Do marketing programs that offer buyers discounts be available to them by negotiation anyway, really attract buyers?

Asked by Daniel Seigel, Pittsburgh, PA Tue May 4, 2010

I always thought people would treat it like a car dealer that offers $8,000 for any trade-in. You could have gotten $6,000 off the price of the car and $2,000 for the trade or $8,000 for the trade and nothing off the car. People seem to understand that. I see programs like this all the time from various brokerages that "seem" to offer a special deal to a client but in reality, just move money from the seller to the "special" program. It would be like offering a program where agents from a particular brokerage offer "free" home warranties to buyers on specially marked listings. Yeah, those listings where the owner has agreed to pay for the home warranty - same as every other brokerage.

Is this just smart marketing? Or as a consumer do you feel that you are being mislead?

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Dan Chase’s answer
Dan Chase, Home Buyer, Texas City, TX
Sat May 8, 2010
The seller will offer $8k back at closing.

(buyer)Can I get the best deal possible? (realtor) Yes!
(buyer)Can I get the best deal possible and still get another $8k? (realtor) No.
(buyer)Why not? (realtor) Because the seller is really going to have a bottom line. If you get to that bottom line offer they will not take another $8k off the price.


(buyer) I guess I just need to negotiate and not think about getting a rebate from a seller. How about having the brokerages and realtors give back part of their commission instead so the seller can give me the bottom line price and I still get my $8k back? (realtor) NO WAY!!! We deserve every penny of our commissions! No way we want to just give up out commissions that way.

(end of conversation)
1 vote
, ,
Tue May 4, 2010
Hello Daniel,

If my girlfriend went to the store and spent $500 she would tell me that she saved $80. Personally I see it as spending $500. So some people will view exactly the same situation completely differently. I know that when I shopped for my mortgage I thought I researched everythiong so skilfully. I later went to work for the guy that did my refinance and found out that I really didn't know anything at all.
I understand that the car has a certain minimum price where the salesman makes $200. He is trying hard to make more than that and offering a $8000 trade in is one of tyhe ploys to make you think that you are working the deal in your favoir and being a savvy shopper.
The difference with the buyer discounts is that people do not understand mortgages at all. They do not know of 321 buydowns or how points can help buy down the rate so when a seller of a home brings this "new" twist to the deal, it gives incentive to the potential buyer. If the wife wants the house but the husband is complaining about the price ( or vice versa) the discount can be the value that the spouse is looking for. It can provide that lower rate that now fits the budget. I think it is more effective than other discounts because you are also making the buyer aware of a product that could benefit them. At the end of the day they are really paying for it but the benefit to them may be a deal maker not a deal breaker.

Alan Openshaw
Cornerstone Lending Inc
215 674 9059
1 vote
Benny Smith, Agent, Pittsburgh, PA
Wed Jul 28, 2010
Yes you are right on target. I looks like some of the same CEO types, that got our banks in trouble are pushing these cheeeeezy nation wide used car style campaigns. I feel our profession as realtors is hurt by these offers by sending another bad message to the consumer. After explaining how this worked to a professional couple recently. They recommended I avoid all of that brokers listings. And we did. They are happy in their home listed by an other firm with good honest advertising.
0 votes
Jeri Creson, Agent, Studio City, CA
Fri May 14, 2010
Any non agents...non real estate pros who would like to weigh in on this? As an agent, I'd like to know what the consumer thinks of these "tactics". Sometimes one wonders..."is the public really that susceptible to bait and switch, or sleight of hand? - and if people really do feel insulted by such things, why do businesses keep using these tactics?"

Maybe because it works...but isn't it kind of icky?

0 votes
Barbara Q., , Bergen County, NJ
Fri May 14, 2010
Alan - You are SOOOOO Right. People do not understand mortgages at all.
Do you think.... that maybe the more savvy Realtors should understand that most Buyers are better off taking a reduction in interest rate rather than a reduction in price?
Thank you for explaining that Buyers are NOT One Price Fits All!
0 votes
Gita Bantwal, Agent, Jamison, PA
Sun May 9, 2010
Agents should not mislead the public but there are agents who offer a home warranty to their buyers or to the seller. They use the incentive to get the listing or to give buyer peace of mind. A good buyer's agent can ofcourse negotiate so that the buyer can get this from the seller.
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0 votes
Keith Manson-…, , Milwaukee, WI
Sat May 8, 2010
I guess to me the money is on the table and if a reasonable offer is received those funds would be provided. However, if a buyer wants to increase the amount or decrease the bid on the property then we are negotiating. But if your the lister, you are working for the seller and the goal is to get activity on the listing and hopefully an accept offer. If the incentives got the people to look at the property, you did the right thing for your client! I rarher have someone trying to market my property than sitting on their hands.

Keith Manson
First Weber Group
Certified Distressed PRoperty Expert
Metro Milwaukee
0 votes
Daniel Seigel, Agent, Pittsburgh, PA
Sat May 8, 2010
I think you misunderstood my question. I realize that there may be buyers who are better served with a different financing option rather than merely a lower price or closing cost assistance. My question is this: If a seller is going to offer something to the buyer, say seller assist, or even a home warranty and the brokerage chooses to advertise that as a special bonus plan for listings of that brokerage only, isn't that misleading the consumers in to thinking that these discounts aren't available to everyone regardless of broker as long as their agent knows how to negotiate them in to the deal?
0 votes
Barbara Q., , Bergen County, NJ
Sat May 8, 2010
Daniel - The Consumer is not being mislead. He/she is being offered options.
You expand your pool of potential Buyers.
With a 2% Seller concession a Buyer can choose to :
simply reduce the price by that amount
Use the money toward closing costs
Use the money toward discount points for a permanent interest rate buydown
Use the money toward discount points for a 2-1 temporary buydown.
Use the money toward a combination of any of the above.

It seems that most Realtors and consumers do not understand that those who opt to use the money for a Buydown are financially better off than those who opt to take a standard price reduction.

Quick example: You offer to pay $300,000 for a house that's listed at $310,000 and you take a 5% 30 year fixed rate loan. You would pay: $521,790 over the life of the loan. ($1,448.5/montth)

I offer to pay $306,000 for the same house and the Seller pays 2 points to buydown my rate to 4.5% for a 30 year fixed loan. I pay $502,344 for that same house. ($1,395.42/month)

Then if you have a third buyer who plans to stay in the property for only 3 - 5 years. He may opt to pay $306,000 and have the Seller Fund a 2-1 Temporary Buydown. This way he takes the $6,000 savings in the first two years of homeownership and makes a payment of $1,161/month the first year and $1,314/month the second year and then $1,478 for the remainder of the time he keeps the loan.

Buyers are NOT one price fits all ...some are cash-constrained, some anticipate an increase in earnings in the next 2 - 3 years and others want to gradually ease into homeownership...and for some payment speaks louder than price.
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0 votes
Mack McCoy, Agent, Seattle, WA
Tue May 4, 2010
A little bit of both, don't you think?
0 votes
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