How much can I negotiate, I have a very low maximum, as we are first time homebuyers, without the highest of?

Asked by Tasha, Severn, MD Sat Mar 8, 2008

income, but we are tired of throwing away $1200 per month, plus we have 3 children and need to start moving in a more permanent direction We really don't want to go over $220. I found something for $255 and it was just listed, is this realistic? Thanks

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13
John the Bru…, Home Buyer, Connecticut
Sat Mar 8, 2008
Tasha,

How much can you negotiate: a lot!

First, let me address the common misconception in your question. Paying rent is not throwing money away. You’re only “throwing money away” if you’re in an environment where housing “prices” are rising. Pick up a newspaper tomorrow and you’ll go no further than the front page to see a story that confirms that house values are not rising.

In today’s environment, renting is not throwing money away. It’s a very prudent thing to do, but few Realtors will tell you that. Additionally, they won’t explain the “Rent-Buy decision.” Take a look at my last paragraph, then google “rent buy decision.”

Buying a house that may decrease in value 30-50% in the next 3 years; now that’s throwing money away. But, if you can be assured that you’ll stay there for the next 10+ years, then I doubt you’ll have trouble breaking even on a sale or maybe even making some money. You may sell into the next housing mania.

Assuming you have a 20 percent down payment, which most banks will require these days on a non-FHA loan, you’re looking at a loan amount of $180K on your $225K home – a payment of around $1100 before taxes, utilities and upkeep. Not bad.

But, since you’re a first time home buyer, you may qualify for an FHA loan. Link below. With this, you’re looking at a 3 percent down payment and a larger loan amount. Same house price, now you’re payment is $1300, before taxes, utilities and upkeep. You’re already a little bit above your $1200 rental payment. To be fair, maybe the house is better than your rental accommodations and you’re willing to pay a premium. Additionally, you may be able to deduct some of your mortgage interest – contact a tax professional.

If you want to drive a hard bargain – and you do, and you can – then I recommend that you find out what this house sold for around 1998. Or, what a comparable house was selling for at that time. That’s your starting point, and probably close to what you want to pay.

If you really want to do your homework – find out what this house will RENT for. Can you rent this house out to someone and still pay off the mortgage, taxes and upkeep? If the answer is no, then the price is too high.

Best of luck to you,
-John
Web Reference:  http://www.fha.com/
2 votes
Pam Winterba…, Agent, Danville, VA
Sat Mar 8, 2008
Tasha....

Good question. Is the property priced at market value? or less or overpriced? The longer the property sits on the market the more negotiable is becomes. Talk with you Realtor and get their advise on how to proceed.
2 votes
Casual Obser…, Both Buyer And Seller, District of Columbia
Tue Apr 8, 2008
Tasha - your realtor wants you to go higher b/c that means a higher base from which he/she draws commission. It is in realtors' best interest to close sales ... not to make sure you get the best deal. That's not to say that all realtors are unscrupulous, but there's no denying that their first concern (even if they won't say so) is to make sure that you sign on the dotted line. Therefore, they'll want you to offer a price that's more likely to be accepted ... b/c they only get paid when the deal is made. In this environment, you can afford to go very low on the offer ... sellers aren't getting multiple offers or quick offers, so it's more likely that they'll come back with a counter offer than to outright reject your bid.

Also, regarding the poster indicating that prices will come down 50% over the next couple years ... I think that is on the far end of the distribution of outcomes (i.e. pretty unlikely). Price appreciation certainly exceeded the trendline over the past 5 years, but not on the order of 200% above what might expect in a "normal" environment, which would be necessary to expect for a 50% reduction. Prices have fallen 10-20% in many places, and could fall another 10-20%, but it's pretty unlikely that we'd see an additional 50% fall. And, as he notes if your holding period is expected to be 5+ years, there's a good chance that prices will have appreciated enough that you would still preserve value even if prices do fall an additional 20%.

And don't remember, a house is for living in ... if you can get it for the same price as your rent, but you own it, you'll have a lot greater peace of mind. And mortgage payments (on fixed rates) stay the same over time, while rents increase w/ inflation and other factors. So as your income grows w/ inflation and advancement, your mortgage will remain constant, and therefore decrease as a percentage of total disposable income.
1 vote
John the Bru…, Home Buyer, Connecticut
Sat Mar 8, 2008
Tasha,

You said: "There is this mall they built about 5 miles from here which has caused things to triple!!! My parents house down the street sold for 88k in 01, and would now go for a minimum of 260k."

So - all things being equal, the rents should have tripled too, right? I know that they didn't. They didn't anywhere. That's the problem. Pull the string and watch this whole thing unravel.

The value of any asset is equivalent to the net present value of the discounted cash flow it generates. In real estate, that's the rents. If you can't rent it out for more than your mortgage payment, taxes and upkeep, then it's priced too high. Don't let anyone tell you any differently.

Think critically and don't fall in love with any one house or any one idea.

All the best,
-John
1 vote
Mikem, , 01803
Sat Mar 8, 2008
Short sale means that the owner cannot pay their mortgage and has made a deal with the bank to sell house for lless than is owed.

