Hard-to-sell homes: Inducements can help

Red home for sale sign on lawn

If you're trying to sell a home, you just might have to offer some inducements to sweeten the deal in order to close the sale.

Just remember that some inducements you might be considering such as certain types of cash-back deals may be illegal. Before we look at what you can offer, here are two things you can't do:

Illegal deal 1. Inflate the price. Give the buyer a check.

There are three parties in most deals: the buyer, the seller and the lender. The lender is usually the one who brings the most cash to the table and, as a result, is the one taking the biggest risk. That's why lenders scrutinize credit reports and want to know all the financial arrangements. People run into trouble when they construct a deal that leaves the lender out of the loop.

One of the most common of the illegal deals is to have the seller inflate the price of the property and then slip some of the money back to the buyer at closing.

At first glance, this looks like a win-win situation for everyone. The real estate agent gets a bigger commission because the sale price is higher. The lender makes a bigger loan, which will generate more interest over the life of the loan and, at times, the loan officer will get a bigger commission. The buyer gets money back at the closing, and the seller has sold the house.

The problem is that it's illegal to inflate property values like that and such a scheme is often part of the most popular type of mortgage fraud.

Criminals borrow more than homes are worth, make off with the extra cash they get from cooperative sellers and immediately default on the loan.

The bank is left holding a house that's worth less than the amount of the mortgage.

Anyone who sells a property for more than it's worth and hands the excess amount over to a buyer at closing -- or shortly thereafter -- can be charged with conspiracy or as an accessory to a crime.

You don't want that to be you.

Illegal deal 2. Contribute to the down payment.

Another common and illegal ploy is for the seller to provide some or all of the down payment money to the buyer without letting the lender in on the deal.

Lenders know that the higher the down payment the less likely a buyer is to default on a loan. That's because the buyers have more of their own money invested in the property and therefore will work harder to keep it.

So when the seller underwrites the down payment, the buyers have less of their own money in it and are at least statistically more likely to default.

To figure out if something is legal, ask yourself this question: Do both the buyer and the lender know what you are doing? If the answer is yes, you are probably on safe ground.

Once you are on safe ground there are numerous ways to make your home more enticing.

The one or ones you choose will depend upon your answer to the following questions: How badly do you want or need to sell the house? How generous can you afford to be?

Put yourself in the buyer's shoes and ask yourself what "you" would like to see that would convince "you" to close the deal.

Here are some suggestions:

Inducement 1. Provide a home warranty.

Offer to buy an insurance policy that covers one year of repairs to the roof, the heating and cooling systems, and any major appliances.

These warranties typically cost several hundred dollars, but they can ease your buyers' minds by ensuring they won't have to spend a bunch of money on repairs after putting out thousands of dollars just to buy the house.

Ask your real estate agent or Google "home warranties" to find insurers in your area.

Inducement 2. Pay for some closing costs.

You might think that lowering the price of the house will answer all the objections. But for many buyers it's not the price that's the problem; it's coming up with the cash they need for a down payment and closing costs.

One way to reduce the buyer's out-of-pocket expense is to pay part -- or even all -- of the closing costs, which typically run 3% to 6% of the purchase price. A good way to start is by offering to pay for specific services, such as an appraisal, the inspection and/or title company fees.

Just be sure to ask you real estate agent how much each of those fees will cost so you know how much you'll be out before you make such an offer.

Inducement 3. Offer an allowance for repairs or upgrades.

Let's say your house needs new carpeting. You negotiate how much of that you are willing to pay for in the form of an allowance that is deducted from the purchase price.

On a $250,000 home, for example, you might agree to a $6,000 carpeting allowance that reduces the price to $244,000. You could do the same with painting, money toward the cost of a new roof, or even landscaping.

What's the difference between lowering the price $6,000 and offering a $6,000 allowance? The buyer normally feels better about getting an allowance. It's a special offer that makes both the deal and the house more attractive.

Inducement 4. Finance part of the purchase yourself.

Offering the buyers a second mortgage to help them qualify for a primary mortgage makes you the seller and also one of the lenders. Before you do, however, get financial advice from a tax specialist and a real estate attorney. Make sure you know what you are getting into, and what your rights are.