Are hidden "seller incentives" masking true price decline?

Posted by: Dean Foust on August 28, 2006

A poster on the Real Estate Cafe blog raises the question whether “seller incentives” are masking the true decline in housing values. I’ve read elsewhere about sellers offering a one-year lease on a car (if not an actual car) to help them move a high-priced McMansion that they can’t sell. And of course, real estate developers can through in extra amenities (granite counter tops) as well as below-market financing. I’d be interested to know what kinds of incentives readers are seeing in their local markets…

Reader Comments

lizziebeth

August 28, 2006 7:56 PM

We have been actively looking at homes in Florida for quite some time. What once was a lottery just to get a lot is now the numbers game. In Bradenton a local builder called Homes by Towne, who we didn't have a prayer to get a lot from two years ago, was offering in early July $50k in upgrades or closing costs.... The salesperson was quick to add that each home is negotiable.

Looking at resales, no real incentives like plasma tv's and cars. We've seen price drops but most are holding out, months some going on over a year. The realtors are quick to tell us, just make an offer. We decided to continue renting.

David Weekley is another builder we looked at in the Tampa/Brandon area. A couple months ago they had a huge red tag sale dropping the price. Now they are saying they will not lower the very inflated asking price(they want to protect their previous customers), but you get to choose three incentive packages. The packages are everything from wood floors, granite, several tv/technology packages.....Many builders are offering price guaruntees.

Our career has relocated us around the country over the last 25 years. We typically always go with new construction. Never have I seen incentives as we are now. Prior to 2002, the most you could hope for were a few thousand dollars in options or towards closing costs.

Coming back to Florida(home) almost two years ago was shocking for us when we saw the price increase. We had been in Texas during their last real estate bust and remember people leaving their keys in the mailbox. Friends losing $30k on a $150k home. We know that the prices for homes do not match salaries and are willing to ride it out. The incentives aren't enough at this time.

mike

August 28, 2006 9:12 PM

i was looking at some condos in my neighborhood yesterday in west los angeles, and in one they were offering free plasmas and major appliances. nothing huge, but just the fact that they're offering incentives at all is a big change in this market.

cocoa beach

August 29, 2006 5:53 AM

In my area i am seeing huge buyer's agent bonuses, as much as $10,000 and payouts of 4% and over are not uncommon. I have also seen 1st year's property taxes and condo fees paid by seller.

Brandon W

August 29, 2006 8:57 AM

I've been wondering exactly this for months. I think it's pretty clear that it is, and it's another case of "reported numbers" having little to do with reality.

Geoff B

August 29, 2006 1:23 PM

Incentives are an interesting game... for the buyer. But one thing that really disturbes me is the use of incentives for a buyer's agent. Evidently, these things work, but it makes me (as a future buyer) very suspicious of the system. Is some kind of disclosure required when a buyer's agent is responding to an incentive?

Imagine if opposing council met with your lawyer privately and said "hey, if you can get your client to settle for a hundred grand, we'll give you a 10,000 incentive bonus..." Or if a pharm company went to a physician and said "hey, for every one of your patients who fills his prescription with our higher priced drug, we'll float you a bonus of $500." I suppose this kind of stuff goes on, but it's the stuff that gets licences revoked.

Is this sort of "buyer's agent incentive" business as usual in real estate? Does a buyer's agent have any formal professional responsibility to a client?

GARY

August 29, 2006 2:52 PM

"Reported Numbers" indeed have nothing at all to do with reality in this situation. I created a database about a year ago to track home pricing in CT. It uses MLS listing numbers for each property.
No 'Analysts' or 'Experts' needed here. We're not going to see further 'declines' in pricing. 'Collapse' is on the verge.
Also, the number, and quality of properties in the foreclosure process is nothing less than horrifying.
True opportunity awaits those of us that were willing to wait it out. :)

keith

August 29, 2006 5:25 PM

HousingPanic has been all over this issue for months. Nice to see you (finally) pick up on it

The median price numbers are completely bogus. Not even worth looking at. We have no idea, and we'll have no idea, what homes are truly selling for, what with the cars, trips, countertops, cash back and more being used to move the dead inventory

Gary

August 29, 2006 9:35 PM

"Does a buyer's agent have any formal professional responsibility to a client?"

Yes. Whether or not it is clearly illegal depends on a number of factors, and how adept the Broker is at finding loopholes.

It is very clear however that it is unethical. Interesting that a very large organization of Brokers and Agents are spending millions on a National ad campaign to let us know that their agents receive 'Ethics' training, and that they adhere to a 'Code of Ethics'.

What's unclear is what that organization will do for a Buyer or Seller that has been subject to unethical dealings by one of their member.

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Darla's Mom

September 24, 2006 8:56 AM

This area makes me wonder what the real deal is on foreclosures and what is the best source of leads. Is it the banks? Agents? For those of us looking for an alternative to apartment living, there should be opportunities out there but it is difficult to navigate through the nest of vipers and scams.

wanda phillips

October 27, 2006 11:58 PM

As a realtor/broker who represents investors, I have felt very uncomfortable with sellers who offer me abnormally high commissions or incentives. I do a great deal of research to find the best locations and investments and I am always cautious about a seller that spends more time telling me about my potential pay than about what their property has to offer for my buyers.

If I like a property and there are unusual incentives for the realtor, I ask for the seller to just pay me a standard commission and give my buyers the extra money or incentives instead. Not one seller has turned me down, AND when the deal is better for my buyers, I can sell more properties. So, it works out better for me, the buyer AND the seller!

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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