Anyone selling a house into this bad market may have to sweeten the pot, in order to attract buyers.
Anyone buying a house is so rare a bird that he or she should be able to get some excellent terms.
Fixing up the house is the seller's cheapest option. Pat Matteson of Merrill Lynch Relocation Management says, "If there are 20 other homes like yours on the market, you should be sure that yours is the one in the best condition."
It's worth your while to repaint in a neutral color, repair the obvious defects and make price concessions if the boiler or the roof need replacing. You might also advertise that the curtains or some built-in furniture will be thrown in as part of the purchase price.
Energy efficiency is becoming a big issue with buyers. Investing in strom windows or better insulaton (for which there's a credit on your income tax return) may more than pay off in a quicker sale or higher price.
Some sellers offer real estate brokers a slightly higher commission if they move the house qucikly. In other cases, real estate brokers have been willing to reduce the commission if that will help to close the deal. Broker Irving Price, of Hudson Michael Realty in Hudson, N.Y., told my associate Dedra Hauser that some brokers have even lent their commision to the buyer for a year or two at low or no interest, in order to help buyers raise needed cash.
Everything finally boils down to money. Sellers are increasingly being drawn into special financing arrangements, to help buyers who otherwise couldn't come up with enough cash.
State law and local banking practices dictate the limits of creativity. But in general here are some of your options:
Delaying the closing. The buyer takes the house at today's price, but is given up to a year to arrange the rest of the financing. In the meantime, the buyer moves into the house and pays rent, which is counted as part or all of the down payment.
Assuming the mortgage. The buyer takes over the seller's lower-rate mortgage, paying cash (or cash plus a note) to cover the rest of the price. Where law permits, banks and savings and loans have generally refused to allow assumption of low-rate mortgages. But many lenders today are more lenient on this point, according to Mark Clark of the U.S. League of Savings Associations.
Lenders want to get low-rate mortgages off the books as fast as possible. In order to assist a sale, they may compromise on rate. For example, if the old mortgage is at 8 percent and current mortgage rates are 15 percent, the lender may allow the buyer to assume the old one at 12 percent. (A few states limit or prohibit rate increases when old mortgages are assumed.)
Getting a mortgage from the seller. Older sellers sometimes do this as an investment. The buyer makes a down payment and agrees to pay the rest in monthly installments, as if the mortgage were for 30 years. The interest rate is a little below what is currently available at banks. The agreement, however, provides that after five to 10 years, the entire balance of the mortgage falls due, at which point the buyer has to find other financing.
Getting a second mortgage from the seller. Instead of taking the full down payment in cash, the seller takes part of the down payment and a two- or three-year note for the rest. The note is secured, by a second mortgage on the house.
Getting a wraparound mortgage. These have become popular investments in California and a few other states where the laws allow them. Here's how they work: Assume that a buyer wants a $100,000 house, but has only $20,000 cash and can't afford an $80,000 mortgage at the prevailing 14 percent mortgage rate. The person selling the house has an old 8 percent mortgage with $40,000 left to run.
An investment group assumes the $40,000 mortgage and lends the buyer $80,000 at, say, 12 percent. The buyer pays the investors $823 a month. They pay the bank perhaps $365 a month and pocket the $458 difference. Sometimes the seller gives a wraparound himself.
These creative financing arrangements may not work with all lenders or in all states. They tie the seller to his old property and require a lot of written safeguards to protect his interests. If you want to experiment with these and other special arrangements, don't rely solely on a real estate broker to put the deal together. Pay a real estate lawyer to draw up a contract that minimizes your risks if the buyer defaults.