Take Advantage of Developer Incentives when Buying a House
Faced with a glut of inventory, developers and government officials are desperate to jump start the housing market. Rather than compete in a race to the bottom, however, they are becoming more creative, and offering special incentives in order to lure buyers back into the market. One analyst observed, “While builders could simply lower the price of homes, he said it hurt other homes in terms of value and makes it difficult to raise the prices back to profitable levels when the economy and markets get better.”
As The Mortgage Blog reported last week ["First-Time Home buyers Reap Tax Benefits"], home buyers can already take advantage of a new federal program, which offers an $8,000 tax credit for those that qualify. This is now being matched by state and local credits, which in some cases come in the form of direct rebates rather than credits, which puts cash in the pockets of home buyers that can be used directly to cover closing costs. That beats waiting until filing your taxes.
Developer incentives, therefore, can be seen as a mere extension of government programs. Most of these incentives are of “contingent” use; unless something special happens, you won’t receive cash. The goal of such incentives, rather, is to protect home buyers from future uncertainties which would otherwise cause them to wait before committing to buy. A browsing of real estate ads revealed that one developer is now offering “Job-loss mortgage insurance that will make mortgage payments, up to $1,500 per month for up to six months, if you lose your job within 24 months of closing.
Also common are programs which aim to preempt buyer’s remorse, by protecting home buyers from declines in home prices and interest rates. Under such guarantees, developers commit to reimbursing home buyers that failed to time the market correctly, for a stated period of time (usually one year). In this way, you are essentially hedged against a near-term price decline. Other perks include custom furnishings, add-ons, gym memberships, etc. In addition, some states offer incentives (both to builders and home buyers) for increasing energy efficiency, such as by installing a solar panel.
Buyers, naturally, should not “be so swayed by the perks that you fail to negotiate the best purchase price possible.” In this case, it’s possible that the proverbial free lunch is real; don’t be cajoled into paying more simply because the buyer is throwing in a hot tub. Along the same lines, if the builder is inflexible about the sale price and you’re on the fence, it might not hurt to ask for a perk to close the deal. Finally, make sure you read the fine print. Both government and private incentives always come with strings attached, such as restrictions, deadlines, and limitations.