It was one of the first signs of a weakening housing market. Builders desperate to move increased inventory started offering incentives in hopes of enticing buyers to their developments.
These incentives ranged from the standard closing costs and free upgrades to the more elaborate offers of pools, boats, cars, motorcycles and even cash back rebates.
In the face of a tightening credit market homebuilders soon came to realize that just getting a buyer financed was the major hurdle. What good are granite counter tops or a new Harley Davidson if the buyer can’t even obtain a home mortgage loan?
Now enters the latest form of builder concessions – the offer to seller finance the property for the buyer.
In Chicago Illinois a builder is offering seller financing on their 20-unit Fletcher Row townhouse development where units range from $499,900 to $749,900. Owner financing is available with 10% down and rates as low as 4.99%. (Source: Chicago Tribune Article, May 29, 2009)
Just head south to sunny Florida to locate seller financing on the luxury Intracoastal Waterway condos offered by Commercial Alliance Group (CAG). The company launched its owner financing program in direct response to the bank liquidity crisis.
“In spite of the low interest rates, real estate purchasers continue to have difficulty obtaining bank mortgage financing. CAG is providing mortgage loans to its purchasers without complicated and painful underwriting processes,” said CAG Vice President Scott Colon. (Source: Business Wire, January 9, 2009)
In fact their seller financing program is just one of several incentives available. You can also obtain over half off a variety of boats to keep at your personal onsite marina slip.
Long a staple of hard to finance properties, the installment sale is increasingly being offered on more mainstream properties.
Owner financing allows the buyer to make payments to the seller over time for the purchase of property rather than obtaining a traditional bank loan. This creative financing alternative is helping owners get properties sold during the credit crisis, even when banks say no.
Builders are generally designated as “Dealers” by the Internal Revenue Service (IRS). Dealers are disqualified from the tax incentives of Installment Sales (deferring the capital gains taxes by accepting installment payments on the sale of the property). A dealer must pay the entire tax at the time of sale, regardless of whether it is a cash sale or an installment sale.
I think it is time to abolish dealer status to allow seller financing and deferral of tax on capital gains until the gain is actually received by the seller. That would allow the builders to recover quickly from the mortgage meltdown and get the real estate market back on its feet.
These are a great time to buy. Builder incentives plus great financing rates! Couple this with the federal government tax rebate for home buyers and an agent that will participate in an agent rebate and you can save thousands.
There are several information resources out there on these, http://www.homebuyersrebatemls.com is one of them that has national coverage.
It’s a great opportunity right now for buyers as prices are low, financing is the best we’ll probably ever see and the grants and rebates are high!