O'Conor Piper & Flynn Realtors is aggressively combating the soft housing market with a new buyer-financing strategy.
By offering a fixed-rate, 30-year mortgage with an interest rate 1 percent below the market rate, the Timonium-based real estate firm hopes to attract more buyers to the homes it lists.
The lower interest rate is financed by the seller, who pays 4.75 points, and the buyer, who must contribute 2.50 points toward the mortgage loan. A point equals 1 percent of the loan.
Loans for houses costing more than $187,450 are available through the promotion for 0.5 percent below the market rate, and FHA loans can be made at 0.5 percent below the prevailing government mortgage rate.
"It's essentially a bought-down rate, and any lender could do it," said Gail Bachman, assistant vice president of Mercantile Mortgage Corp., an affiliate of Mercantile Bankshares in Baltimore. "Market conditions are soft, and it's [the offer] an attempt to encourage sellers to become more realistic," Ms. Bachman said.
"This is not a normal market. It's a market that requires innovation," said Ramsey W. J. "Bill" Flynn, chief of operations for O'Conor, Piper & Flynn. He added that most sellers are paying some points already.
Mr. Flynn, who heads the marketing division for the real estate organization, pointed out that by lowering the market rate by 1 percent, buyers would save money on the cost of the loan and reduce their monthly payment, or could apply the monthly payment savings toward a more expensive house.
To illustrate the point, Mr. Flynn used the example of a customer who bought a house with a $90,000 convertable mortgage. With an interest rate that is 1% below the market rate, that customer would save about $65 on his monthly mortgage payments or save $2,500 on the total cost of the loan.
A point is 1% of the principal loan, and is paid in advance to the lender to reduce the amount of the total loan.
Mortgage Resources, the affiliated mortgage company of O'Conor, Piper & Flynn, will participate in the program through January, Mr. Flynn said. He mentioned that other area lenders could also participate in the program.
Buyers would not be absorbing significant tax losses by accepting a lower percentage rate, and therefore deducting less from their federal tax returns, Ms. Bachman said. "When a buyer sees that the seller will pay five points, it makes a buyer feel they are getting a deal. That gets people's attention."
"Realtors tell me they have willing buyers, but they [the buyers] keep reading that the market is softening. Buyers want to negotiate, but sellers are clinging to the hope that the price of their home will continue to appreciate as it would have a few years ago. Sellers don't expect to pay points," Ms. Bachman said.
Debi Meushaw, a real estate agent in O'Conor, Piper & Flynn'sTimonium office, said she recently signed up a customer for the program who is selling a four-bedroom house in the Spring Lake area of Timonium for $165,000.
"I think dropping the interest rate 1 percent will help buyers tremendously. It could be the difference between a town house and an individual home," Ms. Meushaw said.
In Carroll County, sellers have been very receptive to the idea, said Dottie Wells, sales manager of the O'Conor, Piper & Flynn Westminster sales office. "Customers understand that it provides something unique to make your house stand out. It's presented to sellers as a competitive edge.
"Right now there is the largest inventory of houses we've ever had. Sellers are willing to help in any way to get the house sold," Ms. Wells said.
"If we bring one buyer to the table, I'll be thrilled," Mr. Flynn said.