BUYER BEWARE OF FREEBIES

The ABQ Journal had an interesting article on buyer incentives. Realtors use incentives to "draw blood" and bring prospective buyers to see a home when the inventory is high. The one I never understood as a real estate professional is when the seller gives the realtor more commission or SWA tickets. It assumes that we would "push" a buyer towards a particular home and that is disgusting to me.

There are, however, legitimate incentives for buyers in this market, but the buyer needs to make sure that the incentive helps them resolve an issue or barrier they might have in getting the house. For example, if the buyer is short of cash for the $2500 or so needed at closing, then assistance with closing costs is a good thing. If the incentive is buying down a point on the loan, that might work if making the monthly payment is going to be tight for the new buyer as it will reduce the interest rate abit. But if the seller offers a $2500 flat screen TV, I would advise my buyers to instead take that much off the price of the house. The mortgage will be less and the taxes based on purchase price will be less so it's a better long term value. Other incentives that could work would be covering homeowner association fees for a year or a few months' of mortgage payments if getting into the house will make the buyer cash poor for a few months.

Bottom-line, the buyer needs to understand what will be the most benefit in the short term and look at long term benefit such as a lower interest rate or price. Both buyers and sellers forget that items such as TV's or furniture items are personal items, not real estate, and should be done separately from the real estate transaction. Why pay for a $2500 TV within a 30-year mortgage? Note also that many lenders now will not allow for "repair allowances" to cover updates or replacements such as a roof that the seller might offer. The work needs to be done and paid for before closing or just take the amount off the price. Well, it's complicated, but that then is why realtors are worth their weight in gold advising what's best for their client.