Which is more important when buying a property—price or cost?
Many people, especially in the real estate industry, have a hard time wrapping their heads around the prices they’re having to pay because the recent sales data doesn’t support the values that are being offered. For example, I helped a client a few months back. We looked at a single-level property that was listed for $1.475 million. I ran the data and did my research, and I truly felt that given the tangible evidence, an appraiser could justify such a value for the home.
The property had an oversized lot and it was fully renovated inside and out. The client didn’t want to miss this opportunity, so I told her that I felt like most people would offer around $1.5 million for it, possibly more. If she wanted to wipe out her competition, I recommended that she offer $1.55 million. She just didn’t know if she could pay that much.
Rather than focusing on the price, I changed tack to focus instead on the cost of owning the property. We went back to the lender and ran the numbers at $1.55 million, and it turned out the cost was within her budget. I asked her how much more she thought she could reasonably afford; she said she probably had another $250 in her budget. We went back to the lender who said that an extra $250 a month translated to around $50,000 in purchase price, meaning that she could stand to offer $1.6 million.
She ended up submitting that offer and winning the bid. Now she’s moved in and couldn’t be more excited about the additional $100,000 in equity she’s gained after just two months of being in the market.
For another example, we had a client whose maximum approach price was $590,000, but she found a home that was listed for $620,000. We tried to find a way to increase the client’s price but to keep the cost the same. After going back to the lender and reworking some numbers, we were able to get her offer from $590,000 to $610,000, which was significantly closer to the asking price, by asking for about $10,000 in credit. That would be used to buy down the interest rate so that her costs could stay the same. If we were just focused on price, that deal would have never come together, but because we were able to manipulate the price by focusing on the cost to create the illusion to the seller that they were getting more money, we were able to pull off that deal.
Buyers: The bottom line is that you’re paying for premiums if you’re buying a home in today’s market. Don’t focus just on the price; focusing on the cost can open up more opportunities for you. At the end of the day, if you’re not paying cash, the monthly cost is more important to you anyway.
If you have any questions about this or other real estate topics, don’t hesitate to reach out to me. I’d love the opportunity to learn more about what you’re trying to achieve and ultimately help you achieve it.