8 ways to sweeten the deal on your home as Posted on MSN.com

Offering freebies with your house is almost a requirement in today's market. But forget the Final Four tickets. Buyers want you to help reduce the initial hit to their wallet should they buy your house.

By Karen Aho
Your house has been on the market for months. The for-sale sign, spattered with mud, has tilted over in surrender. As you go to straighten it, you trip over the morning newspaper, and, presumably, your answer: Inside is a story about a home that sold quickly after owners tossed in Hannah Montana concert tickets.

So, do you race inside to see what snazzy perks you can get hold of? A friend with ballgame tickets? A relative with a time share? Your old Harley? Is the age-old marketing ploy -- the incentive – a home seller's sure-fire solution in this dismal buyer's market? The answer is yes … and no.

Incentives help. Some say they're even necessary these days. But not all incentives boost the prospects for a sale, and the options for which ones actually do have shrunk. The free balloon ride? That's probably out. Six months of heating oil and half the closing costs? Those are in.

To understand what works and why, first consider what's happening in the housing market now.

1. There are more homes for sale than there are people buying. Home sales declined 23.4% from January 2007 to January 2008, according to the National Association of Realtors. Sales slowed most in the Western region, with a decline of 28.5%.

The slide has continued month-over-month this year, even as prices continue to fall, and The National Association of Home Builders reports a 10-month supply of new homes on the market, compared with a 4.5 month supply in 2005. Turn on any news show and the pundits are summing it up: Home buyers remain wary.

2. Sellers are turning to incentives. In February, 55% of builders surveyed by the NAHB said they were adding optional items at no charge, compared with 37% in 2002. And 43% said in February that they were paying all or some of the buyers' closing costs.

Jessie Beaudoin, a mortgage broker with American Financial Network, says that he can't track incentives precisely but that in California he sees 60% to 70% of sellers now paying some of the buyer's costs. "The lenders and the real-estate community are encouraging this," he says. "Nobody right now expects to pay full price for any property."

Most bank foreclosure homes and corporate relocation houses are also offering financial incentives, says Ron Phipps, a Rhode Island broker.
3. Buyers need to put cash down. Lenders have reined in those fully financed loans that helped trigger the mortgage collapse. Banks now demand not only better evidence that buyers can make the monthly payments but also that they have a financial stake in the property from the outset through bigger down payments.

In 1989, the median down payment was 20%, says the NAR, and mortgage brokers have reported that institutions are inching back toward such heftier requirements.

Even buyers who qualify for a low 3% down payment with an FHA loan still need to come up with closing costs, which add another 3% to 6% of the home's price.

4. Many home buyers are first-time buyers. Without home equity to tap into, first-time buyers often have difficulty securing a large amount of cash. "First-time buyers can handle the monthly payments; it's coming up with the down payment and closing costs that's hard," says Walter Molony of the NAR.

First-time buyers comprise nearly 40% of the market, he says. Of those, 22% receive a gift from a friend or relative to cover some or all of those costs, and 7% use a personal loan.

Forget the gimmicks

Add these four factors, say the experts, and you get a strong case for offering prospective buyers financial incentives. But forget about the Final Four tickets. Instead, help soften the financial blow associated with a new home.

"That's the time when (buyers) have the least amount of money in their pockets," says Stephen Melman, director of the NAHB's economic services. "They're buying. They're going to closing. They might have moving costs. They're going to have to buy furniture. Anything that helps their cash flow is going to be great."

It's more true now than in recent years, say brokers.

Phipps, a broker with Phipps Realty in Rhode Island, has been offering creative incentives for years. Goods or services associated with the house – a trip to wine country to stock the new cellar, for instance – have always piqued interest. But today's buyers are savvy, he says. They're analyzing price data and aren't distracted "by things that seem like gimmicks."

"Awhile ago (the incentives) were fun, but the nature of the real estate market is more serious now," Phipps says. "Buyers react to those incentives or encouragements that impact their bottom line."
Here are some ways to offer financial incentives:

Pay closing costs

Closing costs include title, application and attorneys fees, and points paid toward the loan's interest rate. They typically range from 3% to 5% of a home's cost. The median price of a home sold in the United States in January was $201,100, according to the NAR. That means typical closing costs start at $6,000.

