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Price still is the best incentive in real estate sales

February 14, 2009|By JIM WOODARD / Creators Syndicate

Frustrated by sluggish sales, many home sellers are playing the "incentive card" by offering creative and substantial incentives to buyers and brokers.

Besides slashing prices to lure buyers, some imaginative sellers are offering automobiles, vacations, gift cards, or up to one year of free gas. Other sellers are offering to pay closing costs, one year of association fees or one year of real estate taxes. In other cases, a bonus of several thousand dollars is dangled in front of brokers as an incentive to find a buyer.

Sometimes incentives will work to expedite a sale, but they are not as effective as many hope. Given the current deep recession, most buyers are practicing prudence as they search for their dream home.

In truth, most real estate professionals agree the incentives that work best are monetary, such as lower prices or the payment of closing costs or association fees. Offers of cars or vacations do not fit this equation.

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Meanwhile, the smorgasbord of incentives has a downside. They are not considered by appraisers or lenders, thus distorting the real market value of property. A buyer might pay $500,000 for a home that's really worth about $450,000, with the additional $50,000 going to cover the special incentives.

This distorts the loan-to-value ratio figures in calculating how much the lender can loan on the property. It also unrealistically inflates general home values in the area, as those higher sales prices are used as comparables in determining market values for neighboring homes.

As for bonuses to brokers, they pose an ethical problem if not revealed to buyers. A broker's first responsibility is to serve the needs of sellers and buyers, not favor certain properties to earn a cash bonus. Most brokers recognize and abide by their fiduciary responsibility to clients.

Q: Can Rural Development Loans finance a home?

A: Yes. A growing number of home buyers and brokers are discovering this source of financing.

The little-known Rural Development Loan program, sponsored by the U.S. Department of Agriculture, provides no-down payment and inexpensive guaranteed home loans for buyers in rural areas. There's no limit to the loan amount. The amount borrowed depends on the repayment ability of the borrower.

These home loans have several unique advantages. They are not just for first-time buyers. Any individual or family can be eligible if purchasing a home in a designated rural area and if they meet certain credit history and income requirements.

For those who meet the basic requirements, the interest rate is exceptionally low, and the qualifying guidelines are flexible. In some cases, closing costs, legal fees and other costs may be rolled into the loan. And no mortgage insurance premiums are required.

To qualify, you must be a U.S. citizen or be legally admitted to the U.S. for permanent residence.

Your local lender or broker should be able to provide information about the Rural Loan Development Program.

Q: When will home sales start to rise?

A: Pending home sales are now rising - up by 6.3 percent in December over the previous month, says a report from the National Association of Realtors.

Pending sales are those that are contracted but the transaction is not yet closed.

"The monthly gain in pending home sales was spurred by buyers responding to lower home prices and low mortgage interest rates," said Lawrence Yun, NAR's chief economist. "The biggest gains were in areas where there were largest improvements in affordability.

"Significant uncertainty still clouds the housing market despite improved affordability conditions. For a sustainable housing market recovery and sustainable economic recovery, we need a significant housing stimulus program and mortgage availability for qualified borrowers," Yun noted.

Copyright 2009 Creators Syndicate Inc.

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