Selling homes in the 2008 market
It's tough out there. Foreclosures are at an all time high, homes are sitting on the market for extended periods of time, and asking prices for homes not selling are being dropped again and again. Realtors are seeing listings cancelled and those that do finally close earn less in commission because the sales price is lower or you had to reduce your commission to keep the listing. The "Housing Crisis" has become a self fulfilling prophecy. There really is a better way. If you have been around as long as I have, you may remember buydowns.
Hi, my name is Bob Gammache and I am with Carteret Mortgage. I have been originating mortgages since 1991 and I have some ideas about how to turn this mess around. During my career, I have seen good markets and bad and frankly, this is the worst I have seen. A large part of the extensive training required to gain my CMPS (Certified Mortgage Planning Specialist) designation was related to alternative mortgage financing strategies. Allow me to introduce the Maximized Seller Buydown.
But first, let's take a look at what so many Realtors and sellers are doing in this market and the impact it is having on you and our community. Let's assume a home was listed and it has not sold in several months. You have already reduced the price once by $50,000 and you, reacting to the slow market, have suggested another $50,000 price drop, hoping that will bring in a buyer. Your seller is not at all happy because he obviously is losing $100,000 of his equity. Most likely, this was the money he had planned to put down on his next home, making your next purchase transaction more difficult. There is another problem here though. When the home finally does sell, the lower sales price devalues every other home in the community, hurting your potential clients and your commission check. The issue is, of course, that when your client's neighbor wants to sell his home, an appraiser may not have a choice and has to use the sale of your listing as a comp. It is truly a vicious downward spiral that we are seeing all too frequently. Let's try another approach.
The Maximized Seller Buydown is quite simple to implement. Instead of lowering the asking price a second time, or at all, offer closing cost assistance to a potential buyer instead. Consider this, most conventional loans will allow the seller to contribute up to 6% of the sales price of the home to assist the buyer with their closing costs. Depending on the price of the home, a buyer's closing costs generally run between 3-4% of the price of the home. If your seller contributed 6% to cover their closing cost, what happens to the other 2%? The buyer can buy down their interest rate by a substantial amount!
Let's look at the impact of this strategy. As this is being written, conforming, fixed rate loans are readily available at 6.250%. Your extra 2% is enough to get your buyer into a 2/1 buydown reducing his interest rate to 4.250%! If your potential buyer's loan amount was $400,000, the buyer would save nearly $500 per month by buying your listing rather than one down the street with the same asking price! Another thing to consider about this is that since lenders qualify a borrower based on the bought down payment, you have just expanded the pool of qualified buyers, sometimes by a significant amount. A larger pool of qualified potential buyers is a very good thing when you are trying to sell a home! Unfortunately, this strategy does not work quite as well in the Jumbo market as most lenders restrict closing cost concessions to 2% of the sales price but the concept is still valid and may help with your next sale! Let me know if I can help in any way.
Bob Gammache
Carteret Mortgage
105 Clearcreek Ct.
Moneta, VA 24121
(540) 719-1115
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