How Much Did You Really Save?

Inventory vs Price Comparison

The real estate market is constantly changing and strategies on how much to offer when purchasing a home vary in different markets.  As the Broker for Gulf Shores Realty, I have seen many buyers refuse to increase their offer a couple of thousand dollars to secure a contract on a home they loved.  Both sides wanted to be the victor in the negotiation game and often it was simply a matter of pride.  One must consider a number of factors when determining a fair offer price.  The basics start with motivation of buyer and seller, comparable sales, etc.  One must also consider the market at the time and even consult their crystal ball and project where the market may be going.

The current market in September 2013 shows a declining inventory and increased prices.  In other words, a sellers market.  There is likely to be competition for the same house from more than one buyer and the seller is likely to hold closer to their selling price.

With that said, a buyer who is not familiar with the market may stick to their guns and hold firm at an offer price and allow the home to be lost over a few thousand dollars not realizing the long term financial impact.  Giving up a home for a few thousand dollars and then purchasing a comparable home in the future at a higher interest rate can have significant financial ramifications.

For instance, if we assume we offer $300,000. for a home we love and the seller insists on a purchase price of $310,000.  We hold firm and let the home slip through our fingers.  At a future date, we buy a comparable home for the same $300,000. that we originally wanted to offer.  During that time, interest rates went up from 3.75% to 4.75%.  Assuming we were putting 20% down, we would have a loan amount of $240,000.

Our 3.75% Interest Rate would result in a total of $163,040 in interest over 360 months.

The 4.75% Interest Rate would result in a total of $213,713 in interest over 360 months.

So, to save $10,000, we have incurred an additional $50,672 in debt for a net loss of $40,672.

There are many considerations when purchasing  home. Contact a Licensed Realtor at Gulf Shores Realty at 941-488-6644 or visit http://gulfshoresrealty.com/ to ensure you have current information on the market before making the most important purchase of a lifetime.