by Thomas Harding

The sub-prime market is in a major crisis. This esoteric part of the financial market is making headlines. Large corporations are teetering on the edge of oblivion as banks themselves find it hard to secure the money they need to lend to their customers. Of course, if the Federal  Reserve cuts interest rates this month, this will make the credit market better.

But all this you already know.

This you probably don’t know though. There is now another problem. And perhaps, this is the most intractable. Buyer nerves. Yup, you heard it here first. Buyers are losing their nerve when it comes to purchasing real estate.  In talking to local realtors, it seems that buyers are anxious that, if they do buy a house, it will lose value in the coming months. 

Two things to say here. First, prices have not actually fallen significantly in Jefferson County. However, lenders are putting increasing pressure on appraisers when it comes to valuing homes. Often appraisal reports are now reviewed by an independent party for the lender, whereas in the past they would sail through with little more than a bonus-intoxicated glance. Either way, some buyers are under the impression that prices may fall in the future, even if they haven’t done so already.

Second, buyers can purchase today AND protect themselves against possible price decreases in the future. Let’s call it price hedging. There are a couple of strategies for dealing with buyer nerves. The first is the classic lease-purchase agreements. These contracts, also known as rent-to-buy or option-to-buy contracts, are becoming more common in this market. Lease-purchase contracts allow a buyer to rent a home for a defined period of time, with an option to purchase the property at some certain date with all or a portion of the rental payments contributing to the purchase price. Sounds good, right? It allows a seller to make some money rather than let a home sit on the market without being sold. It also gives some security to the buyers, who have lost their nerves and worry about price declines.

The main problem with both these agreements is that one of the parties typically feels they are not adequately protected and may well become disappointed by the outcome. The core problem is that the two parties have not had a true meeting of the minds. Large issues remain unresolved, which is not so good for the nerves of either buyer or seller.

Here’s a more creative strategy for dealing with buyer nerves. I’m going to call it the bait and snitch. Here’s how it could work. Say you want to buy a home for $200,000. At closing, 10 percent (or whatever number is agreed between the parties) is put into an escrow account, the “bait.” This amount is released to the seller only if the home appraises for full sale price 12 months (or whatever time frame is agreed) from closing. If the home does not appraise—the “snitch”—then all or a portion of the escrowed amount is disbursed back to the buyer. With this strategy, the buyer has their nerve reinstated and hey, presto, a home can be sold! This strategy may well depend on the creative inclinations of a lender, so check with them before proceeding along this route.

Of course—here comes the disclaimer—as with any advice in this column which verges on the creative-though-insanely-insightful, you should consult a lawyer before making any type of transaction.

That being said, whatever cunning strategies you employ as a seller, remember it mostly comes down to setting an attractive price and ensuring the property sparkles.

For buyers, there are many valuable opportunities in the market to purchase and invest. So set your sights on a target and keep your powder dry. It’s a veritable turkey shoot out there.