On a conforming loan, sellers can pay up to that 3%, and up to 6% if the buyer is using FHA financing, says Beaudoin. He says it is the most popular incentive today.

"There's definitely a trend for sellers to pay all or most of the closing costs for the buyers," he says. "It has a much bigger impact than dropping the price."Why? Because the home price will be spread out over the life of the loan. Closing costs are due now.

"It's much easier to pay $30 dollars a month than it is to save $6,000," he says. (If you save $30 a month it would take 16.6 years, excluding interest, to amass $6,000.)
Home builders rate closing-cost assistance as more effective than adding optional items or reducing the sales price, says the NAHB.

Buy down the mortgage interest rate

Instead of knocking down the price, a seller can give money to the lender to go toward the buyer's interest payments for a certain amount of time, usually one to three years.

Here is a rough example from one of Phipps' clients:

Rather than taking $5,000 off the price, the seller gave it to the buyer's bank, where the buyer had a $200,000 loan. The bank used the $5,000 to buy 2 percentage points of the interest payments for the first 12 months and 1 percentage point the second 12 months.

This reduced the buyer's monthly mortgage payments from about $1,400 to $1,100 the first year and to $1,300 the second year. Given that the buyer had been paying $1,200 in rent previously, it eased the transition into the higher mortgage payments.

"We are using the buy downs for the first-time homeowners more than anything," Phipps says.Pay toward the down payment

Lenders won't allow sellers to fund a down payment directly, but they do allow you to help via special down-payment assistance programs as long as those entities do not have a direct interest in the sale of the property. These include government programs, or nonprofit groups such as the Nehemiah Corporation of America, the Housing Action Resource Trust and Partners in Charity. (The U.S. Department of Housing and Urban Development maintains a list of down payment programs whose nonprofit status has been revoked.)

Nehemiah, the largest of the charitable groups, has provided down-payment assistance to more than 250,000 home buyers nationally in the past decade. This is how it works: Nehemiah contributes up to 6% of a home's price for a qualified buyer's down payment. The seller later reimburses Nehemiah to replenish its account for other buyers. The buyer can get help from Nehemiah only if the seller agrees to repay the program, so the seller wins, the buyer wins and Nehemiah gains funds to help future home buyers.

For FHA loans, which require only a 3% down payment, a seller could essentially offer 100% financing by working with a program such as Nehemiah, Beaudoin says.

Buy a warranty

This is a great incentive, say real-estate agents. It typically costs the seller just $400 to $500 and gives the buyer peace of mind that any mechanical or electrical repairs will be covered, minus a small deductible, in the first year. Sellers can add riders for other items, such as wells, spas or washer-dryers.

"Particularly for first-time home buyers, it really is a way for them to control or limit any unforeseen repairs," Phipps says.

Ask your real-estate agent what companies they like to work with. Also, the home warranties don't go into effect until after the sale, so you can prepare. A list of home-warranty companies by state is available here.

Prepay some first-year expenses

Buyers who might have exhausted their savings and entered into steep monthly payments may feel great relief knowing other costs have been prepaid for six months or a year. These could include:

Homeowners association dues
Taxes
Utility payments
Lawn maintenance costs
Housekeeping payments.
Offer owner financing

In this scenario, the seller essentially offers to act as a bank and can set the terms of payment. This is clearly for those sellers who don't need the cash immediately. It is risky, agents say. "The other incentives are one-time fees; this is a long-term relationship," Phipps says.
Sellers should not only check the buyer's credit risk, but also make sure the buyer is financially invested in the house from the outset, through a decent down payment.

"You want to make sure you have good professional advice from your Realtor and your lawyer as to what that means, and what the recourse is if the mortgage isn't paid," Phipps says. "And a pre-approval letter for financing doesn't necessarily mean that you don't want to do due diligence."

