The Truth About Builder Incentives and Seller Concessions
Posted by New Home Resource on August 17, 2015 in
If you’re a seasoned homeowner – or even getting ready to make your first leap into home ownership – the odds are you’ve seen those ‘special offers’ in real estate listings. They are, after all, designed to catch your eye – with phrases like: “$20,000 in free upgrades!” or “We’ll pay up to $10,000 of your closings costs!”
That’s advertising at its best. It piques your interest and causes you to begin comparing that home you really fell in love with . . . one you didn’t like nearly as much. But hey – who wants to pass up a great deal, right?
The fact is, in real estate, nothing is as “free” as it seems. In many cases, when you add up the cost of all the strings that come attached to these ‘great deals’ – “free” can end up costing you a lot more than you can imagine.
Whether you’re in a buyer’s or a seller’s market, you’re going to find that upgrade incentives are often a builder’s stock-in-trade. But in order to get ‘freebies’ such as free upgrades or paid closing costs, buyers often have to agree to certain conditions. These can include a number of things – such as paying list price, making an immediate purchase, or even using their sales agent to sell your existing home.
But perhaps the most costly of these conditions can be to require you to use the builder’s “preferred lender.” As one local Las Vegas mortgage broker, Premier Mortgage Lending, explains in greater detail in a recent article, the vast differences in the fees and rates for mortgage loans can easily add up to thousands of dollars in unnecessary costs for a borrower. The bottom line is that when a builder takes away your options to shop for the best mortgage loan, the odds are that those paid closings costs they’re referring to will probably – in one way or another – actually be coming out of your own pocket. (Suddenly, ‘free’ isn’t sounding quite so “free” anymore, is it?)
When it comes to seller concessions, there’s only one way to say it: Unless the seller offers you a concession after the final purchase price has been agreed upon – you’re going to be paying for it, one way or another.
Think about it: It’s one thing if, for example, you agree to pay $200,000 for a home; then after the fact, the seller offers to pay 3% of your closing costs. But that’s almost never how it works. In a typical sale – you make an offer first, and in that offer you ask for a 3% concession towards your closing costs. And then the seller accepts your offer.
But wait – that means you could have just as easily purchased that home for 3% less. And as most buyers will usually finance the maximum loan amount for their purchase, that means you just earned the privilege of financing your own closing costs over the next 30 years. Ouch.
The examples described above are just two of many situations where builders and sellers lure buyers by making offers that sound “too good to be true.” But in most cases, it’s good to remember that’s exactly what they are. Knowing that they’re operating with a “back-door” to your wallet will make it easier for you to see through the smoke and mirrors and know exactly what you’re paying for when buying a home.
And we’d like to give you one more key piece of advice that every home buyer should be aware of: Working with your own real estate professional can help you avoid these pitfalls – as they are required by law to operate in the best interests of their client: You.
New Home Resource helps current and future homeowners with all of their Las Vegas real estate needs. Whether your preference is for a newly-built home from a local builder, or a resale property in just the right location, a New Home Resource Realtor® is here to find the perfect property for you. Please contact a New Home Resource Realtor® today at 702-365-1000 or at www.newhomeresource.com. Broker Joanna Piette, and agents Denise Moreno Thrasher, Jessica O’Brien, Evelyn ‘Beng’ Kern, Lance Partin and Kathy Paterniti are all here to help!