HOME BUYERS READING THIS ARTICLE: STOP. Think about this for just a minute. A home builder or for that matter any corporation, is not going to give you those concessions (closing costs or extra fancy upgrades) out of the goodness of their heart. What any corporation does is the corporation increases your price.
Whether you are buying a car, or a home the concept is the same… And builders do this too, for a very good reason. Builders must compete with each other’s new construction plats and older, existing homes. To get you to emotionally connect with their product, they offer something: 3 percent of the sales price for you to spend on closing costs, for example.
So here’s how it’s done:
The cost of the home has been raised by…how much would you guess?
Is your guess 3%? You are smart. But the builders are smarter. Here’s why: When that transaction closes, in the next few months, appraisers are going to use YOUR sold home as a future sales comparison in their appraisals. Now appraisers are supposed to check to see if there were any sales concessions in closed comps. Some appraisers check the multiple listing service which may or may not have that field in their software. Some appraisers call the builder’s real estate agent to check on pricing concessions but there is no rule that requires that Realtor to return the appraiser’s calls. So, sometimes the appraiser knows and sometimes he/she does not know about the slightly increased sales price. So the 3 percent higher sales prices not only support future sales, they support future sales at a value that is 3 percent higher than today’s sale. And the next future new construction sale is also 3 percent higher than yours. Builders love this because it helps sell more homes! At a higher price! So you end up financing more because your realtor and or the builder did not have YOUR best interest in mind. Ok, here is the ounce of prevention – don’t think with your heart, reason it out with your mind. Is it financially wise to finance, over the life of the loan, your closing costs or upgrades in the form of an increased purchase price? What you may want to consider
– Make the offer for an amount MINUS whatever the builder/ seller is
offering. So if the list price is $350,000 and the builder is offering 3% (10,500) but the buyer must
use the builder’s preferred lender, then the offer will be $339,500 with the home buyer using the home buyer’s preferred lender.
ABBA First Mortgage works closely with your realtors to ensure your purchase agreement is written with your finances and interest in mind.
Because it is not the Realtor’s job to advise and educate on matters relating to the loan. The Realtor will never go this far (OR SHOULD NOT GO THAT FAR) and it can be argued that it is unethical for realtors to advise in areas beyond the Realtor’s expertise. So by default, the education and comparison math must be done by the LO in advance.
When you find yourself in this situation trust your independent Loan Officer to be looking out for you. We don’t have a vested interest in any other company. We are invested in you!
Please note that italics are inserted by Maureen Biagini of ABBA First Mortgage, Inc.*.