Reward your broker

If you're in a hurry, you can always offer perks to your sales broker. This can include a higher commission or a gift. Human nature being what it is, this may work get the agent to move more buyers through the house. (Read more about people who chose to pay their agents extra.)

Nonfinancial incentives

There's no cap to what you can offer. Just make sure you are upfront and disclose transactions to your lender. Incentives can work as a psychological draw, say experts. But keep them fun and related to the house, Phipps says. For instance, he knows a seller seeking a Smart Car, which is hard to find, to offer with a solar house.
Advertise that the incentive will be offered for a limited time, and if it doesn't work, try something else. Steer clear of politically incorrect items that might offend prospective buyers, such as fur coats or energy-hogging cars.

Be wary of paying for inspections or repairs

It's possible to pay for these if need be, but it's not necessarily a good idea.

A home inspector should represent the buyer. If a buyer pays for the inspection, there's less chance someone could cry foul later. You don't want to be accused of being in cahoots with the inspector simply because you signed the check for his work, Phipps says.

Also, if the seller offers to pay for repairs as a condition of sale, the buyer's lender could require that the work be completed prior to funding, potentially stalling the sale.

"It creates a hiccup in the transaction," Beaudoin says. "Instead, what lenders will suggest is that the seller apply that money toward the closing costs. You can proceed and no work needs to be completed before the close."

Stay aboveboard

No matter what kind of incentive you ultimately offer, keep in mind that you'll need to be upfront about the details with all interested parties.

"Any kind of credit that the seller agrees to is ultimately subject to approval, or is limited, by the buyer's lender," says Kenneth Russo, a real-estate lawyer with LaPlante Sowa Goldman, in Rhode Island. Both parties must disclose any transactions made as part of the process.

Real-estate transactions are governed under the federal Real Estate Settlement Procedures Act. Violators can be subject to charges of felony fraud, says Russo.

Also, check with the state's business regulatory office to ensure that incentives are legal in your area. Spell out their value clearly, and have a lawyer review the agreement.

With those caveats in mind, offer incentives. They can send a strong message to buyers that you are willing to negotiate, says Gary Painter, an associate professor at the University of Southern California and research director of the Lusk Center for Real Estate.

"In some cases, buyers prefer incentives over lower prices," Painter says. Just calculate the exact value, "and make it clear."

Seven Suburban Real Estate Myths and Legends

At a time in human history when information and misinformation are often impossible to differentiate, it is important to admit that we make a lot of inaccurate assumptions. Every field has it myths. From the beginning of time, we are taught to have a critical mind and to challenge assumptions. That is our charge today: Obviously we need to start somewhere: So what are suburban legends or myths? According to Wikipedia,
An urban legend or an urban myth is a form of modern folklore consisting of stories thought to be factual by those circulating them. The term is often used to mean something akin to an "apocryphal story". Like all folklore, urban legends are not necessarily false, but they are often distorted, exaggerated, or sensationalized over time. A suburban myth or legend is just in a different locale, a suburb, like East Greenwich.  Remember these are not necessarily false, but they are exaggerations. Here are some good ones for suburban Rhode Island Real Estate:

