Sellers who want to make sure that their home is positioned as aggressively as possible to sell in the current market often consider the use of financial incentives paid at the closing table to encourage buyers to choose their property as the buyer’s next home.  Here are some great financial incentives for sellers to implement in their marketing strategy (we do not advocate the use of broker bonuses, as we don’t feel that they are good “bang for the buck” for sellers).
1. Interest Rate Buydown. The seller pays “points” (one point equals 1% of the mortgage amount) which drops the interest rate that the buyer will be charged by the lender.  For example, if the buyer’s loan is for $400,000 and the interest rate is 4% with no points, but 3.75% with 1 point paid, then if the seller pays for one point in the amount of $4,000 ($400,000 x 1%), the buyer’s mortgage interest rate will remain at 3.75% for the life of the loan and the amount paid by the seller is likely to be tax deductible to the buyer.
2. Credit for Closing Costs. Many buyers, particularly first-time homebuyers, have a hard time collecting the downpayment for a home. As such, a seller’s offer to contribute a percentage of the loan amount to go toward buyer’s closing costs can make the difference as to whether a particular home is or is not within the range of possible new homes for a particular buyer. Most mortgage loans limit seller contributions for closing costs to no more than 6% of the loan amount.  Additionally, the funds from the seller for this credit can only be used for the following closing costs: title insurance, appraisals, attorney’s fees, bank fees including points, survey costs, recording fees, escrow items (taxes, insurance, per diem interest), and other items on the HUD-1 settlement form.  By way of example,  if the credit is for $10,000 and closing costs only total $6,000, the total credit that can be paid is only $6,000 and the seller retains the other $4,000.  Accordingly, it’s in the buyer’s best interest to have the amount negotiated for a seller contribution for closing costs that is less than the anticipated closing costs.
 3. Homeowner Association Fees. If a seller’s home is subject to an annual or monthly homeowners’ association fee, the seller can offer a credit at closing in the amount of the homeowners association fees for a specified number of months.  This can be a significant relief to a buyer who is moving from housing where they have not had to pay homeowner association fees.
Sellers should discuss these incentives with their agent to make sure the incentives are integrated into the marketing of their property. Additionally, before offering any incentives, it’s essential to review the proposed incentives with a mortgage lender, to ensure that any credits the seller offers are likely to be permitted by most purchase money mortgage lending guidelines.
Contact Leaf, Realtors® at 908-975-9756 to have a conversation with us regarding seller financial incentives for buyers and how they can be integrated into an effective marketing strategy for your home.