Spring is here and with it the start of the real estate selling season for much of the country. The sales story for the past year has been that some metro areas are down, some are up and fears of a 2006 real estate bubble were grossly exaggerated.

While we don't yet know what will happen in 2007, we know what the National Association of Realtors found in the fourth quarter of 2006: Existing home prices increased in 71 metro areas, fell in 73 metro areas and held steady in five.

These figures tell us that many sellers are faced with the real-world issue of how best to price property in slowing markets.

Owners, of course, cannot simply ignore marketplace realities. Their first choice is to price property at the highest potential value within reason. If a property is sufficiently unique, maintained, located and marketed then premium pricing may well be reasonable.

The catch is that pricing which represents a sensible marketing effort at first may not be so sensible after several weeks or months. Once the market has been tested, the question for sellers then concerns what "Plan B" strategy makes sense as a fall-back position.

In many cases -- too many in my view -- if a first price does not work then the next step is to instantly suggest a lower sale value. One problem with this approach is that it inherently suggests even lower prices may be possible over time. A second problem is that there may be cheaper inducements. (Every so often "Plan B" is to raise prices in a slowing market, a choice which likely makes little sense.)

But if lowering prices is not always an appropriate strategy in a slow market then what other choices are available?

This is the point where owners need to consider the marketplace from a buyer's perspective. What will make a home attractive to purchasers beyond whatever it is that's usual and expected in the local marketplace?

One answer, of course, is money. Not just money in the form of a lower price, but money used creatively.

For instance, the biggest barrier to ownership faced by many buyers is the simple matter of cash, or the lack thereof. Such purchasers can afford monthly payments but they lack significant savings for down payments or closing costs. The solution here is the use of a "seller contribution" to make up for borrower short-falls, essentially a reduction in the sale price that comes in the form of a credit to the buyer at closing.

Seller contributions can be any size, but generally no more than 3 percent, 6 percent or sometimes even 9 percent of the sale price, depending on lender guidelines. As an owner you want to offer as little as possible, but whatever you offer will reduce and perhaps eliminate buyer closing expenses -- the cash barrier that many purchasers cannot otherwise cross.

Sometimes seller dollars are better spent in the form of specific inducements to entice buyers. For instance, maybe you want to pay for HOA and lawn mowing fees for a year or two. (I use such benefits to lease property. If someone rents a single-family home and the HOA and lawn mowing are taken care of, it means the property can easily compete with condos and townhouses.)

The idea of specific inducements can be used in other ways. For instance, sellers can "buy down" the purchaser's mortgage -- this is, by having the seller pay money up front to a lender the buyer can get a lower mortgage rate and thus a smaller monthly cost. Buy downs can be for just a few years, enough time to get the purchaser into the property without sellers spending excess dollars.

Sometimes at closing you can find seller money set aside in an escrow account to assure that certain costs will be paid. For instance, a seller might place $3,000 in an account for roof repairs. The attraction of escrow accounts is that when used properly they limit seller costs to the amount set aside while assuring buyers that the money will be there for certain purposes. If not all of the money is needed for a specific purpose, or if the money is not spent by a given date -- the account can be set up so that the excess is returned to a seller.

Another idea that might have particular appeal concerns energy. Why not offer to pay the first $5,000 in heating and air conditioning costs? The use of a specific number represents the maximum sum available from a seller.

Lastly, there's always the "big item" fall back. Buy the house, get a sports car. Or, buy the house and get 1,000 gallons of gasoline.

Of course, you can always let the buyer pick an item. If someone greatly prefers the use of a villa in Tuscany, then there's a potential attraction beyond mere bricks and mortar -- buy now and we'll rent a place for you in the rolling hills outside Pienza ... . The good news about renting a villa, buying gas or providing lawn care is that each option likely to be far cheaper than lowering the price of a home.

For more articles by Peter G. Miller, please press here.

Published: March 20, 2007

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