1. New Yorkers or Bostonians will pay more than fair market value for MY house. When preparing to list a house, the best agents will evaluate ‘comparable sales’ as part of an analysis to help the seller determine the list price. Elements include, number of active, competing listings; pending sales; sold sales; mortgage interest rates, governmental regulations, absorption rates, (how many months will it take to sell of the existing inventory based on the current rate of sales.) etc. Often when a seller is disappointed with ‘fair market’ value, he or she insists the property be listed well above reasonable to sell to the one ‘uniformed, price unaware, New Yorkers. Now one might argue that there just might be basis for making that assumption; it is true that many are Yankee fans and some are Giants fans, but that nostalgic exuberance does not carry over to home prices, even when they are coming from ‘uber-wealthy’ Manhattan. In short, Boston and New York home buyers will not over pay for Rhode Island real estate, even your home.
2. If I wait long enough, I will get my price when the market catches up. This may have been true for a while in the early and mid parts of this decade. When the market is correcting, the gentler word for home prices dropping; you will need to wait a very long time. It may in fact be a very, very long time until we pass the water mark of real estate values two and a half years ago. Additionally, if your house is on the market for the four or five years, it is even more unlikely that you will sell if for more than fair value. The longer on the market, the less likely you will sell it at a premium price. Simply said price matters. A well price property will sell. One that is overprices is unlikely to find a new owner. This market is very impatient with sellers who are nostalgic with price, say 2005.
3. Buyers will look beyond repairs, decorating, or ‘deferred maintenance.’ It is amazing how many people say foolish things about buyers: The leaking roof does not matter; it is only a little leak. The toilet does not work, but the buyer will never notice. If you bake cookies or an apple pie, the buyer will never smell the septic system that is backing up. Truth be told, most buyers in 2008 have neither the patience nor the money to make a sellers repairs. There are plenty of houses on the market that are in great condition that will sell first.
4. Everybody will love my dog. There are over 75 million dogs in the United State in 45 million households. We are a nation of dog lovers. Well not necessarily. One of the most common complaints and objections of potential homebuyers is the evidence of animals, most often dogs. If you are not a dog owner, or rather a dog lover, having Bruno sticks his nose in the buyer’s butt or groin is not a good closing technique. Most buyers will not enjoy your dog. They either have their own or do not like them. It is not personal, it just is. I know Bruno does not bite, but the buyers’ fear is not perception. It is real. Yes I too have been bitten by a Newfoundland.
5. The agent who is not selected to list the house will sell it for the competing agent who obtains the listing.. Real Estate is intensely competitive. Many agents work on a contingent fee. If they sell the house they get paid. If they do not, they will not earn a fee. Sometimes when a seller says that they have selected another agent, they close by saying but you can always earn a fee by selling it for the competing agent. The operative word is ‘competing.” The non-selected agent is committed to selling his/her own listing, by contracted fiduciary. Only after they have tried unsuccessfully to close a potential buyer on one of their listings, will they move onto others, but not necessarily your, particularly if it is not priced right. There is a major oversupply. Multiple Listing is a great broker to broker network for cooperation and compensation, but it amplifies and highlights competition. Sold signs are one of the best ways to get future listings. The non-selected agent will want to sell his or her listing first so the sold sign is one on of his/her signs.
6. Which brings me to one of the biggest myths: a great real estate agent can ‘make a buyer’ purchase something they do not want. Great agents are masters at pricing, positioning, pursuing, and persuading potential purchasers. It is rare that a great agent can keep a transaction together through closing, if the buyer does not genuinely want the property. A great agent works tirelessly to identify and introduce a home to potential purchasers. For this to work effectively the buyer must be ready, willing and able. (ABLE has been the biggest challenge lately).
7. Houses sell themselves. This may have been true for a couple of months at the peak of the market, and maybe not. This market requires aggressive marketing, strategic pricing, web-centric marketing, and high energy commitment. If you look at what is selling right now, it is the result of a convergence of marketing talent, careful pricing, and unrelenting Realtor effort. While on one hand experience has major value in this market, it is also true that quick response is important. The National Association of Realtors completed a study that many elements are important for effective marketing, but among the most critical is response time. Often the person who makes the sale is not necessarily the agent with the most experience, best web presence, best logo, most awards, best looking, etc., rather it is the first responder. That needs to be repeated: The first responder most often makes the sale. It is important to have a responsive agent, who is available not merely to market the home, but to available to answer questions and to show the property. Even with digital presentation, the human touch of a Realtor is a very valuable element is selling a home.


We will share other myths and legends with you, but this gives you some good examples. If you want to share more with me, please share them here on my blog: www.phippsrealty.blogspot.com

Foreclosures, Short Sales, Walk A ways, and Opportunities.

It would be almost impossible to be out of the reach of media in 2008, although it might actually be healthier. But via television, video, web, texting, tweetering, pda, cell, phone and what my grandmother used to call gossip, information and misinformation surrounds us like air. Sometimes the information is difficult to understand due to its volume and its inconsistency. The sub prime mortgage mess is a great example of this problem. What is true and what is real?

