Subsidies and incentives that get a sale closed are increasingly popular in both the new and the existing home market — so popular that some economists are concerned that they are skewing the home price data.
There are no national numbers available, but in the Washington, D.C., area deals with some form of seller subsidy jumped from 35 percent to 58 percent in two years, according to Lisa Fowler, a researcher at George Mason University's Center for Regional Analysis. The average home sold there for $470,000 in April, with a subsidy of $9,700.
Fowler found that prices in Washington, D.C., fell by 0.2 percent over the past year if incentives were included, compared with a 0.7 percent rise if they weren't.
Lenders are also concerned that the most aggressive deals could be fraudulent. "These days you cannot get into a home unless you're putting some money down, at least 10 percent for those with less-than-stellar credit," says Frank McKenna, chief fraud strategist at BasePoint Analytics, which analyzes mortgage data. "If borrowers are subverting that by getting cash back from sellers, that's when lenders consider it a misrepresentation, or fraud."
Source: BusinessWeek Online, Christopher Palmeri (05/10/07)
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