Contrary to all of the media hype about plight of today's national real estate market, thanks in large part to the first-time homebuyer, the spring and summer 2008 Maryland real estate market has been thriving. However, with that good news comes some issues that both sellers and buyers should understand.
The issues plaguing the mortgage industry are playing a large part in the offers that buyers are presenting. Loans in the amount of 100% of the purchase price of a home are virtually non-existent today, and most loan products are now requiring at least a 3% down payment. That amount of money in addition to funds needed for closing costs have made it very difficult for many buyers to purchase their first homes.
Thankfully, there are resources available to assist buyers in obtaining the funds they need in order to purchase a home such as AmeriDream, the Genesis Foundation, and the Nehemiah Program. These "gifting" programs allow a seller to contribute greater sums toward the buyer's down payment and/or closing costs than is typically allowed by lenders.
The issue for sellers is that the gift of additional funds is coming from you. Many buyers are asking sellers to contribute from 3% to 6% toward their closing costs and this can often mean that sellers are selling at a loss if they haven't built up enough equity in their homes.
Consider this scenario. A seller purchased a home for $175,000 in Baltimore County five years ago, paid approximately $7,000 in closing costs, and made modest improvements to the property costing approximately $3,000. So, the seller has about $185,000 invested in the home. The seller decides to move and lists the house for $200,000 making his estimated closing costs about $13,500 - so if he sells his house for the list price, he will net $186,500. The seller will make about $1,500. A buyer comes to the house, falls in love with it, and makes an offer of $200,000 but needs the seller to contribute 3% ($6,000) toward his closing costs. Instead of the seller profiting by $1,500, he is now selling for a loss of $4,500.
It is important for buyers to understand how seller subsidies affect the viability of their offers. Buyers should guestimate a seller's bottom line by looking at the Public Tax Record to see when the seller purchased the property and how much money he paid for it. Factor in what the seller's closing costs were when he purchased the home and the monies invested for improvements made to the property. Establish how much seller assistance you will need and subtract all of those figures from the purchase price to determine if your offer will make sense to the seller.
Sellers want to sell and buyers want to buy, but in order for a real estate transaction to be successful, it has to be a win-win situation for both parties.
Wishing you peace, love, and sunshine everyday!
Jeri