Approximately 46,000,000 people have mortgages in the United States. Incidentally, more than one third of Americans own their homes outright, that is without any mortgage. Sub prime mortgages typically are adjustable rate mortgages. Many people took out this type of mortgage to ‘get into’ a home without documenting any income. Most of the mortgages had a low ‘teaser’ initial rate and payment. Many of these loans will adjust after 2 years. The adjustment would increase the interest rate and the payment. A good number of these mortgage holders cannot afford the new payment. In each quarter of 2008, 450,000 mortgages are likely to ‘reset’ to a new rate and payment. Many buyers can not afford the pre-reset payments. Therefore, it is a major problem. The Federal Reserve and the Government are trying to help minimize the impact of ‘non performing’ mortgages by helping the borrowers, lenders, and investors. The economic stimulus package addresses some of the problem. Increases in conventional mortgage ceilings, from 417k to 475, and the increase in FHA mortgage ceilings from 316k to 475K will help. Even with all of these efforts, there are a significant number of foreclosures, short sales, and ‘walk a ways.’ Walk a ways are when the homeowner simply moves out and leaves. Short sales are a protracted process of selling the house for less than the mortgage value.

There are some great opportunities with foreclosures and short sales. The March 24th National Association of Realtors monthly numbers showed an increase in sales and a price reduction due in part to the impact of ‘REOs,’ Real Estate Owned, by the lender.
The real challenge in the market is that the lenders are not equipped to handle to volume of REOs. Any real estate broker dealing with REOs will tell you it is very difficult. It is not usual to wait 2 or 3 months for a response to an offer. It is obviously very difficult to keep a buyer interested. The result of that delay is a further deterioration of the value of the property and sometimes a deterioration of the condition of the property. Some foreclosed properties have suffered water damage, vandalism, etc. Foreclosed properties also hurt the value of the neighborhood. We must recognize that the lenders do not want instructions on how to run their businesses, but this is a perfect storm of hurricane proportions. The lenders would ‘recover’ more of the value of the property if they sold the properties more quickly. The non producing mortgage becomes recovered cash when the house is sold. This would be true even if the lender sold the property at a low price.
It should not take 3 months to get an answer after a house is in short sale mode or has been foreclosed.

As a potential buyer, there are great opportunities with short sales and foreclosures if you are patient and persistent. You must be prudent and you need to know what you are purchasing. Many of the properties have issues that nothing short of a comprehensive inspection would uncover. Some have been trashed. Sometimes the lenders are generous. Last summer there was supposed to be a sale on a property in the 470’s. The lender was owed almost 500k so they refused to close. That same house came on the market last week at 329k. At last count there were over 20 offers. Someone is going to do very well. Often short sale and foreclosed properties are sold between 10 and 20% below market value. It is important to have representation and inspection to ‘protect’ your position. But there are buyers out there and there are opportunities as well. If you have been trying to time the bottom, the clocks of some of the short sales and of foreclosures have struck midnight. It is a time of great opportunity.

New Rhode Island Conventional and FHA Mortgage Limits

Real Estate News: Major Changes in Real Estate Financing;

The last few weeks have seen major changes in the mortgage market. The crisis in the sub-prime market has produced a major contraction in mortgage money. As with most things in life, every action tends to cause a predictable reaction. Pendulums swing both directions. The balance to the sub prime mess is difficulty for credit worthy people to obtain mortgages. It is true that mortgage money is in fact available for qualified homeowners.

