When a builder or home seller sells a home for $500,000, plus throws in $100,000 in incentives (a new car, a free pool, etc), how come the sale price isn't recorded accurately as $400,000?
In other words, when the NAR's median price numbers come out today and tomorrow - remember that they're deceptive, bogus, worthless and not an accurate representation of what's really happening in America today.
August 23, 2006
HousingPanic Stupid Question of the Day
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12 comments:
That's ok, when the housing crash finally hits it will look much more severe than it really is.
The incentives seem to apply only to buyers of new construction purchased directly from the builders, I have not heard of an owner-occupant offering incentives, this is not to say that it doesn’t happen, but it can’t be happening all that often.
And in the end, incentives don’t work for very long. If a buyer is given the choice between a condo and a $50,000 car or a condo that has been reduced by $50,000 what buyer would take the car? Once pressure heats up buyers will tell builders to keep their car and reduce the price.
The only remaining question is when this will all happen. We are now certainly in the midst of a housing decline. We have been saying it would happen for over a year and now we can look back and say we were right. But the next question is when ‘the quickening’ will occur, that is to say, when will we see a rapid correction.
Right now the real estate market is a damn with a few cracks, and the realtor’s incentives are attempts to fill the cracks with bubble gum (like Chevy Chase in Vegas Vacation). But when the damn breaches the realtors will be the first to be swept away.
oh, thinker, you've not been keeping up with the blog. numerous stories out there of private sellers going the incentive route vs. just cutting the price - throwing in their car, or a trip to hawaii
http://tinyurl.com/oba7p
In Woodbridge, Va., George and Susan Garrigan listed their home for $449,000 in March. After two price reductions and still no takers, they took it off the market. They painted the interior, landscaped the yard, put in new carpet and exposed the hardwood floors.
Now it's back on the market for $439,000. And there's a new car in the driveway with a sign: "2006 Corolla Free with Purchase of our Beautiful Home."
"You have to do something to stand out," says their agent, Barbara Tivnan. "There's so much inventory, and there's just not that many buyers."
"Buy this house and receive this wheelbarrow of cash rebate at closing"
That is an incentive that would "stand out".
Whenever you attempt to staticize something, people find a way to get around the number. It's that way with housing sale prices and it's that way with important numbers like CPI (consumer price index).
Face it. You have to have rocks in your head to believe the numbers coming out of all the "right people" in this country.
It's all half bullshit and you better learn to read between the lines to know what's really going on.
The problem with incentives is that it's barter. Instinctively, the buyer feels "why don't they just lower the price? What kind of scam are they trying to pull?"
Well, anyone with 1/3 of a brain would ask that. Unfortunately, there is A LOT of stupid people still taking out mortgages. When they finally default on the houses that will act as a Darwinian filter to remove stupid people from the population that matters. Hopefully this will occur in Washington with politicians also though I doubt that.
Thats the route I went with when blogland convinced me to sell my NoVA condo last Fall. Listed lower than the identical units for sale and 20-30K lower than actual comps/with a 10k cash back incentive. Had a contract w/in 30 days after 10 or so visits.
Interesting part about it though was that the couple who wanted it had a pre-approval FHA loan. Those loans dont let you have more than 3% (+/-) cash back.
What I was offering cash back was slightly higher than the 3%. We all just reconfigured the contract to include "repairs" not cash back
Im thinking that builders are in business with whom does their financing, and the lender will allow the the major cash back/incentive back deals to go thru, in hopes of future business.
Individual sellers/buyers dont have this option if underwriters actually put the nix on the "newest and coolest incentive" selling ploy.
potential lender: "You want a loan for 500K and youre getting how much back?"
prospective buyer: "100K, Im getting a great deal!"
Lender: "FU, FB. U can have a 400K loan." ( "or maybe we can step out back and discuss my cut of the 100k on the 500k loan Im about to approve you for ;)! )
{{ When a builder or home seller sells a home for $500,000, plus throws in $100,000 in incentives (a new car, a free pool, etc), how come the sale price isn't recorded accurately as $400,000? }}
Why do you pay sales tax on the inflated, suggested retail price of a "free" cell phone?
Why do you pay sales tax and license fees on the total price of a new car even though you might be getting $7000 in rebates?
The use of incentives instead of price reductions on home sales allows the NAR to report false and misleading sales figures. Also, lowering prices lowers the value of neighboring properties.
I can't help but believe that builders are under pressure to maintain their high asking prices. The whole issue would seem to revolve around taxes. I would prefer not to have the additional yearly tax liability of $1250 on that $100,000 discount.
Maybe it's because the NAR has a weeklong love fest in Washington, D.C every year sucking face with the politicians and spreading their dough around...
An interesting thought; when car manufacturers such as GM and Ford flood the market with rebates/incentives it drives down the trade-in prices for people that already own the cars, but yet the home builders and sellers can do it and the appraisers keep fixing the numbers to make everything look good...
called 'Creative' finance
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