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| More rates and news from Are Incentives Really Beneficial For The Buyer(The U.S. real estate market is constantly changing.)
How often it changes is what makes it so unpredictable. The seller’s boom was felt throughout most of the country from 2000 to 2005, while the current buyer’s market may not last much more than a year.
Regardless of how long it lasts, trends will be prevalent. During the boom, the trend was for buyers to compete with each other just to have a chance to buy a specific property. Lotteries became common where people were randomly drafted in a particular order to have the chance to buy a projected home from a builder.
That trend has since flipped around and has given way to the market of incentives. On the surface, buyers are lead to believe that they are paying the price they would have last year but will receive a bonus such as a new car or a trip somewhere,
But as the article, “Sales Incentives, Do They Work?” written November 29, 2006 by Gary Kiernan and posted on getmyarticles.com explains, some of these incentives may not be as beneficial as buyers think. “Sales incentives are just like us, they come in all shapes and sizes; some work really well and some are virtually worthless.”
The shapes and sizes of these incentives obviously vary depending on how motivated the seller is and how much the home costs. A buyer will not be persuaded by new counter tops on a home that costs over $1 million. These buyers will be looking for a state-of-the-art swimming pool or a new car. On the other hand, granite counter tops on a $200,000 home may percolate some interest.
The seller or builder naturally benefits from offering incentives because the property may be able to sell faster and because they will not have to lower their asking price, which will also keep the surrounding market high. Once one house in the neighborhood reduces its asking price, they all have to and thus value declines.
But are these incentives beneficial for the buyer?
“Well, please remember that, whatever the incentive, the buyer is the one who is paying for it. I would agree that upgrades to the home itself are a benefit. However, when your agent receives an 8%, as I have seen offered in the greater Phoenix area, you, Mr. and Mrs. Buyer, are paying that commission and paying interest on it, most likely, for the next 30 years with your mortgage.”
It is often a “tell tale sign” that when a buyer has to pay higher agent commission fees as an “inducement,” the buyer is being overcharged for the property.
Now, you may be more interested in how receiving a new car could hurt the buyer.
“Well, I am not an accountant, nor do I play one on T.V., but I believe there would be tax consequences for a buyer. Also, for a private seller offering such an arrangement, it would also have tax consequences as it affects your tax basis in the home.”
However, it is difficult to persuade a buyer to lower the actual price of the property instead of receiving gifts, for the reasons previously mentioned.
“Remember, in many communities in the Phoenix area, builders are selling the exact same properties that they could build, market and turn a profit on for the low $100's three years ago, for the mid $200's today. Sure, a little of that goes to higher material costs and inflation, but please! They could sell you a property for much less but they have an obvious vested interest to maintain price levels.”
Property values are slowing and declining in some areas (hence the incentives) so your best interest may be to wait for lower prices or to buy a pre-existing home. Sellers are much more motivated to get rid of their property for a lower price than builders.
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