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| Should I Offer a Seller Cash Incentive?
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"Should I offer a seller cash incentive, and if so, how much?" When it comes time to place your ad, this is an important question to answer. A seller cash incentive can be a powerful tool for improving your chances for a successful lease assumption, so learning to use it wisely is an important step.
What is a Seller Cash Incentive?
A seller cash incentive is a small cash payment from a seller to a buyer for assuming his or her lease. This is used to incent buyers to assume the lease by "sweetening the deal" as well as can be used to offset and correct any deficiencies (over mileage, damage, a high monthly lease payment, etc.) that may exist as part of your offering.
As an Incentive - Sweetening the Deal
Every lease assumption buyer is looking for a good and "fair" deal. A seller cash incentive helps to "sweeten the deal" and makes the lease more attractive for potential lease buyers. Cash incentives tend to speed up the time it takes to get your vehicle assumed successfully and is especially important for very 'motivated' sellers.
By offering a Seller Cash Incentive, you are essentially helping to offset the cost of the remaining monthly payments, reducing the "effective" lease payment for the lease buyer. To use an example, if the seller has a $300 dollar per month lease payment with 10 months remaining on the lease, if a $300 dollar seller cash incentive is offered, the effective lease payment drops to $270 dollars per month ($300 incentive / 10 mos. =$30 savings per month). Since this helps offset the cost of the lease, it makes it more attractive to a buyer.
As an Offset - Correcting a Deficiency
One of the more difficult parts of having a lease assumed is when you may be over your pro-rata miles (usually 1,000 miles per month), have higher monthly payments (from an uncompetitive lease or a previous lease roll-in), or possible vehicle damage beyond wear and tear. If these deficiencies are resident in your offering, there is a solution! The seller cash incentive is a great mechanism for offsetting these deficiencies. For example, if you are over your pro-rata miles, you can offer an incentive to counter-act this. Let's say you have a 36 month lease and are allowed 36,000 miles as part of the lease. If in your 12th month you have 14,000 miles, you are over your pro-rata mileage by 2,000 miles (14,000 miles - (1,000 mi/mo. x 12) = 2,000 miles). Since a "fair" lease offering has 1,000 miles per month remaining on a lease, you can offset the mileage overage by prepaying the 'yet to be realized' potential mileage penalty. If the lease buyer was to drive 1,000 miles per month for the remainder of the lease, they would be over the contract limit by 2,000 miles. If the mileage penalty is $0.10 per mile, you could offer a $200 cash incentive to offset this deficiency (2,000 miles x $0.10 = $200) and essentially neutralize it for the buyer. If you have damage beyond 'wear and tear' or a non-competitive lease payment, a seller cash incentive can bring the lease back into line with other "fair" offerings.
How Much? - The Cash Incentive Rule of Thumb
If everything in your lease offering is "fair", the general rule of thumb is to include a cash incentive equal to 1 monthly lease payment. So if you're monthly lease payment is $300, then you would offer a $300 dollar cash incentive. To the buyer, you are lowering the "effective" lease payment and incenting the vehicle to be assumed more quickly. In addition, by offering a cash incentive, you are offering a bargaining chip to begin the dialog with possible buyers. That is always a good thing!
If You're a Motivated Seller
If you are an extremely motivated seller, offer the largest cash incentive possible. When you look at the math, getting out quickly by offering a larger cash incentive makes a lot of sense. To illustrate this, suppose you have a $300 monthly lease payment with 10 months remaining. If you keep the car for the remaining duration of the lease, you will be paying $3,000 dollars ($300/mo x 10 mos =$3,000) and saving $0. If you were to offer a $600 dollar cash incentive (2 lease payments) and have the vehicle assumed within a week, you would pay $600 and save approximately $2,400 dollars. If you didn't offer an incentive, and it were to take 3 months to have your lease assumed, you would pay $900 dollars ($300/mo x 3 mos.) and save only $2,100 dollars ($3,000 - ($300/mo x 3 mos) = $2,100). The bottom line is that you want to have your vehicle assumed quickly so that you don't have to continue paying lease payments. Offering a larger incentive to quicken the assumption process can end up saving you a significant sums.
In Summary
Offering a seller cash incentive is a good idea and offers many benefits to the seller and buyer. We recommend that sellers include one with their ad.
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