How Incentives Mask True Sales Prices

by Phil Hoover, Real Estate Broker

Seller-paid incentives for buyers and buyer agents are masking the actual sales prices in our current market slowdown.

You might think that reported closed sales in MLS provide an accurate picture of values.

A closer look, though, reveals that the numbers are being fudged with often-huge incentives for both buyers and buyer agents.

Here’s an example:

Let’s say you want to sell your home, and your neighbor Bob tells you he just sold his home (just like yours) for $450,000.

Your listing agent checks the comps in MLS and confirms that Bob’s home did indeed sell for $450,000.

Now, we both know that your home is way superior to Bob’s because you have beige toilets and Bob’s were that ghostly white, right?

You are feeling really, really smug about now because you know that your home is worth at least $460,000 (because people prefer beige toilets).

Well, it may not be that simple and here’s why:

Your neighbor Bob, after concluding that he was as lonely as the Maytag repairman and not getting any showings, offered to pay a $10,000 bonus commission, in addition to a regular selling commission, to buyer agents.

Further, Bob also agreed to pay $5,000 of the buyer’s closing costs in order to make the deal work.

So, did Bob’s home really sell for $450,000?

Perhaps on paper, but those who know the real story know it sold for the equivalent of $435,000.

And, if you think no one will ever know, you’re mistaken because appraisers routinely call Realtors^® and ask if the seller granted any concessions to the buyer, and also if any bonus commissions were paid.

Then, they adjust their comparables accordingly.

The bottom line?

Even if you are lucky enough to get the same $450,000 price as Bob, your home may not appraise after the appraiser nets out the concessions paid by your neighbor.