The first part of March saw some major changes. One of the challenges has been
the rate difference between conventional rates and jumbo rates, mortgages above 417k.
The jumbo rates had grown to almost a full point, one percent above conventional rates. For example, if you were borrowing 415k your rate might be 5.5% in a 30 year mortgage. If however, you needed to borrow 430k, the fixed rate would be closer to 6.5%. The difference in mortgage rates, historically would have between .25% and .33% higher, not 1.0%. This impacts the month cost of a mortgage.
Conventional Mortgage limits are regulated by the GSEs, Freddie Mac and Fanny Mae.
As part of the economic stimulus package that Congress just approved, there was a provision to increase the GSE mortgage ceilings. Fortunately, all of Rhode Island was increased from $417,000 to $475,000. This means you can borrow up to 475k at the lower rates. This will help to stabilize prices. It will have significant impact in East Greenwich where the average sales price is just over 500K.

What was even more encouraging was the change in the FHA limits. FHA has historically been the source of funding for people with limited cash and who would not fit conforming underwriting criteria. FHA was super ceded by sub prime financing. Sub prime is essentially gone now. FHA will be the alternative. The limits for mortgage have been increased from 316k to 475k for single family, $608,100 for two families, $735,050 for three families, and $913,450. for a four family. The higher limits do come with a change in the amount down. Prior to 5 March 2008 you could finance a property with 3% down, now you will need 5% down. You may need more or may need to re negotiate the purchase price if the appraisal does not come in at the agreed upon price. Appraisals are critical now. The FHA program will have most value beyond East Greenwich. FHA is also a great tool for people who need to get out of sub prime mortgages and need a ‘flexible’ alternative.

If you are looking to finance a new purchase or re finance a house get some professional advice from someone who know the new financing choices. It is much better now than it was a week ago, but get expert advice, it will make a huge difference.

Realtors are really encouraged by these changes. It will help move us back into a normal market. A normal market can be either a buyers market or a sellers market. But is a normal market, credit worthy buyers can obtain fairly priced mortgage money. It is a good time to buy a house and obtain a mortgage. Just get professional advice: Call a Realtor!

TMI: To Much Information

Rhode Island State Law requires that all real estate licensees take 18 hours of continuing education every two years. The current renewal period ends April 30, 2008. Anyone who does not have the continuing education hours will not be able to continue working in real estate. While the approved courses are required of all licensees, Realtors are required to take additional courses including Ethics. The best agents take more courses to be at the top of their game. The challenging market demands continuing training.
Some of the course help to teach the average Realtor, typically a 50 something female, how to work with x and y generation sellers and buyers. In one of the courses offered recently it was suggested that one of the things we should do is join one of the ‘social utilities:’ facebook or myspace. As a baby boomer, we tend to pride ourselves in our use of programs like: www.pandora.com. www.goodreads.com , and www.linkedin.com
Each of these communities engages a specific community. Furthermore, the amount of information exchanged tends to be professional in nature and is by choice and by situation limited. That is not the case with facebook. After joining several days ago, I have 12 friends. Several of them are my friends, but a good number are friends of my adult children. It is very kind of them to share their ‘faces’ with me, but there is by any definition a degree of awkwardness. The nature of social utilities is to be forth coming, but it makes me a bit uncomfortable to know all of the personal details about my friends much less my children. It is also very apparent that this is a great tool for background checks for employment. Yes, it is also true that you can place a privacy setting to limit the viewers of your face to just that your face and your name.
Maybe it is my age that is the problem, not the vehicle. How old is too old to be on facebook? Is the entry of baby boomers some form of generational voyeurism or is it some sort of generational envy? Truth be told, I am too much of a newbie to make any real conclusions, but the questions require response. What is really amazing is the breath of information on the site. Not merely friends, but pictures of friends of friends. Relationship status, orientation, religion, travel experience, steams of consciousness, video, thoughts, statements, gifts, pokes, et al. If you can dream, it can be experienced, at least vicariously through www.facebook.com.
One obviously conclusion, facebook has simply too much information. Not yet sure, how accurate all of it is, but one absolute truth is there is simply too much information TMI. If you are on facebook and find there are lots of new older Realtors joining it, do not be surprised. A lot of us took the same course. Not yet sure, how to ‘use’ this new social utility, but a least we are entering the area. If on the other hand you are a long time facebook devotee, and you want to have a laugh, check out some the new continuing education Realtors who are trying to engage a totally new curriculum. Lol.