I'm sure we've all heard that expression. But there isn't a better time to recognize the impact of that saying than right NOW!
The clock is ticking on the home buyer credit, yet it amazes me how many buyers and sellers are still letting a few thousand dollars keep them from getting a contract signed!
I read a recent blog by my AR friend, Jane Peters, written on the subject of buyers nickel and diming the sellers to death. Over a $5000 roof (a roof, I might add, that wasn't expected to cause inspection or appraisal issues, by the way).
Now let's think about this: a $5,000 roof or the $8,000 first time home buyer tax credit??
Simple math points out that if the buyers make the offer with the roof as is (remember, no inspection or appraisal issues are expected) and the sellers accept it before the end of the month, the buyer is $3,000 to the good anyway.
But to take this one step further: let's say they continue to hold off hoping to get the seller down another $5,000, all for a roof that doesn't need to be replaced currently anyway, only to miss the contract deadline date and lose out on the $8,000 credit, they will pay for that mistake for over 25 years!
Here's how I figured that:
The monthly "savings" on a $5,000 lower price/lower loan amount is about $27 per month. If they mess around and don't come to terms on the contract by month end, they lose the $8,000 tax credit. If I divide the $8000 they stand to lose by the monthly "savings" they are hoping to gain of $27, the break even is over 296 months, or over 25 years!
And that's just simple math without taking other tax or financial factors into consideration like the value of current money (the $8k tax credit) vs borrowed money.
Views and opinions expressed on this site are not necessarily those of WR Starkey Mortgage.
Ruth Vogt, Branch Manager
Colorado LMB #LMB100023827
Some buyers want a great deal, not a good deal. It's crazy to haggle over a few thousand!
Great points Ruth. I totally forgot about the $8,000K tax credit which they are not factoring in. I am going to bring that up tomorrow if they talk about backing out. We do have a contract with an overdue inspection contingency removal date. Thank you for this excellent advice.
I like the way you figured that out, Ruth. If Jane, I mean the selling agent explained it this way to the buyers maybe they will see the light! Another saying: Stepping over dollars to pick up dimes.
Some people are going to miss out on the tax credit and I don't feel sorry for them.
I understand. A lot of buyers want to get the 50 cents on the $ house. I have had a few buyers miss out a home home that they truly wanted just because they wanted to beat down the sellers another $500. If this is your home, then buy it i tell my clients.
Ruth, It's amazing that buyers and sellers still are not seeing the light! GRRRRR ARGHHHHH
It is quite annoying isn't it? Ruth, I have scratched my head more than once on deals that made no sense when they had more to gain then what they were asking for on paper. Good luck dear.
Very good points, thanks. Read it over a few times to make sure i got it.
Thanks for the post! HAve a great week- we are all going to be crazy by the end of the next one;)
It is amazing sometimes how a deal can fall apart over so little money !!!!!!!!!!!!!!!!!!!!!!
In this past year I've seen so many transactions hanging on a few hundred to a few thousand. I've seen all sorts of arguments. An AC system that is older suddenly requires a $5k credit - I mean it MIGHT need to be replaced some day. I've seen knock-down drag outs over curtains. and mini blinds - It's just crazy. You are buying a HOUSE...are you serious? Yes or no....
Hi Ruth -- I too scratch my head to see a deal either fall apart or never get reached for a very tiny % of the overall price, it just makes no financial sense most of the time. The agent should always point out the obvious, sometimes it simply needs to be said. Not a panacea, but it can help sometimes.
Ruth,
Penny wise and pound foolish. How often have we seen this, It's your job to keep it together. You're the pro here.
Hi Ruth! Oh, how true it is! I've got a seller right now who is arguing over a couple of thousand dollars and we negotiated FULL list price for them! So, let the buyers go and wait a couple of months to find another buyer and then they've spent that same money in the extra months of mortgage they've been paying on two homes! And, Terry's comment about it being our job--hasn't dealt with clients who vehemently refuse and take on the consequence of going back on the market because they are, indeed, penny wise and pound foolish! There have been times that there's no one thing we can do--they stand firm and do no listen to reason whatsoever!
This is the perfect post I just deal with the same situation this week they were gauking over 4K, yet they have the 8K first time buyer tax credit coming there way. There is only so much you can do. Lets hope we can put something together by Friday :) Its going to be a VERY busy week. Good luck to all!
I'm showing a bank-owned tomorrow. Combination of great deal and tax credit is hard to beat.
It's all in the math, but people get all stubborn & emotional about house buying.
I have a similiar issue going on right now. It envolves roof problems. Loans falling apart and staying in contract to get the tax credits. In CA there is 18K worth of credits.
