Money is everything

MINNEAPOLIS — Government cash didn’t help John Foley and Cindy Case sell their Minneapolis house before the federal home buyer’s tax credit expired at the end of April, so the couple decided to take matters into their own hands.

They hosted a backyard party with food and an open bar, invited the neighbors and professional contractors — in case potential buyers had questions about remodeling. To top it off, they’re offering their own $8,000 rebate on the $675,000 home.

Three years ago, such cash enticements were the norm. And cash was only the beginning. Sellers regularly tried to lure prospective buyers with free cars, big-screen TVs and stainless appliances at closing. But after nearly a year and a half of a government tax credit program and mounting economic uncertainty, sellers have scaled back on marketing gimmicks and buyer incentives, largely in an effort to limit their losses. Meanwhile, new rules aimed at reducing the risk of mortgage defaults have made many once-common incentives illegal, so many sellers are simply resorting to one of the oldest tricks in the book: dropping the price.

Aaron Dickinson of Edina Realty says that buyers today have access to more information about the market than ever before, so competitive pricing is the best way to attract attention.

“At the end of the day, buyers aren’t stupid,” he said. “Gimmicks don’t work well when buyers have so many avenues to be educated about what’s for sale and what has sold and for what price.”

In addition, buyers are worried about the economy and their job and have focused on getting the best price — and the lowest house payment — rather than a free perk. Indeed, many buyers are making decisions based on the assumption that someone in their family might lose their job, said Stephanie Gruver, a sales agent with Keller Williams Integrity Lakes.

“They’re buying on one income rather than two, and they’re buying within their means,” she said.

Perhaps the biggest reason for the decline in seller incentives comes from the mortgage industry itself. 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.

The government tax credit was a particularly good deal for cash-strapped buyers and sellers because it wasn’t tied to the value of the house and it arrived in the form of check with few restrictions on how it could be spent.

To buyers spoiled by such an offer, that makes the prospect of pre-recession incentives seem a little less enticing.

“Incentives from the seller don’t replace the incentives from the federal government,” Dickinson said. “Oftentimes, it’s easier to do a price reduction than offering a rebate.”

That was Coldwell Banker’s thinking when, after the expiration of the government’s $8,000 tax credit, in June it asked its sellers to offer prospective buyers a 3 percent discount for purchases made by the end of the month. Participation was limited, but sellers are likely weary of still-lower prices.

But party-giver Foley, a marketer, attributes the pullback on incentives to an all-out surrender. “Everybody has had a hard time selling,” he said. “It doesn’t mean you stop. It’s almost as if people, including sellers and Realtors, have given up. They’ve lost faith in what they knew.”

The bottom line, he said, is that sellers and their agents need to get creative and have more fun.

Selling your home? Consider these tips

Price it right. Buyers have access to lots of data, and they’ll know if your house is too expensive. Offer to pay some of the buyer’s closing costs.

Maximize exposure. Saturate the Internet and all forms of social media with your listing.

Use great photos, not good ones. Make sure your house makes a great first impression.

Make it sing. Listing information must be complete and well-written.

Curb appeal matters. Spend a little money on flowers, new plants and fresh paint.

Make sure the paint, carpeting, light fixtures and appliances are updated and clean.

De-clutter. Eliminate one-third to two-thirds of your stuff; hire a stager.

Network. Sales come together because brains understand homes better than computers.

Be patient. Statistics say that it takes 21 showings, not including open-house traffic, to sell a house.

Talk to us

More in Herald Business Journal

Members of Gravitics' team and U.S. Rep. Rick Larsen stand in front of a mockup of a space module interior on Thursday, August 17, 2023 at Gravitics' Marysville facility. Left to right: Mark Tiner, government affairs representative; Jiral Shah, business development; U.S. Rep. Rick Larsen; Mike DeRosa, marketing; Scott Macklin, lead engineer. (Gravitics.)
Marysville startup prepares for space — the financial frontier

Gravitics is building space station module prototypes to one day house space travelers and researchers.

Orca Mobility designer Mike Lowell, left, and CEO Bill Messing at their office on Wednesday, Aug. 16, 2023 in Granite Falls, Washington. (Olivia Vanni / The Herald)
Could a Granite Falls startup’s three-wheeler revolutionize delivery?

Orca Mobility’s battery-powered, three-wheel truck is built on a motorcycle frame. Now, they aim to make it self-driving.

Catherine Robinweiler leads the class during a lab session at Edmonds College on April 29, 2021. (Kevin Clark / The Herald)
Grant aids apprenticeship program in Mukilteo and elsewhere

A $5.6 million U.S. Department of Labor grant will boost apprenticeships for special education teachers and nurses.

Peoples Bank is placing piggy banks with $30 around Washington starting Aug. 1.
(Peoples Bank)
Peoples Bank grant program seeks proposals from nonprofits

Peoples Bank offers up to $35,000 in Impact Grants aimed at helping communities. Applications due Sept. 15.

Workers build the first all-electric commuter plane, the Eviation Alice, at Eviation's plant on Wednesday, Sept. 8, 2021 in Arlington, Washington.  (Andy Bronson / The Herald)
Arlington’s Eviation selects Seattle firm to configure production plane

TLG Aerospace chosen to configure Eviation Aircraft’s all-electric commuter plane for mass production.

Jim Simpson leans on Blue Ray III, one of his designs, in his shop on Friday, August 25, 2023, in Clinton, Washington. (Ryan Berry / The Herald)
Whidbey Island master mechanic building dream car from “Speed Racer”

Jim Simpson, 68, of Clinton, is using his knowledge of sports cars to assemble his own Mach Five.

Inside the new Boeing 737 simulator at Simulation Flight in Mukilteo, Washington on Wednesday, Sept. 20, 2023. (Annie Barker / The Herald)
New Boeing 737 simulator takes ‘flight’ in Mukilteo

Pilots can test their flying skills or up their game at Simulation Flight in Mukilteo.

An Amazon worker transfers and organizes items at the new PAE2 Amazon Fulfillment Center on Thursday, Sept. 14, 2023, in Arlington, Washington. (Ryan Berry / The Herald)
Amazon cuts ribbon on colossal $355M fulfillment center in Arlington

At 2.8 million square feet, the facility is the largest of its kind in Washington. It can hold 40 million “units” of inventory.

A computer rendering of the North Creek Commerce Center industrial park in development at 18712 Bothell-Everett Highway. (Kidder Mathews)
Developer breaks ground on new Bothell industrial park

The North Creek Commerce Center on Bothell Everett Highway will provide warehouse and office space in three buildings.

Dan Bates / The Herald
Funko president, Brian Mariotti is excited about the growth that has led his company to need a 62,000 square foot facility in Lynnwood.
Photo Taken: 102312
Former Funko CEO resigns from the Everett company

Brian Mariotti resigned Sept. 1, six weeks after announcing he was taking a six-month sabbatical from the company.

Cash is used for a purchase at Molly Moon's Ice Cream in Edmonds, Washington on Wednesday, Aug. 30, 2023. (Annie Barker / The Herald)
Paper or plastic? Snohomish County may require businesses to take cash

County Council member Nate Nehring proposed an ordinance to ban cashless sales under $200. He hopes cities will follow suit.

A crowd begins to form before a large reception for the opening of Fisherman Jack’s at the Port of Everett on Wednesday, August 30, 2023, in Everett, Washington. (Ryan Berry / The Herald)
Seafood with a view: Fisherman Jack’s opens at Port of Everett

“The port is booming!” The new restaurant is the first to open on “restaurant row” at the port’s Waterfront Place.