Thursday, September 01, 2005

Slow Market? Sell The Deal, Not House

If you find yourself with a house on the market and it's just not moving, there are several strategies to put in place to speed up the sale and get going with your next purchase.

Psychologically, the seller has to first prepare himself for selling the house -- not marketing it, not holding out for a higher price, not defending your price, not blaming your agent for not doing enough, etc.

Granted, all the above is important and you do want a professional agent with a viable marketing plan to draw as many buyers as possible. Just like any other commodity -- a lot of buyers trouncing through your house is a good thing, because more buyers means more potential offers. Thus, the seller needs to hire a company/agent that's going to create such an environment.

But let's say you've done that. You've even fixed up the house better than anyone else on the block and it's just not moving. Then move from selling the product to selling the deal.

We see this strategy in plenty of other products. The auto industry is famous for it -- zero percent financing, $500 above invoice, employee discount price … none of these items have anything to do with the product -- they are enticing you with the deal.

The Deal for real estate has everything to do about the buyer. Forget that you may still be in a sellers market and you're in the drivers seat. If your house is sitting on the market and you have to move in 45 days -- you're not so much in the drivers seat anymore. Get off your haunches and get the job done.

You could drop the price, but in reality, this doesn't help the buyer as much as cash back at the settlement table.

For every $10,000 you drop on a loan at 6 percent, the buyer saves only $60 per month in a mortgage payment. Is that really enticing enough? Think about it, they're borrowing $250,000 -- a quarter of a million dollars -- and you're dropping the price by $10,000 reduces their principal and interest payment from $1,498 to $1438. Is that one move enough to get me excited?

Let's turn that around and offer $7,500 (3 percent of the loan amount) over to the buyer -- at a full price contract -- and see what it does for the buyer. They could use it for closing costs, which could be a lot of money in their pocket. They could use it to make payments over the next several months (nearly five months worth of payments at the above mentioned payment amount). Is that really more beneficial than $60 per month?

By dropping your price $10,000, it would take them more than 10 years worth of monthly payments to gain the actual financial benefit of simply handing over $7,500 in closing costs to them at the settlement table. Plus, you get to keep the remaining $2,500 for your own bottom line.

It's like this. If you're about to take a hit on the sale of your house, it might as well benefit someone, and the buyer who gets $7,500 at the table is going to get a lot more excited than the one who's price dropped $10,000.

Be sure to check with your mortgage professional to make sure the loan program your buyer is using will allow you to provide this much cash to the buyer.

One last thing. If you decide to market the deal, make it a lot more appealing than "closing costs to buyer." How you say it can be just as important as what you're saying: "No payments for 4 months," "$7,500 back to decorate your house," "Seller will pay off buyers debt (up to $7,500)," are three ways of saying, "Closing costs to buyer."

Which one gets you excited?

Mr. Carr has covered real estate since 1989. He is the author of "Real Estate Investing Made Simple." Got a personal real estate issue? Questions can be posted at Anthony's blog.


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Anonymous said...

Regarding the cashback idea, I was told that when the price is dropped on MLS it changes the state to PRICE CHANGE. Then agents respond. Adding the remarks of "cash back" does not. How is this going to alert agents of the new change in the remarks? How is it more effective as a PRICE CHANGE if it does not alert the agents by way of MLS?