With market cooling, buyers get demanding
Home buyers are asking for all sorts of extras to close the deal.
NEW YORK (AP) -- Not so long ago, home sellers used aggressive tactics to squeeze every last bit of profit from their home sales. Now that home sales are weakening, buyers have taken a page from the sellers' playbook, demanding everything from new appliances to no closing costs to upfront cash to get the deal done.
In some cases, what they are doing is down and dirty -- sellers have been asked to pay off buyer's credit-card debt, cover costs of the buyer's current home or even pay for the buyer's commuting costs from the new home.
This kind of gamesmanship allows buyers to get the most for their money. It also reveals that the housing market's ugly side may be here to stay.
The residential real estate market is cooling from its record-setting pace. New home sales are projected to fall about 16 percent in 2006, and existing home sales are forecast to dip 7.6 percent, according to the National Association of Realtors. Growth in home prices is expected to be minimal, coming in at less than 3 percent in 2006 and 2007.
Home builders are certainly feeling the pinch. KB Home, for instance, has started selling off land in its portfolio and said that preliminary net orders for the third quarter were down 43 percent from the prior year, as cancellation rates have shot higher. Gross unit orders and traffic to new home communities each slid 11 percent in the third quarter.
What a change from the not-so-distant past when homeowners controlled the game. Chipped paint? Who cared? No landscaping, no problem. Old, dirty carpets didn't turn people away. Some sellers even got standard points in contracts tossed out, such as home inspections and financing clauses that tended to protect buyers.
Those days are long gone. Sellers aren't just lowering prices now. They're also offering many extras to entice buyers.
In September, Pulte Homes' 17 San Francisco locations were giving away a weekly vacation for two at destinations including Hawaii and New York as well as incentives worth up to 99,000, including everything from pool installation to lower interest rates. In Rockville, Md., Mid-Atlantic Builders is offering a price-guarantee program, which gives the buyer a price break should the value of their home fall before closing.
Real estate agent Mark Goldberg in suburban Washington turned into a general contractor for the last four homes he listed, doing everything from painting to landscaping to installing new lights. One of his clients just dumped 25,000 into a house they are selling for 400,000 that isn't even their primary home but a rental property that they are now trying to sell.
"Sellers have to spend money to bring their properties up to snuff. They have to give buyers a reason to be interested, or else they will walk away," said Goldberg, who works at Long & amp; Foster Realtors in Bethesda, Md.
Even the president of the National Association of Realtors, Thomas Stevens, finds this market a tough sell. His Great Falls, Va., home has been listed for a year, but had no takers yet for its 1.45 million asking price -- which his Realtor has long said was too high. He now plans to talk to his agent about what price can get the deal done.
Still, that might not be enough to close the sale. Buyers want more -- and are coming up with their own must-have lists, making new demands right before they sign the deal, such as to have their credit-card debt paid off, their closing costs covered or the homes completely repainted with their choice of colors.
The buyers of Theresa Liddy Dolge's Hamilton, N.J., home wanted her to pay their apartment lease from June through August since they forgot to tell their landlord they were moving. She didn't agree to that, despite her lawyer and Realtor's attempts to get her to do so. They also asked for her train pass and her parking spot at the train station -- both of which she no longer had.
Granted, she made money on the deal -- selling for 275,000, which was well above the 160,000 for which she had bought it. But the buyers' sense of entitlement still bothered her.
That trait is something that today's buyers seem to have learned from yesterday's sellers. When low mortgage rates and relaxed lending standards allowed buyers to easily secure generous financing in recent years, homeowners saw that as an opportunity to inflate their selling prices.
Now buyers are watching mortgage rates move up and risky loans implode. They want to make sure they get as much as they can out of the housing market. That certainly sounds familiar.