What this means to you is that unlike normal sale, where you make an offer that states that it must be accepted or rejected in say 24hours, in the case of a short sale all offers must be approved by the bank. And that could takes up to several months. Also, while many people think of short sales as a chance to get a house for cheap (and it could be) the bank generally won't accept offers that are highly below current market value. It also means that the list price is somewhat misleading, as the listing agent nor the buyer have any control as to what amount the bank will accept. (though one would like to think that they tried to find out what amount the bank is more or less willing to accept, it is not always the case.)
1 vote
Joseph Herold, Agent, Pasadena, MD
Fri Jul 19, 2013
If you can e-Mail me at josephherold@championrealty.com and give me some more details, meaning the address of what you found, I can work up a comp package and tell you whether the $255K is realistic or not. Have you already spoken with a mortgage lender and gotten a pre approval? From where I sit, EVERYTHING is negotiable. Do not be intimidate by what a seller wants for their home, How well they end up doing when the day is done is not your concern.
0 votes
Amy Sanders, , Severn, MD
Mon Feb 4, 2013
Hi Tasha,

Your first step would be to hire a buyer's agent that is familiar with the area. They can give you a free market analysis to show you what similar homes are selling for. Some homes are overpriced and can be negotiated. However, the seller may have set an unrealisstically high price in order to avoid a short sale. So best let a Realtor be your guide.
0 votes
Sam Whatley,…, , 21043
Thu Apr 24, 2008
Tasha, I think that your decision to buy is one that should be applauded! There has been no better time to buy in recent years. The interest rates are low, the housing inventory is high, which means that this is the "perfect" environment to make an offer on a property that may be accepted by the seller. I will tell you that there is a program in Anne Arundel County that can help you get more home for your money. The program is called the C.D.A. / M.A.P. program. This program is federally funded program administered by the county and it can help you by providing up $30,000.00 in down-payment and closing assistance. Go to the following website http://www.acdsinc.org . The money has to payed back after you have finished paying for your home, but it is interest free and it will help you get a bigger, better home now. If you wait for the conditions to be perfect, you may be waiting forever... What is perfect? How do you know when the perfect time is? In my opinion, the time is right now and you may not know when the "bottom" is reached until it is too late. Best wishes... Make your best offer. Good luck. Sam
Web Reference:  http://www.acdsinc.org
0 votes
Hi, , Virginia
Fri Mar 14, 2008
Tasha,
you can throw away $1200 per month
OR
you can throw away
$1373 per month house payment (6.3% fixed 30 years on $220,000)
+ $200 per month mortgage insurance (you don have to pay this if you put down $45,000)
+ $300 per month property taxes (you have to pay this or Uncle Sam takes the house)
+ $100 per month repairs (estimate)
--------------------------------------------------
= $1973 per month

And in the next few years you will lose $30,000 - $50,000
You view owning a house as moving in the right direction.
The problem is that housing prices are not moving in the right direction.
Every one has been told that housing prices always go up.
This is not true. Almost every sign you see says "price reduced".
Don't fall into the trap.
I'm not saying do not buy a house ever. I'm saying, not now.
0 votes
Lovvey, Home Buyer, WDC
Fri Mar 14, 2008
Tasha,
The current market favors the buyers, I would absolutely offer less than what you can afford. Sellers are unable to load off their properties and are doing whatever they can and practically accepting anything they can get. However, buying a house can come with a lot of hassles, I absolutely do not recommed pursuing a home without a home and termite inspection contingency. Offering a quick settlement will be benificial for both you and the seller. However, you would not want to purchase a home with a pretty exterior and within a couple of months have it fall apart. You would spend more money trying to repair it and that can potentially lead you into a nasty situation. A significant deposit amount is not nessarily required when offering a quick settlement. The seller cannot spend that money and he/she would be getting it relatived soon with a quick settlement.
However, when looking at a house you would always like to check it out at night. All can be picture perfect in daylight, but the freaks can come out at night. Possibly placing you as well as your children in harms way. I also recommend speaking to neighbors, asking them how the neighborhood is etc. $220,000 , though you may think it not, is a lot of money and you would like to have a safe and comfortable enviorment for your family.
0 votes
Bill Eckler, Agent, Venice, FL
Sun Mar 9, 2008
Tasha,

If you don't make a run at it you will never know...... In the current market most sellers are understanding the WILL NOT receive their full asking price for the property and are willing to settle for less.
It's a matter of determining their level of motivation. We feel you could be close to obtaining this property and could benefit from an agent with a strong negotiations back ground.

Additionally, there are a few things you could do to increase the appeal of your offer.
1. Be pre-qualified or be a cash buyer
2. Offer a quick closing date
3. Limit the number of contingencies...preferably none at all
4. Offer a significant deposit amount

Most importantly....know the recent sales market.... to be able to bring the home's price in the direction it needs to go you need comps that will support your offer price. A good agent will be most helpful in this effort and could save you thousands and put you in the home you want , at the price you desire...

If this is your DREAM.....move on it! Find a good agent .......gather information ...... and make it happen.
Dreams do come true...

Good luck,

The "Eckler Team"
Century 21 Almar & associates
Venice, Fl 34285
941-408-5363
0 votes
Tasha, Home Buyer, Severn, MD
Sat Mar 8, 2008
I like these answers, the house in 1998 would have probably sold for under 100k. There is this mall they built about 5 miles from here which has caused things to triple!!! My parents house down the street sold for 88k in 01, and would now go for a minimum of 260k. Over a mall, that is now the most frequented tourist spot in Maryland, so much for The National Aquarium.
0 votes
Tasha, Home Buyer, Severn, MD
Sat Mar 8, 2008
It seems to be at market rate, it's lower than most in this area, but alot older too, it says short sale, is that in my favor or against my favor for negotiating? My realtor wants me to go to 235K, I don't want to, I realize that this is about a 13/14% difference. I don't know how realistic that is.
0 votes
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