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The changing market

 

The real estate "boom" is over, experts say. With change comes both risk and opportunity.

Baiting buyers in a cooling market
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Last-ditch tactic: Raise your asking price
One last concession strategy, in which sellers actually raise the property price to help the buyer, may also resurface as the market becomes more competitive. Here's how it works:

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Once you and the buyer settle on a purchase price, you agree to raise the price of your home by, say, 5 percent, and give that money back to the buyer at the closing table. On a $250,000 home, that's $12,500 in the buyer's pocket -- enough to cover all or most of the buyer's allowable closing costs. The buyer gets a loan for $262,500 and, in essence, gets to cover the closing costs through the mortgage.

Because of the higher purchase price, the buyer will have to cough up slightly more for the down payment and monthly mortgage payments, but it's easier for many to absorb an extra $75 a month than cough up a hefty lump sum at settlement.

Furhad Waquad, a long-time real estate agent and president-elect of the Michigan Association of Realtors, cautions such transactions can be risky.

"Most of the time it's a slippery slope," he says. "Sellers who say they'll give concessions back to buyers and then raise the price of their house send a message to buyers. The buyers just assume the house was only worth the lower price to begin with and eventually only agree to pay the original asking price."

Even when these deals do go through, he says, sellers end up paying more for the real estate commission and fees based on the higher home price, including title insurance and recording fees. And, most importantly, the bank must appraise the home for its inflated sales price in order for the buyer to secure the loan.

"If there is a good dialogue between the seller and agent, there should be no need for this type of concession," Waquad says. "The house should be priced fairly to begin with. In a softening market, you have to package your product in the best way possible. Curb appeal, cleanliness and lack of clutter are still things I'd consider more than anything else."

While many sellers today, who have never experienced a market where buyers called the shots, may balk at the need for concessions at all, Walters says it's important to remember that every month your home doesn't sell is money out of your pocket. When used correctly, he adds, such incentives can make the difference between closing the deal and going back to the buyer pool. And, by not lowering the price of your home, you've given your neighbors a parting gift.

"Any time you lower your sales price, you're establishing a lower value for the whole neighborhood," Walters says. "It's the lowest sales price that gets used as a comparable to future sales. That's why I love concessions."

-- Posted: March 2, 2006
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