Sellers in our area are willing to be quite creative to find a way to make the sale."

According to Stempinski, she is seeing at least a few sellers offering to make the buyer's mortgage payments for a period of four or six months after the closing. That can easily translate into anywhere from a $10,000 to a $35,000 incentive, she noted.

"It is hard to say if that will bring in a good offer more quickly," said Stempinski. "What it does do is increase the number of buyers who will look at the home."

Other incentives being offered to buyers in today's market, according to Julie Anderson of RE/MAX Select in Chicago, include paying property taxes for a year or paying the condo assessment for a number of months.

"Incentives help," says Anderson, but the key is pricing. A home that has a price comparable to or lower than competing properties is the best incentive in the current market."

Gary Miller of RE/MAX Destiny in Elk Grove Village, reports that incentives are not much in evidence in this market area, aside from the occasional offer to help with closing costs.

"What works, more often than anything else, is proper pricing and maximum exposure on the Internet for the property," said Miller. "A house that is initially priced too high usually sits on the market and ends up selling for less than a comparable house that started with a lower, more realistic list price. To me, one of the best ways to attractive buyers is with good photographs of the house. Buyers are using the Internet to look for homes on sites such as www.illinoisproperty.com, so if a listing has excellent interior and exterior photographs and an attractive price, it is going to get a fair amount of attention."