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Will new home developers start acting like car dealers trying to move the lemons off the lot? Real estate does not have the best reputation as it is, but with developers having a bunch of excess inventory and sales being slow, will the tricks of the trade that Detroit uses to move new cars filter into the real estate world?

According to Christopher Pameri of Business Week, they already are but in cash back subsidies or upgrades to the home. Cash back is averaging $9,700 on a $470,000 home and the amount of upgrades are unknown. While this maintains the price of homes in the community it also creates an interesting twist for buyers and sellers.

The typical negotiation is above the table in most parts of the country. I grew up on Long Island which had a long history of cash flowing under the table but in my experience this is a localized situation. But if all buyers start to expect something on the back end of a deal, either an upgrade, cash, or special consideration, it will make the negotiations and good faith in the transaction much more difficult. And in the long run it will add to the bad reputation that real estate agents must fight.

To be seen as a professional you must do your best to keep all of your dealings above board and legitimante. If real estate nationally turns into a collection of dealings that have a shady tinge to them, the agents are going to be the ones that suffer the most.

Subsidies aren’t new. But the latest surge, fueled by the huge run in prices in recent years, may have legs. Given all the equity that sellers have built up—some $10.9 trillion, according to the Federal Reserve, vs. $7.8 trillion in 2002—they usually don’t mind forking over some of their gains to get the deal done. Buyers often find a subsidy more appealing than a lower price, since it means they don’t have to put up as much cash. “Part of it’s psychological, but part of it is financial,” says Fowler.
The most aggressive deals may be downright fraudulent. Lenders scrutinize transactions to make sure any cash subsidies go toward legitimate home expenses and aren’t a way for the buyer to avoid a required down payment. Generally, if the incentives top 6% of the purchase price, it’s a red flag. via Business Week

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