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It May Be the Key to Selling Your Home
In terms of real estate, there are buyer's markets, seller's markets, and everything in between. The advice provided in this article is primarily intended for anyone who is selling their home during a buyer's market. If this isn't your current situation, you'll still want to keep reading. Real estate markets exist in a state of flux, at least to some degree. The bottom line is that you never know what the conditions will be when you're ready to sell your home.
In a buyer's market, a surplus of inventory (homes) is usually quite common. This excess benefits the buyer for one main reason: the more options a buyer has, the more competitive it gets for the sellers. This competition translates into everything from price drops to added perks which accompany the sale of a home.
One particular mistake made by many sellers is that they list their home at the high end of its estimated value. Some of the greatest buyer activity occurs when a home is first listed. If the home is not priced correctly, it could very easily scare buyers away.
After experiencing a lengthy period with no purchase interest, many sellers decide to drop the price by a relatively small amount. To their dismay, the price drop doesn't translate into buyer interest. Now the home has been on the market for some time, and an unfounded stigma is beginning to set in with buyers – something is wrong with the home. Yet another price drop occurs, and the pattern repeats until the price drops so low that it can't help but sell. The end result is a very unsatisfied seller.
The reason for this is a simple one. No matter what price range your home occupies, it is in direct competition with every home in the area that's listed at the same price. This is especially true when an area becomes a buyer's market. Someone looking for a house in your price range will decide which one they want for a myriad of reasons. Maybe it's an extra bathroom or a newly remodeled kitchen, but the end result is one home gets chosen and many others do not.
But here's the really bad news. Remember the part about price drops? Quite often, many sellers experiencing no luck with moving their home will simultaneously drop their price by coincidence. This results in the same homes remaining in the same price range, causing them to stay in competition. The vicious cycle continues.
Now that you understand the problem, let's examine how to alleviate it. As the seller, you will need to become very creative in how you market your home. Try to make it stand out from the rest of the pack, so it draws a great deal of interest. How is that accomplished, you ask? The first step is to investigate the needs of the buyer.
For anyone buying a house, there are two main concerns. One is cash on hand. In other words, how much out-of-pocket money will it take to close on the house in question? The second is overall affordability. Or, how much is the monthly mortgage payment? With these two major buyer concerns in mind, here are some great ways to market your home.
The 2-1 Buydown
The seller agrees to use a small portion from the proceeds of the sale to "buy down" the interest rate on the purchase loan. In turn, the buyer would receive a 2% reduction for the first year of payments and a 1% reduction for the second year. At the end of two years, the interest rate would go back to the normal fixed rate. By crunching the numbers, you can really see the attraction of this offer for all concerned.
Let's say the buyer is borrowing $350,000 to purchase the home. The seller's cost for the 2-1 buydown is under 3% of the amount mortgaged, but we'll calculate it using 3% to keep things simple. Three percent of $350,000 is $10,500. This is the amount the seller will offer as a concession or credit to the buyer. It may sound like a lot, but it's probably less than a price reduction would be.
Let's also say that the buyer's $350,000 loan carries a 6.50% interest rate. The monthly payment in this case would be approximately $2,212. By prepaying the $10,500 on their behalf and reducing the interest rate by 2% in year one, their mortgage payment would drop $438. This results in a monthly payment of $1,774 throughout the first year! The second year would carry a 1% or $225 decrease, yielding a monthly payment of $1,987. You've now just solved the buyer's issue with affordability, and you sold your house. Plus, you probably netted more than you would have if you'd reduced the price of your home.
Using the model of a $350,000 loan, a seller can make the aforementioned offer to buy down the interest rate. At the same time, the seller may provide an alternate option to pay $10,500 in closing costs. For the same amount of money used to solve a buyer's concern of affordability, you've now solved the issue of cash on hand as well. Put yourself in the shoes of the buyer. Wouldn't you like these options? Wouldn't you take notice of a home that came with these offers?
If you're currently having trouble selling your home, don't be afraid to approach your real estate agent with these strategies. Get them on board with your willingness to enhance your home's attractiveness. Remember, it will benefit them as well. Also, keep in mind that the longer your home stays on the market, the longer you're stuck with a house no one wants…including you.
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