When trying to price our place back East, our realtor showed us the sale prices of neighborhood comps. Separately listed was a column for "subsidy." The "subsidy" was what the seller returned to the buyer at closing. When you subtract the subsidy from the sale price, you get the true net sale price to the previous owner. Our final subsidy to the buyer: $12,000.
The main problem with subsidies:
1) They inflate the sales prices of the home. Median reported data and sites like Zillow show houses selling for much more than they actually sold for. This inflation makes it look like the market is doing much better than it really is. And to the best of my knowledge buyers don't receive this information!
2) Realtor gets paid a percentage on final price of the house which includes the subsidy. So we ended up paying our realtor $240 more in commission! (2%)
3) If sellers don't realize their neighbors sales price included a hefty subsidy, it decreases their flexibility, exacerbating the already big gap between buyer and seller expectations.
I have a strong feeling there is a lot of subsidization occurring in the markets I am looking at. I asked a realtor if that information was reported (the way it is in Virginia), and she didn't even know what I was talking about (granted she is recently licensed).
Note: When we countered the initial offer with less subsidy, to bring up our net price, the buyer countered with a higher total sale price, but the same subsidy (in order to meet our net price).
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1 comment:
This is probably one of those regional variances.
Here, people just straight up offer money towards closing costs or offer to pay the buyer's closing costs. Builders give "incentives" like landscaping, custom cabinets, etc. without charging. In the past they've given cars, vacations and furniture.
But no one calls them "subsidies" even though that's what they are.
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