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How a Buyer SAVES Money by Paying the Listing Price

By R. Kevin Brown No Comments

Your new next door neighbors introduce them selves. In the course of the conversation, they say, “We paid the list price and saved money at the same time.”

It sounds crazy, I know.  Well, at least it seems counter intuitive.  How  does a home buyer SAVE money by paying the list price ? Isn’t the idea that you should try and get the most off the listing price in order to show you got the best “deal” you could as a buyer ?

No, not really.

In the above scenario, an actual client was involved. They were looking in a very desirable municipality.  Big time desirable.  The house was just listed in the morning at $295,000. We looked at it that afternoon and had it under agreement that evening.

For $295,000. So, where is the savings ?

Both my clients and I could easily see that this house was “under priced”. Given its’ features, condition and location, it easily could have been listed for $335,000. It was easily worth $320-$325,000. Whatever the motivation of the sellers, it was obvious they wanted to A) sell the house quickly and/or B) generate a bidding war.

Experience told me that we needed to avoid the latter.  So, I recommended to our clients to make the sellers an offer they could not refuse.  Offer the list. Beat anyone else to the punch and hopefully avoid a bidding war. My clients were 20+% down and had not house to sell.

The sellers were excited and receptive to the offer. The only issue to be ironed out with the sellers turned out to be closing date.  That evening, after all the kinks were worked out, the listing agent said to me,” Well, I am glad this is done.  Now I can call the 9 (Yes NINE) other agents who had showing scheduled for tomorrow that they do not need to come.”

It is not a stretch to think that at least ONE and perhaps more of those 9 buyers would have desired to have made an offer. Bingo. Bidding War.  Thus, while our clients may have still secured the house, the likelihood is that, under that scenario, the ultimate purchase price would have been MORE than the list price of $295,000.  So, they may have paid $305,000-$310,000.  That is still within the range of value.  However, it is still $10,000-$15,000 MORE than they paid.

So, by paying the listing price, our clients SAVED perhaps $10-$15,000. Not bad.

 

 


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What is “Achievable Built In Equity”?

By R. Kevin Brown No Comments

When purchasing real estate, including residential real estate, buyers might be fortunate enough to not only purchase a home they love, but they may also come to find they have purchased some “built in equity”, as well. In short, built in equity is the difference in what is paid versus what the home is actually worth (at the time of purchase) AND presumes that the purchase price was LESS than the market value.

An example would be as follows:  Someone purchases a home for $250,000 that is arguably worth $300,000.  In this scenario, the built in equity is $50,000.  This is pretty straight forward. It is very much the same as when someone purchases some pretty looking bowl at a flea market, only to find out later that the $25 purchase price actually bought that person a $5,000 antique.

So, instead of “Antiques Roadshow”, it is “Real Estate Roadshow”.

Still, you wonder “What is ACHIEVABLE Built in Equity?”. House “flippers” do this calculation all the time. This type of equity is equity realized AFTER remodeling money is put into a recently purchased house, wherein the sum of the purchase price AND the remodeling money is LESS that the ultimate, remodeled value of the home. Before and After Houses

An example of this would be as follows: Buyers purchase a home for $100,000. Given the shape it is in, It is pretty much worth $100,000.  Much of the work to be done is cosmetic.  Some is functional, such as needing a new HVAC, windows and roof. Some is cosmetic, such as updating the kitchen.

However, this home is located in a neighborhood where similar homes, though updated, achieve  over $200,000.  A remodeled house like the subject house could potentially fetch $175,000. The amount of money to bring the house up to “speed” is $35,000.  So, the house has “achievable” built in equity of $35,000.

The point here is that even the typical home buyer, looking for a home in which to live, should still be sensitive to this type of investment potential.  Ultimately, home buyers are looking for a place where they are going to love to live.  Yet, it doesn’t hurt to add a little $$$ equity to the equation.


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Avoiding the “Shoulda” Moment in Your Home Search

We all have had many a “Shoulda” moment in our lives.  It is the time someone recognizes regret for some decision. Sometimes, they are easy to get over, such as when your meal does not look any where near as good as what your friend had ordered. They can also be a bit more serious, such as when you realize your scorched, red skin could have been avoided had you applied sun screen.  An even more serious “Shoulda ” moment can occur when you realize that a regular colonoscopy may have detected those now cancerous tumors.

Most would agree that “Shoulda” moments are best left avoided.  This includes in the purchase of a home. Head Smack

Many years ago, we had clients who were looking for something “very specific”, within a fairly limited time frame in a fairly limited geographic area.  We got a good start, as we began looking in late January. In early February, having seen about 5 houses, we ran into one that was pretty much an 7.5 out of 10, relative to wants. It had everything the buyers “needed”.  A most important “need” was a good to great back yard. This place had an AWESOME yard!  A rare commodity, indeed, in metro Pittsburgh. Generally speaking, these clients had just seen a great house for them. One that really may be hard to replicate.

However, they decided to think about it as they waited for the full volume of what would potentially hit in the Spring hit the market. They mulled over this place, wondering if something even better might come along.  After a week had passed since our clients had seen that house, they called.  ” We would like to make an offer.”. Unfortunately, I called them back to inform them it had gone under agreement just the previous day.

They had a “Shoulda” moment.  That feeling of regret grew as February turned to March, then to April, then to May. As we looked at each new, hopefully “better” house, so did more and more buyers. We would go see a house the same afternoon it was on the market, only to see many of the same buyers at the next houses. The stress level increased.

None had a good to great back yard.  Then, it happened.  A place was listed.  Showings were only allowed to begin in 5 days. Driving by, one could see it had a “super” back yard ! We were one of at least 8 showings the first day of viewing.

It did have issues.  There was that in ground pool that would need to be filled.  The house did have hot water heat.  For a 40 year old suburban house, that would have made resale a bit of a challenge. “Best” of all, it was clear to see that one of the four exterior walls of the house had an obvious “bow” in it.  Most buyers want their walls straight.  That is kind of a “need”.

Yet, my clients wanted to make an offer.  It took about a half hour to wipe the stardust created by the very awesome back yard (sans pool) to convince them not to make an offer.  At this point, they had one chance to get it right.  I could easily see that even the most inept home inspector would point out that the wall was a significant issue.  However, by the time they could have worked their way out of the agreement, there would have been no time to put another place under agreement. Plus, something better may pop up while they were in the middle of dealing with the house with the crooked wall.

They finally agreed making an offer would be a mistake. A decent home did pop within the next week. The house did require some work.  However, nothing like a crooked wall.  Plus, it did have a good back yard.

Missing on that one house way back in February put a great deal of stress on the buyer’s decision making.  That “Soulda” moment led to a great deal of unnecessary uncertainty.  Frankly, while they do still love their home, that first home had a better yard. By a long shot.

 

 

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