Monday, November 27, 2006

Are buyer incentives all that they appear?

You've heard me say before that it's only a buyer's market if your actually buying, so you're buying right? While we haven't been inundated with them in the Chicago real estate market, I'm sure you've seen or heard more than one ad touting these "great" buyer incentives. And some of them are all that they seem. Hey who won't take a free 42" plasma tv or free assessments for a year? On the other hand, if the incentives seem to be too good to be true, they probably are. Most of the time developers offer the bulk of the incentives, but as of late sellers have been offering them as well. To say the least it always makes things interesting. Recently I had a for sale by owner tell me that they were going to offer a $15,000 credit at closing on a $325,000 property that I had showed to some clients. The caveat was that they were actually raising their asking price to $340,000! I'm not entirely sure they understood the concept of an incentive, never mind that it would have been near impossible for the appraiser to find comparables at that price. Fortunately, my clients fell in love with another property that paid their assessments for a year.

Developers seem to have a wider array of incentives, but the approach is basically the same. The thing to keep in mind is that even developers have a bottom line. They need to get X amount out of a property, but incentives become a problem when the developer inflates the price to ensure they get that amount. There are plenty of developers that offer incentives without artificially inflating the price, but if an incentive sounds too good to be true, it probably is.

Incentives are always nice, but I encourage my buyers to not let that drive their decision. The most important thing is to find a home they love, buyer incentives are a bonus.

Key points:

1) Whether you're dealing with an individual or developer knowing the comparables in the area is key.
2) Just because a seller is not offering an incentive doesn't necessarily mean they're any less motivated than one offering an incentive.
3) Use common sense, if it seems too good to be true it probably is.

Here's a great piece on buyer incentives: Buyer beware: some incentives can cost you.