I too scratch my head when the buyer uses fuzzy math logic. After looking for over a year for the "perfect" condo, my all cash buyer is going to lose out on his $6500 move-up credit because there were dogs living in the place. $6500 could buy a lot of nice flooring and paint/fixups! So it makes you wonder what is going on in their heads, penny wise and pound foolish indeed.
Thanks for the great post...it's all simple math
Good post. I'm going to re-post so some that follow my blog can benefit from your wise words.
Congrats on the feature Ruth!
I had read Jane's post before I got to this one. Like many others here, I forgot to figure in the tax credit!
Your points are so well taken. That buyer is just being difficult.
Congratulations on the featured post Ruth!
Good breakdown Ruth.
what about interest rates? We know that rates are low now. What will they be in a month, or next year? Does anyone have a crystal ball?
Your reasoning is sound and certainly is an important thing to figure in. However, I'm not sure about the pigs vs. hogs headline. Never heard of this, being a city girl. No clue as to what it means.
Great reasoning, I hope some buyers that are on the fence over silly issues will see this and sign the contract before Friday! I can't believe more people are not taking advantage of $8000 of free money!!! I've been showing like crazy and little issues like 1 room is not big enough or its a little higher than the bank owned down the street (but move in ready). The $8,000 shouls make up for all of that!
It means if you get greedy you get slaughtered. You are getting a great deal on a house and you tried to make a little more money, than instead lose the whole thing.
Great Post Ruth, thanks!
Buyers are convinced that sellers are desperate. This is a misconception and leads to many issues in the process. I love the title, I use it all the time.
Ruth, it's hard to disagree with the facts. People who want to take advantage of the $8,000 tax credit need to hurry.
Sellers are getting slaughtered as well. Don't accept the offer on the table by the tax credit deadline and you stand to lose a very large pool of buyers, drop the price to reflect the $8000 and wait for the adjustment to happen over many months before buyers pick themselves up and get back on their homebuying horse.
The tax credit sounds good on paper but remember, not everyone needs a tax credit. Sounds like the best thing since sliced bread when the govt. spins it, but not for everyone. Individuals should consult an accountant, not their Realtor to find out if the tax credit benefits them on a specific transaction.
Jackie, Very well put!
Jane, I've got my fingers crossed.
Mary, I hadn't heard that exression before, but so true!
Russ, Me neither!
Shawn, They miss the big picture, don't they?
Duane, And if they don't now, they will NEVER get it!
Sheryl, Scratching my head or pulling my hair out??
Randy, Glad it made sense... after a couple of times.
Shanna, How many bank owned properties will create our next panic the end of June?? We'll see.
Michael, That shows it's about winning the argument, not about getting the best deal (in my mind).
Ruthmarie, Crazy isn't it??
Chris, You are right on!
$5000 on what price home? On a $120K home, it makes a difference. Its when people haggle over $5000 on a $600K home, that is ridiculous. I've seen buyers threaten to walk over $1500 on a $300K home! For some people, the deal is more important than the house.
Terry, sometimes it takes "the force" being with us to reach a level of sanity with buyers and sellers, doesn't it?
Debe, I do think we have some that are in for the thrill of the "game" and not serious buyers and sellers. Thanks for visiting, by the way!
Tom, Busy week? Yes! Thank goodness!
Ardell, Good luck with that bank owned - buth in getting the contract approved AND closed on time. hee-hee!
Jirius, You're right. Sometimes even seeing it in black and white on paper doesn't help.
Gene, that CA tax credit is amazing!
Sue, At some point you have to wonder if they were looking for reasons NOT to buy!
Terry, It usually is the "simple" stuff that we miss, isn't it??
Walter, thanks for the reblog!
Jackie, :)
Craig, Buyers can be such stinkers, huh? Thanks for the congrats (and thanks for stopping by!)
Ryan & Sheri, Thank you!
Weichert Realtors, no crystal ball here. BUT I do like gambling occasionally, and I bet NO!
Carolyn, ***smiling*** I thought everyone had heard that saying! See Jason's comment two below yours.
Allison, you'd think so, huh?
Jason, thanks for the reblog!
Kyle, I think the title speaks volumes! :)
For some it could be tool late after even today. A contract is one thing, but inspections and an appraisal is another. There is no way to get that done by the end of the week. If repairs are a big issue then the tax credit purchase will fall apart. If the house does not appraise, do you want to buy just for the credit if the house is not worth it in truth? My suggestion is to either buy new, or a house in really good shape that you feel has a reasonable chance of meeting the contract requirements.
I fired a buyer this past Winter over this very thing. People sometimes fail to see the big picture. Those people are called 'renters' . . .
Michael, And next month they'll be saying they wish they'd had 20/20 hindsight!
