Something to Consider

It's frustrating when a seller is trying to sell their home yet there's little action. Sometimes reducing the price isn't the answer.



Check out the following article written by Jack Guttentag
from Boston.com website dated Aug 27, 2007

Typically, the first thing sellers think about doing to make their houses more marketable is reduce the price. Very often, that doesn't work, because the price is not the problem. If potential borrowers are cash-constrained or income-constrained, a price reduction provides very little help.

Here is an example. Jones has her house listed at $200,000, and lenders will lend 95 percent of that at 6.5 percent on a 30-year fixed-rate mortgage to a borrower with adequate income and good credit. The cash-constrained borrower, however, can't come up with the $14,000 in required cash, consisting of a $10,000 down payment plus (say) settlement costs of $4,000.

If Jones cuts the sale price by 7.5 percent, or $15,000, the cash required from the borrower drops from $14,000 to $12,950, or by a measly $1,050. (These and other numbers below can be found in a spreadsheet on my Web site). For this potential buyer, it makes far more sense for Jones to pay the $4,000 in settlement costs, which reduces required cash by $4,000.