Seller incentives attractive in buyer's market
The givebacks, which are legal if disclosed to lenders, have become so common that the multiple listing service where real estate agents list and track home sales data now includes an entry line for seller concessions. In the last four months of 2007, for example, 35 of 191 homes that sold in West Hartford had seller concessions.
"It's very common, especially among first-time home buyers and any buyer who doesn't have a lot of cash in hand," said Tom Abbate, an agent at William Raveis Real Estate. "Buyers like to walk away from a closing and still have cash in their pocket."
A Middletown agent, for example, estimated that half of all his home sales have some sort of seller incentive that does not show up in the final sales price.
The benefits are obvious for buyers who are struggling to come up with enough money for a down payment, closing costs and home renovations. Buyers can take out a slightly larger mortgage, based on the recorded sale price, and move into their new house with more money.
However, the inducements make it harder to calculate the real selling price of homes and determine if prices are declining in a soft market, and by how much.
For example, a three-bedroom ranch-style house in Bristol sold for 193,000 and the sellers gave the buyer $5,000 at closing. The purchase price was recorded as $193,000, but the true sales price after the cash transaction was $188,000.
The result is that home sale prices are propped up artificially, running counter to what typically happens in a housing slowdown.
"It's a big deal because prices are, in fact, falling," said Ron Van Winkle, a West Hartford economist and town official. "We know they are falling, but that is not reflected in the numbers we see."
Even modest cashback transactions of between $2,000 and $5,000 could skew the overall sales price data by 1 percent to 3 percent. With such a small margin, Connecticut's median sales prices would actually be flat or falling.
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