Jenna, GREAT point!
Robert, I know one person that doesn't benefit: ME! I'm one of the many taxpayers that is paying for this!! But what can I do???
Eugene, In this case, this home was in California, so the sales price was a lot more than $120k. And when you have people that the deal is more important than the house, that's all they are looking to buy: a house (not a home).
Joe, Good points! ALL of them. (looks like the proxy errors are bad again today!)
Candice, LOL! I love your definition!
Good Post. It'll all be over in 5 days!
I tell my buyers this (and it does not always work!): waiting until next year to buy for whatever reason results in having to pay about $8000 rather than receiving $8000. If you figure in all the price increases, mortgage insurance increases, possible interest rate increases, and the cost of RENT!?, you are definitely looking at at least $8000 in additional costs to buy next year.
Right now is the best time (week?) to buy. Period.
Nice article
I also tell my first time home buyers that just because the credit expires, it's no reason to jump into a home they don't like. But I love your post and logic.
Plenty of people don't understand math. If those buyers wanted to really come out ahead, they'd take the $8,000, fix the roof (if it really needs it) for the $5,000, and then plunk the other $3,000 down as an additional payment on the house.
Depending upon the payment amount, and given that in the first years of a loan most of the payment goes to interest rather than principle, that extra $3,000 payment could take many months off a 30 year contract.
Ruth, a very good way to look at the numbers. $5,000 sounds like a lot until you look at what you could possibly lose.
Yes there are those buyers who think they should get everything....for nothing....these days especially.
Well these buyers are running out of time so it looks like they may lose out.
Ruth: It appears that I must have been absent the day they covered Pigs get fat, hogs get slaughtered. I was prolly in church, praying for the pig.
People are scrambling here to get their offers in! It's a mad rush! Congratulations on the feature Ruth!
Anyone who's waited until the last minute to get the tax credit is crazy. Most of the buyers think they can completely rip off the sellers.
Ruth, great post and facts are facts...some buyers will lose out for sure on this tax credit!!
Ruth, great post, and well said!
Interesting that a buyer would want a credit for a roof that doesn't need to be replaced. Guess the inspection report gave it limited lifetime.
To tell you the truth, I had never ever heard that phrase or adage before. But, your example made it all crystal clear ;-)
That's a good perspective. Thanks for the insightful post. I always learn a lot on Active Rain.
We have too many buyers in our market so it doesn't matter at this point. Many are overpaying by more than their tax credit and getting zero in concessions. I think it is all relative to what is going on in your local markets. We have ebay mentality going on here and will have another bubble just like we did the last time the tax credit expired. Next month buyers will be getting concessions again whether the tax credit ends up expiring for reals or not. It's all a shell game in my market.
Ruth - I always try to do a math break down like you did for my clients, it usually moves things along.
In the Tampa Bay area where one-third or more of the current sales are distressed, I'm more worried about the big banks not being responsive in time. I'm sitting on many contracts signed before April 30 but working their way through the short-sale bureaucracies of major banks. Given past lack of performance, we have every reason to worry that they will not give third party approval by June 30 when we must close. The majority of my clients, at least of modest priced properties, will walk I fear if they don't get that credit. It has been shocking to see how much the banks have been dragging their feet for almost two years now, and properties end up foreclosed as REO's for prices far less than earlier short sale offers that were refused or not responded to.
I just referred a problem client out to another realtor for 20% ... it was worth it to not deal with him!
This week I had to remind my sellers that the offer they got on their overpriced listing (by at least $10K) was as good as it was going to get for them in the next 12-24 months... they didn't want to believe me. I told them they would get an offer because of the tax credit, but they let the buyers walk over $2K. They will be kicking themselves in about 2 months when they realize they looked a gift horse in the mouth.
But it's a buyer's market, right?
We see a number of buyers who want the world because they think it's a buyer's market and all sellers must be desperate, right?
Great post. Good thoughts to share with buyers.
RR: Next we'll be hearing about bank REO's and short sales that are causing concern about getting the properties closed on time!
Shawn, how true, how true!
Greg, Thanks.
Karen, You are so on the money on that one!
We have a lot of scrambling going on right now.
Penny wise and pound foolish, is right.
Marte, It seems so obvious to us, doesn't it: Go under contract and there are many options. Don't go under contract and have no options.
Ted, funny how we sometimes can't see the forest for the trees!
Mike, Some will. Most won't, I fear.
Patricia, Couldn't be more true. Sad. But true!
Tammie, It's kind of like you don't know what you don't know. They don't know what they are missing out on.
Karen Anne, prayers must have worked for the pig. It was the hog that was slaughtered! :)
Wanda, Thanks for reading and thanks for the congrats.
