Seller Incentives Throw Off True Home Prices

As you think about a Florida mortgage loan and a new house, it’s natural to do a market comparison. What do other properties in the area in which you have interest go for? What were they recent sales prices?

Unfortunately, demands for cash back at settlement are growing more frequent and may be masking this true figure. If a seller or broker provides the incentive of cash to a buyer, it’s hard to say what the final, agreed upon price was.

Of course, giving cash back without telling the lender creates legal liabilities for the Florida mortgage broker. It behooves real estate professionals to avoid being in the middle of that situation.

”Because the market is changing right now, I think people are trying to be a little bit more creative,’’ says Jose Palma of Prudential California Realty. ‘We tell our [associates], ‘There’s a black area and a gray area.’ I tell them to stay away from the gray area.”

In some cases, properties are reappraised at higher values and the difference between the reappraised value and the asking price is given to buyers without the lender knowing about the deal.

Economists say these practices could be inflating reports of average selling prices, potentially causing harm to banks, which could take a hit if the Florida mortgage holder defaults and the home turns out to be worth less than the appraised value. The practices also could affect buyers of neighboring homes, who may be making decisions based on faulty market value.

When these practices occur, ”then the reported prices are an overstatement of the true net selling price,” says Lawrence White, deputy chairman of the economics department at the Stern School of Business at New York University. “So that very likely means that the real drop in home prices is greater than what the standard sources … have been reporting.”

The lesson for buyers? Be careful. Ask questions. Complete our FREE form atop this page and gain a greater understanding of market details.