What Would Happen to Home Values if There was No Seller Credit
Many home sellers consider paying some or all of a home buyer’s closing costs a negative. Would it be better if the practice of paying closing costs did not exist? The answer may change your way of thinking about the practice.
Spend any time in the real estate industry and you will hear the adage, home values are mainly a product of three things, location, location, location. Obviously, the location has much to do with home values but is there another term that should be considered? How does liquidity, liquidity, liquidity sound?
I know, “liquidity” does not sound as sexy as “location”, but may have as much influence on home values.
So what is liquidity? As it relates to home sales, liquidity is the availability of funds. The more money that is available to purchase homes, the more homes sell. The more home sell, the more home prices rise. Simple law of supply and demand in play here.
The availability of money is just one factor. The ease in which a home buyer can obtain money is the second. One only has to look back a decade to get an idea of what happens to home values when liquidity and ease of acquisition ran amuck. Skyrocketing home values leading to a market bubble and subsequent crash when the money faucet was shut off were the result.
Since that period a decade ago, mortgage lending has changed. While interest rates remain low, buyer qualification has tightened. One of the things that remain in play is the ability of a home seller to offer monetary credit to a home buyer. Without this possibility home values would be negatively affected as it would reduce a home buyer’s ability to purchase.
Berks County home values depend greatly on the ability of a seller to offer a purchase credit to a buyer. Since the beginning of this year 1,645 residential properties have sold countywide. 800 Of these homes, or 48.6%, involved a seller credit to the buyer. In the price range of $101,000 to $200,000, which encompasses the median price range in Berks County, the percentage was 61.8%!!!
Think of the pressure that would be put on our local market if the Fed changed the rules and disallowed seller credits? In my opinion, it would negatively affect Berks County home values to the tune of around 30% to the downside. This percentage is close to what we experienced when the housing bubble burst in 2008. I do not think any of us want to see that show again.
So if you are selling your home, receive an offer, and the buyer is asking for a credit consider it kindly or less negatively. Your ability to give the credit may be the only reason you get anywhere near the dollars you expect from your home.
To understand more about what a seller credit is, visit my website at JeffreyHogueRealtor.com and read my article titled “WHAT IS SELLER CREDIT TO HOME BUYERS.” I have also broken down the home sales by price category and percentage of seller credit. Check it out and join the conversation.
Knowledge is Power!
Jeffrey C. Hogue
Residential Home Sales in Berks County, From January 1, 2016 through May 25, 2016 (Compiled through Trend MLS)
$o - $100,000 ~ 487 Total Sales, 31.0% Included Seller Credit
$101,000 - $200,000 ~ 710 Total Sales, 61.8% Included Seller Credit
$201,000 - $300,000 ~ 332 Total Sales, 50.6% Included Seller Credit
$301,000 - $400,000 ~ 84 Total Sales, 41.6% Included Seller Credit
$401,000 - $500,000 ~ 17 Total Sales, 29.4% Included Seller Credit
$501,000 & Up ~ 15 Total Sales, 15.3% Included Seller Credit