Clear Incentives Can Make Home Values Fuzzy

By Dream Town · April 27, 2007 · Market News

We’ve seen the trend for a while now: lots of inventory on the market and sellers offering incentives to attract buyers. Upgrades included, free flat-screen TV, a car, help with financing, cash… Listing prices may be slightly lower, but they aren’t dropping much – so when incentives are taken into consideration, what is really happening to home values?

Say a house is listed for $500,000. Instead of lowering the price, the seller offers incentives worth $10,000. From an appraiser’s point of view that property is worth $490,000 now. However, the lending company is still going off the purchase price, which means the mortgage is for a $500,000 home.

Situations like these are making it trickier for appraisers to assess the value of homes. It has also become more difficult to properly list a home based on comparable sale prices in the same area.

During slow market times, incentives are common practice. As a buyer, the ball is in your court – so to speak. However, it is important to understand how these tempting “deal-sweeteners” can affect the actual value of a new home.