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Offering incentives may help sell your home in this turbulent market

Money toward closing costs, a remodeling allowance, and a home warranty are among the most popular options

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The spring housing market is in turmoil amid the coronavirus (COVID-19) pandemic. You may find less competition if you’re selling your home, but you’ll also find a lot fewer potential buyers.

A report from realtor.com shows that it took longer to sell a home in April. Prices hit a plateau last month at a time when sales should have picked up and prices should have risen. Making matters worse, lenders have significantly tightened underwriting stands, meaning fewer people will qualify for a mortgage and may not be able to buy a home.

If you need to sell your home now, you’ll need to be creative to make your property stand out. Real estate experts say one of the ways to do that is to offer some incentives to the buyer.

Help with closing costs

The average buyer is trying to preserve as much cash as possible, so any accommodation the seller can make will likely get a buyer’s attention. In the past, when interest rates were 6 percent or more, offering to buy down the buyer’s mortgage rate was an attractive incentive. But with the rate around 3.5 percent, that’s less important. However, offering to pick up a portion of the buyer’s closing costs could work just as well.

If the property is in need of some minor updates, offering a “remodeling allowance” at closing is another incentive that buyers seem to like, since it puts cash in their pocket. But both of those incentives can be a little more costly since it does not lower the sale price, and the sale price is the basis for the commission you’re paying your real estate broker.

If you give $3,000 cash back to the buyer at settlement, you’re paying 6 percent on that money, which amounts to an extra $180. Granted, that’s not a huge amount, but fees and closing costs tend to add up.

Home warranty

Purchasing a home warranty for the buyer at settlement is another attractive incentive for both the buyer and seller. They aren’t that expensive, and they provide peace of mind to the buyer, especially if the appliances are getting a little long in the tooth.

According to the National Association of Realtors (NAR), these service agreements are becoming a mainstay in real estate transactions and are the most popular incentive that sellers use to attract buyers. NAR data shows that of the 40 percent of sellers who use incentives, nearly a quarter used home warranties. Brokers like them too.

“Home warranties really do protect us as well,” said Bob Patterson, broker-owner of The Bob Patterson Group in Hamilton, Ga. “Before we were using home warranties, the buyer would discover a problem with the property and file a lawsuit that brought in the brokers and agents as well.” 

Home warranty companies contract with local service providers to repair appliances and systems if they should fail during the time the policy is in force. While a buyer’s warranty may be in effect for just the first year, they can usually be renewed by the homeowner.

ConsumerAffairs has collected thousands of consumer reviews of the top home warranty and service plan providers. You can check them out here.

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