Sunday, August 25, 2013

What's the Difference Between $4000 and $4000 in a Real Estate Transaction?

No, this isn't a trick question.  Like most questions and answers, it all depends on your Point of View.

If you are negotiating the purchase price of a home, there is a huge difference between $4000 to a seller and $4000 to a buyer.  Looking at the other person's situation might make a difference.  Lets take a look at the difference between $4000 in the selling price of a home from different perspectives:

As a seller: The difference is literally $4000.  That's $4000 less (or more) in your bank account at closing.  It can make the difference in your purchasing power for your next home (less of a down payment or part of your closing costs).  Perhaps you need the $4000 to replace the carpeting in the home you are hoping to buy.  On the other hand, you are selling for a reason...either you need a bigger (or smaller) house, you are relocating to a new area or whatever the reason.  Is $4000 worth putting your plans on hold?  Will this offer allow me to accomplish what I am trying to accomplish?  I've said it before and I'll say it again:  "Your first offer is generally your BEST offer."

As a buyer:  The difference is really minimal.  The $4000 in purchase price means an additional $140 in down payment (with an FHA 3.5% down loan) or $800 if you are putting 20% down.  Of course your payment is going to be higher because of the $4000 higher price, but how much higher?  If you are getting a 4.5% interest rate on your new loan, then your payment will be a whopping $16-$20/month higher..or to break it down to the ridiculous, about 75 cents per day or $5/week (One mocha each week).  If you are a typical buyer, you will stay in your home for 5-7 years.  Let's use 7 years on the outside.  At $20 month for 7 years, that comes out to $1680 difference.  Now $1680 is a lot of money, but how much will that $20/month really cost you in 5-7 years? Right now gas is about $4/gallon.  Five years ago it was closer to $3/gallon.  What will it be in five more years? Do you see where I am heading with this?  Your $20 today will NOT be the same as $20 in 5-7 years.

While I am never a proponent of overpaying on a home (or accepting less than market value if you are selling), I DO try to look at the long term effects of any negotiation rather than the immediate situation.  You should also consider if your dream home is worth an additional $20 per month to you.  How long did it take for you to find the home you are negotiating on?  How much longer will it take you to find another home just as good?

Whatever your thoughts or situation, I would like to caution against nit-picking over a relatively small amount on either side.  I can't tell you how many times I have had a customer miss out on a home over a few thousand dollars only to have them always compare other homes to "the one that got away".

Thursday, June 6, 2013

Hard to Find that Perfect Home?

So, you are searching for that perfect home and it doesn't seem to exist.  It is a common problem these days with today's real estate market.

In the past 3-4 years, if you were looking for that perfect home, it was easy to do. Sellers that wanted to sell (and could sell) would look at just about any offer that was even close to reasonable.  Times have changed.  The mortgage market with low interest rates and loosening lending standards came in to play at about the same time that the real estate market hit bottom.  Then came the investors with their large amounts of cash that grew tired of low returns on their stocks and mutual funds.  Some of those investors (lots of them actually) were real estate novices that started to overpay for homes.

Then the news reports showed everyone how wonderfully the economy was growing and unemployment rates were dropping.  Now everyone was certain it was safe to enter the real estate market to finally find that perfect home.

Here we are with low inventory, novice speculators and huge investment funds with lots of cash are buying up just about everything in sight.

What is the traditional consumer to do in the search for their part of the American Dream?  I have some simple advice if you want to get into a home in today's market.  You may not get your perfect home right away, but I can guide you on your first step.

1. Compromise:  A philosophy that I share with customers is:
Condition, Location or Price. Pick Any Two.

 Condition: Condition may consist of the physical condition of a particular home, the amenities that it has, the level of updating that has been done or even layout or size of the rooms.  Remember that just about anything in a home can be changed and made into what your perfect home would be given enough time, effort or money.  Of course, the loan program (and amount of down payment) that you are utilizing to purchase the home may have something to do with your ability to purchase a particular home.  You might want a fixer (to you, a fixer is paint and carpet), but a lot of government insured loan programs will not allow you to purchase a home with peeling paint.  Believe it or not, if the carpet in a home has been pulled out due to stains or smell and the floor is bare plywood, FHA and VA programs will not allow you to purchase a home that is not "finished".

Location: Your perfect home may be within walking distance to a particular park.  The problem is, everyone else wants to be close to the same park.  You may want to consider a different park or perhaps a short drive instead of a short walk.  Location is the only thing that cannot be changed in a house, so if the Greenlake area is the ONLY place you are willing to be, then compromise in condition or price is where you will have to compromise in your search for that perfect home.

Price: I know, you are only wanting to spend $500,000 to be in the Greenlake area.  Even though you are qualified up to $650,000, you don't want to extend yourself to the limit.  I understand...and that makes good sense.  Your real estate agent may suggest you look at higher price ranges.  He (or she) is not pushing you in an effort to increase their commissions...they are trying to help you find that perfect home.  Remember that with interest rates where they are right now, the difference in payment is about $5.00 for every $1000 in purchase price.  So the difference between $500K and $550K in payment is about $250/month payment, or about $8.00 per day.  That is the difference of $2000/month payment or $2250/month.  What is it worth to you to get that perfect home?  Also, keep in mind that given inflation, that $250/ month now, will feel a whole lot different in 10 years. What was your income 10 years ago? What did gas cost 10 years ago?  Could this compromise in price actually be a benefit with inflation?

Compromise in condition, location or price....which do you choose?  You have to ask yourself these questions:
Can I (or will I) do the work on the house necessary to make this home perfect for me? or....
Can I live in a slightly different neighborhood in a home that I love for the right price? or.....
Can I compromise on price and pay a little more than I want so I  can have the perfect home in the perfect place?

It's your call.....Let me know what you want to do?