Almost a third of sales representatives say the hardest part of closing a deal is competing against lower-priced competitors, a Richardson survey found. Home sellers and real estate agents expect to face this challenge over the next few years, especially if Bank of America’s predictions about falling home prices starting in 2017 happen. Analyst Chris Flanagan, who correctly predicted bleak conditions in the subprime mortgage market in 2007, projects that the rise in housing prices will slow to 0.8 percent in 2016 before sliding into a modest decline of 1.7 percent in 2017, 2.1 percent in 2018 and 0.8 percent in 2019.
In a market with falling home values, sellers need to work harder to differentiate their property from other lower-priced competitors on the market. Here are some ways they can distinguish their properties with a unique selling proposition that doesn’t cut into their profit margin.
Affordability will be the biggest hindrance to homebuyers in 2016 due to rising interest rates, RealtyTrac predicts. A Trulia survey illustrates prospective homebuyers’ concerns with affordability. When renters were asked what would make them more likely to buy a home than rent in 2016, 50 percent of 18- to 34-year-olds and 40 percent of 34- to 55-year-olds answered being able to save for a down payment. Approximately equal amounts replied getting a promotion or raise. The next most popular answers were improved credit history and the fall of home prices. All these answers show that financial concerns stand at the forefront of prospective homebuyers’ concerns, and financing incentives can be the most compelling motivation home sellers can offer.
There are several ways home sellers and real estate agents can offer financing incentives to homebuyers. There are 2,290 down payment programs around the nation that offer an average assistance package of $11,565 per buyer, according to a report by RealtyTrac and Down Payment Resource. In addition, 87 percent of single-family homes and condos qualify for down payment assistance. Other programs provide below-market interest rate loans or 100 percent financing, mortgage credit certificates providing annual tax credits for the duration of a loan, and neighborhood stabilization program loans and grants. Other financing incentives include covering closing costs, providing funds to temporarily buy down interest rates and carrying back a second mortgage to help the buyer purchase the home.
Another financial incentive real estate agents can offer homebuyers is rebates. Brokers can compete on price by refunding a percentage of their commission, which is usually half of a 5 percent commission. For instance, a 1 percent rebate on a median-priced home would save a home buyer $1,843. Ten states have laws restricting brokers from offering refunds, according to the Department of Justice , so agents need to check their state laws first.
Goods and Services Incentives for Buyers
Real estate agents and homeowners can offer buyers goods and services as incentives. For instance, a home warranty that covers the expenses of repairing or replacing home appliances can make a home sell 11 days faster for $2,300 higher on average, according to a Service Contract Industry Council study. Other possible incentives include gift certificates for a home inspection, hardware store merchandise or moving services.
Offering a selling bonus to the buyer’s agent can also help a home sell faster, especially during a slow market. Helping Home Sellers recommends a few best practices when offering bonuses. Home sellers should offer the incentive to the buyers’ agents rather than their own agent. Real estate agents whose main concern is making a sale rather than maximizing profit should subtract the bonus from the bottom-line price they’re willing to accept. They also should let the buyer know how they came up with this price, so buyers know what a deal they’re getting.