Many economists predicted that once the $8,000 home buyer tax credit expires on April 30, the real estate market would not be able to hold on to its earlier gains. And judging from the 27% decline in mortgage applications reported by the Mortgage Bankers Association Wednesday, they were probably right.
That’s hardly the type of news mortgage lenders, developers and real estate brokers like to hear. The huge inventory of unsold homes is still crippling the market — so some industry players are launching their own temporary incentives in hopes of keeping up the momentum of the government’s program.
On May 1, for example, real estate brokerage Coldwell Banker launched a “Buyer Bonus” program through which buyers will be refunded 3% of a home’s final purchase price, up to $8,000, at closing. The program will end July 31.
There are no eligibility or qualification restrictions. The incentive is meant to enable more people to purchase homes, but is also a nice marketing gimmick tactic to increase Coldwell Banker’s completive edge by helping its clients’ properties stand out from and sell more quickly. Jim Gillespie, CEO of Coldwell Banker told CNBC that sellers who participate receive additional marketing support, including television ads and mentions on social media outlets such as Facebook and Twitter.
Incentives can vary greatly depending on where you live. In Minooka, Ill., for example, the town and its homebuilders have paired up to give new home buyers 1% cash back following their purchase. In the New York Tri-State area, developer Sterling Properties is offering a price reduction on most of their select inventory, including a $9,000 refund on apartments in its new development, The Avenue at South Orange in New Jersey.
iNest, the real estate broker specializing in newly constructed homes and a subsidiary of LendingTree, allows qualified buyers to earn 1% cash back on their new home purchases. Depending on the price of the home, the discount could be substantial. Buyers receive their rebate four to six weeks after closing.
The Plaza at Tenafly, a new condominium community in Tenafly, NJ, now offers financing incentives like a seller-paid permanent buy-down of the interest rate. (In other words, the seller will pay what are often called mortgage points on behalf of the buyer, which would reduce their interest rate for the life of the loan.) Other incentives include covering maintenance costs, but the interest rate buy-down has so far been most effective, according to Andrea Sterancsak, the director of sales at The Plaza at Tenafly. “Utilizing this tool makes owning cheaper than renting in most cases,” she says .
“Everyone is coming up with incentives,” says Guy D. Cecala, the publisher of Inside Mortgage Finance, an industry trade publication. “The good news is the market is adjusting, there is a strong demand for non-distressed homes.” It is mostly buyers in the market for a non-distressed home who can take the most advantage of incentives, Cecala says. Incentives are rarely found on foreclosed properties.
Here is what buyers can do to make the most of the incentives available today:
The best approach to negotiating incentivs is knowing how much sellers are willing to pay and, if this is new construction, what the builders are offering, says Cecala. Often, builders are willing to work with buyers on things like customizations and property upgrades. If you want them to build a driveway, do landscaping, install granite countertops, include appliances, make some other change or addition to the home you are buying, ask. They might not decrease the purchase price of the home but they may be more willing to make another consensus.
Talk to at least two or three lenders to see who will give you the best offer, Cecala says. Since real estate is very localized, the best way to find out about deals is to talk to people in your area of interest. In addition, if a friend or family member recently bought a home, find out what incentives were offered to them. Realtors are another great source of information.
Do your homework
Try to keep abreast of real estate market news. The National Association of Realtors’ website, Realtor.org, and the National Association of Home Builders are good places to start. If you really want to purchase a home now and have already saved up for a down payment, ask many questions and keep digging for that bargain before you jump in. More than likely, you will get a good response from the lender, realtor or builder. Sometimes all you have to do is ask — what have you got to lose?