Eric, Makes 'em crazy on two counts, not just one, huh?
Rebecca, Yes, in deed!
Ron and Alexandra, thanks for saying so.
Vickie, I don't think the inspection had even been done yet. (It was Jane Peters deal actually, in Ca)
Melissa, Must be a midwestern thing - I thought everyone had heard that one!
Cheryl, Me, too. Great, huh?
Renee, True. It's about your market, no doubt.
Michelle, It works best when they can comprehend the logic. I've met a few that couldn't calculate their own monthly income!
Tony Branch, I fear you could be right!
Woodlands, Smart thinking!!
Julie, So true. And so sad, huh?
Erica, that's what the media is telling them, right?
Greg, Interesting when you break it down like that, huh?
Missy, We got love it while it lasts, cause it'll be gone before we know it. Thanks for stopping by!
It's not always possible to TELL people they are wrong, it's an art to ask questions that lead them to discover it on their own.
Ruth, that's a secret I learned early on in real estate. Take it down to the $ per $1000 it will affect their payments. At that time it was $8 per $1000, so for $40 a month or a little over $1 a day, they were going to blow the deal? When you break it down like this it brings some people to their senses.
I can not wait to return to a more normal market even with all the REO's, tired of seeing people rush to overpay for a $8,000 check. Each market is different, I'm in Los Angeles, and we will be taking a further 10% hit because of this "Credit Incentive" induced second bubble. To know where you're going, look back where you've been, remember history.
Congrats on the feature, Ruth! Some nice comments as well. Just a few more days for the tax credit.
Ruth,
crossing the fingers that they will do something soon to extend it ! :) it will be awesome to have more movement like this, great blog !
Ruth,
I can't understand people. Why they will do one thing and oppose you on another. All we can do is advise. I just hate it when they use you as a "goat" for their ignorance. Can't be avoided!
You are SO RIGHT! I am presently dealing with a similar issue with a first time homebuyer -- not mine, thankfully or I would strangle -- over homeowner insurance. We are talking here $1200 per year. Which by the way the buyer has to pay anyway. So not only does he risk loosing the $8000 but add roughly $1200 more. Obviously he cannot do math.
The $8000 tax credit is no reason not to negotiate to the fullest extent possible. From what I'm seeing in these comments, it looks like this credit is causing a little bubble in prices and terms. Everyone is relying on the credit to give them a backstop instead of negotiating normally and getting an extra $8000 prize.
Loved your breakdown. It still amazes me that buyers & sellers would continue to haggle over +/- $1000. My mentor once told me that it was an idiot that haggles over a measly $$ when the home is worth more than the amount being haggled over in the long run.
So true! So many think they know what they are doing, but then end up shooting themselves in the foot!
Very nicely put! I've reblogged....
You tell em Ruth. Let's just forget the larger issues arguing over the smaller ones. Ones that don't need to be replaced right now BTW.
When I worked as a stockbroker we had a saying : bulls and bears get rich, pigs get slaughtered. My question after reading your post, is Who is the pig?
You start your post with the comment " it amazes me how many buyers and sellers are still letting a few thousand dollars keep them from getting a contract signed!" But in the rest of the post it's only the buyer that you criticize. The seller is also refusing to budge. It seems to me that they are equally pig-ish Jenna Dixon in comment 31 has it right.
This makes so much sense. And, I like the fact that you've broken down the math so simply.
some people will always let a nickel stand in the way of a dollar. don't ask me why.....
Ruth, sometimes people defy logic. I guess it it the old "Penny Wise and Pound Foolish".
Drew, A true art, indeed!
Sharon, Agreed... when you can bring them back to the "now", the value of "today", you have a shot at some sort of reasoning.
Steve, NOt sure we'll even recognize a "normal" market anymore???
Dawn, Going, going, gone!
Thanks, Ray, for the congrats... and for stopping by.
Eugene, You're right... sooner or later.
Gloria, Sometimes even calculators don't help.
Tim, "Little" bubble? How do you measure a bubble? I know I'd be thankful if my property values only lost $8k recently!
George, Smart mentor you had.
Chris, And most don't even know how really inflected the pain, do they?
Doug, thanks for the reblog.
Lyn, EXACTLY!
Ron, Funny that in my pig story the pig got fat; in yours it got slaughtered! And yes, Jenna did hit it on the head.
Christine, Glad the math breakdown was easy to understand.
Bill, Sad but true.
Damon, I guess that's what keeps this business interesting???
Great point Ruth. I'm sure we will all be watching the Real Estate market closely over the next few months now that the tax credit is gone. We are getting a nice boost on the affordability of home purchases currently with the unexpectedly low interest rates we're currently seeing, so that's a bonus!