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Carpet Allowances, Gift Certificates, and a New Lexus – Incentives to Buy Tucson Real Estate

June 18, 2007 | By Kelley Koehler | Filed Under Home Buying 

I’ve been working with a couple of different buyers the past few days, in a variety of price ranges: from $160,000 all the way to $1,500,000.  While the houses vary greatly from one end of that price range to the other, there is one common thread: incentives.

I’m not talking about new home sale incentives, although there are some fabulous ones around right now.  I’m talking resale real estate in Tucson.

My favorite incentive I saw this weekend was that the Seller would give a Buyer a new Lexus if they bought the house and closed before the end of July.  Then there was one incentive for a $10,000 gift certificate to a high-end electronics store, that would be given to a Buyer outside of escrow.  (I’m a little concerned about the “outside of escrow” clause – starts to sound a little like loan fraud, doesn’t it?)

More commonly, I see something like this: “Seller will give Buyer a $2500 carpet allowance at close of escrow” (sometimes followed by the clause “with a full price offer”).

So how does that work, exactly?  Couple ways. 

First, understand that you are not going to walk away from the table with $2500 in your pocket to go shop for carpet.  Your lender would not like that, no sir.

Instead, that money usually becomes a credit towards your closing costs.  That is, if you are paying $3000 in closing costs, and the Seller gives you a $2500 credit, you only need to come to the signing table with $500.  This means you have to find the money yourself to go pay the carpet people.  The credit is money that you normally would have had to pay, but didn’t – which means you now have to cough up that money to go pay the carpet guys.

A second option is to select your carpet, get an invoice from the flooring company to have the carpet replaced, and then have that invoice paid out of escrow from the Seller’s proceeds.  Sometimes, those proceeds are held back in a different escrow account.  Because the carpet replacement may not actually be done until the Buyer owns the house, the second escrow account holds the money in reserve until the work is actually complete, and then pays the flooring guys.  This is not a favored option by many Sellers, because Escrow typically wants to hold back 1.5 times the amount of the invoice, to cover any unexpected costs, and there is a small charge incurred to both the Buyer and Seller to create and maintain the second escrow account.

Of course, it all depends on the language used to create the carpet allowance, and on the agreement reached between a Buyer and Seller.  It’s also important to keep your lender in the loop when discussing closing costs credits to ensure that the given credits don’t exceed the maximum allowed for your loan program, and to ensure that any potential overage from your earnest money will be refunded to you.

Happy home shopping!  There’s some crazy real estate incentives out there – enjoy!

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