How Will It Feel?

It has been said that change is the only constant. Most of the financial experts have been expecting interest rates to increase along with home prices. While homes, in most markets, have definitely seen increases over the past five years, the mortgage rates today are actually lower than they were a year ago. FreddieMac PMMS 072816 rev.jpg

If the interest rates were to increase by 1% over the next year while homes appreciated at 6% during the same time frame, a $250,000 home would go up by $15,000 and the payment would be $211.53 more each month for as long as the owner had the mortgage. The increased payments alone would amount to $17,769 for the next seven years.

When facing a decision to postpone a purchase for a year, a legitimate question to ask oneself would be: “how will it feel to have to pay more to live in basically the same home a year from now?”

It is easy to understand that if the price of a $250,000 home goes up by 6%, it increases the price by $15,000. A slightly more difficult concept to realize is that if the interest rate were to go up by ½%, it is approximately equal to a 5% increase in price. A 1% increase in mortgage rates would approximately equal a 10% change in price. This means that if a home goes up in price by 6% and the interest rate goes up by 1%, it is equivalent to the price of the home going up by a little more than 16%.

Use the Cost of Waiting to Buy calculator to estimate what it might cost to wait to purchase based on your own estimates of what interest rates and prices will do in the next year.

Advertisements

Increase the Chance of Being Accepted

While all contracts must have certain required elements, mutual assent, consideration, capacity and legality, there are some things that increase its chance of being accepted.

19269905-250.jpgThe seller generally wants the highest possible price with the fewest inconveniences in the shortest period of time. In the same way, the buyer generally wants the lowest possible price with the fewest inconveniences in the shortest period of time.

The perspectives of the principal parties to the contract can change depending on how these different parts of an agreement are structured.

  • Offer Price – While the price of the home seems to be the major point of contention in a home negotiation, the seller’s net proceeds and the buyer’s mortgage payment may actually be more critical.
  • Financing – Nationally, 86% of recent home buyers financed their recent home purchase as opposed to the 14% who paid cash. Different types of financing can have differing ramifications for the process of taking a contract from agreement to closing, different minimum down payment requirements for the buyer, and some financing types have higher fees than other types.
  • Concessions
    • Seller-paid closing costs – Paying all or part of a buyer’s closing cost requires less cash outlay for the purchaser and makes it easier or more appealing for them to buy the home.
    • Seller-paid buy-down – Prepaying interest to the lender on behalf of the buyer gives them lower payments for the first one, two or three years even though they must qualify at the note rate of the fixed-rate mortgage.
    • Personal property – Seller may agree to include existing or new personal property like washer, dryer or refrigerator.
    • Improvements – Seller may agree to make modifications to the existing condition of the home like floor covering, countertops, appliances, painting or other things.
  • Earnest Money – More money gives the seller a sense that the transaction is more likely to close, while putting the least amount at risk is generally more appealing to the buyer.
  • Timing – Depending on which party is more flexible, an earlier or later closing date or a more accommodating position on occupancy can be an offsetting consideration to help balance the relative importance of other terms.
  • Contingencies or lack thereof – Requirements that must be satisfied before a contract can be closed can loom large in the vision of a seller who will effectively take their home off the market to other prospective buyers once a contract is signed.

The training and experience of a skilled negotiator can benefit both buyers and sellers to save time, avoid difficulties and bring all parties to an agreement. Your real estate professional should be able to help you structure a good offer or counter-offer and negotiate the way to a contract with a win-win outcome.

Increase the Chance of Being Accepted

While all contracts must have certain required elements, mutual assent, consideration, capacity and legality, there are some things that increase its chance of being accepted.

19269905-250.jpgThe seller generally wants the highest possible price with the fewest inconveniences in the shortest period of time. In the same way, the buyer generally wants the lowest possible price with the fewest inconveniences in the shortest period of time.

The perspectives of the principal parties to the contract can change depending on how these different parts of an agreement are structured.

  • Offer Price – While the price of the home seems to be the major point of contention in a home negotiation, the seller’s net proceeds and the buyer’s mortgage payment may actually be more critical.
  • Financing – Nationally, 86% of recent home buyers financed their recent home purchase as opposed to the 14% who paid cash. Different types of financing can have differing ramifications for the process of taking a contract from agreement to closing, different minimum down payment requirements for the buyer, and some financing types have higher fees than other types.
  • Concessions
    • Seller-paid closing costs – Paying all or part of a buyer’s closing cost requires less cash outlay for the purchaser and makes it easier or more appealing for them to buy the home.
    • Seller-paid buy-down – Prepaying interest to the lender on behalf of the buyer gives them lower payments for the first one, two or three years even though they must qualify at the note rate of the fixed-rate mortgage.
    • Personal property – Seller may agree to include existing or new personal property like washer, dryer or refrigerator.
    • Improvements – Seller may agree to make modifications to the existing condition of the home like floor covering, countertops, appliances, painting or other things.
  • Earnest Money – More money gives the seller a sense that the transaction is more likely to close, while putting the least amount at risk is generally more appealing to the buyer.
  • Timing – Depending on which party is more flexible, an earlier or later closing date or a more accommodating position on occupancy can be an offsetting consideration to help balance the relative importance of other terms.
  • Contingencies or lack thereof – Requirements that must be satisfied before a contract can be closed can loom large in the vision of a seller who will effectively take their home off the market to other prospective buyers once a contract is signed.

The training and experience of a skilled negotiator can benefit both buyers and sellers to save time, avoid difficulties and bring all parties to an agreement. Your real estate professional should be able to help you structure a good offer or counter-offer and negotiate the way to a contract with a win-win outcome.

Opportunity Can Disappear

In the last few years, some people who were unable to sell their homes, rented them instead. The market has improved in most places and the home may easily sell now and possibly, for a higher price.53848691-250.jpg

Even though the opportunity to sell in the near future might not change, there could be another opportunity that could quickly disappear for some homeowners.

Most homeowners are aware that there is a capital gain exclusion on the profits of a principal residence of up to $250,000 for single taxpayers and $500,000 for married taxpayers filing jointly. The rule requires that you must own and use the home as your principal residence for two out of the last five years.

A homeowner can rent their home for up to three years and still be eligible for the exclusion. As an example, if they had owned and lived in it for two years and then rented it for two and a half years, they would need to sell and close the transaction before the remaining six months expired.

If there was a $200,000 profit in the home that didn’t qualify for the exclusion, a 15% long-term capital gain tax of $30,000 could become due depending on the tax bracket of the owner. With some careful planning, the tax could be avoided. Awareness of the time frames and the right team of tax and real estate professionals could save a considerable amount of the homeowner’s equity.