Many Seller Incentives No Longer Allowed

Back in the good old days when mortgage underwriting consisted largely of checking for a pulse, seller incentives were a common way for sellers to enhance their home’s marketing without lowering the price. Sellers sometimes offered cash, a TV, exotic vacations, or even cars as an inducement for buyers to purchase their home. Ultimately that lowered the homes value but may not have been reflected in the appraisal. Sure, $1.4 million is a lot of money for that neighborhood, but throw in the new Mercedes convertible and we have a deal!

Image by Gerald_1311 via Flickr

But things have changed on the lending front.

After the market collapsed, banks and the government figured out that often cash and other incentives artificially raised the value of the property, and thus made their loans more vulnerable to default.

In an effort to reduce defaults, the government has cracked down on all forms of seller incentives. New rules are designed to eliminate any exchange of cash or property before and after a closing that might affect how much equity a buyer has in their new home. That’s an about-face from a time when underwriting standards were much less stringent and cash-back signing bonuses and other perks were a common way to help push buyers over the fence. The goal now is to maximize a buyer’s investment in the hopes that they’ll be less likely to walk away from their obligation.

Current government loan guidelines limit seller contributions — usually in the form of closing costs — on conventional mortgages to 3 percent of the purchase price; FHA loans allow a 6 percent contribution, but that’s going to be reduced to 3 percent during the next few months.

Lenders say that losses are mounting on mortgages in which appraisers failed to discover — or sellers failed to disclose — incentives that were never deducted from the sale price of the house. That’s led to improperly priced loans and inaccuracies in valuations. Already Fannie Mae and Freddie Mac are asking lenders to repurchase billions of dollars in improperly underwritten mortgages, including some in which enticements weren’t properly disclosed.

Even though most incentives and gimmicks have been eliminated, there has continues to be solid demand for homes throughout Pleasanton, Dublin, San Ramon and the rest of the Tri-Valley. You really don’t need to offer buyers a set of steak knives or tickets to the Lady Gaga concert if your home is priced correctly and marketed aggressively. With the right agent, you can actually sell your home for a decent price and take the trip to Hawaii yourself!

Source: Contra Costa Times