Why Should I Pay the Home Buyer's Closing Cost?

Why Should I Pay the Home Buyer's Closing Cost?

Question: I received an offer on my home that I have for sale, and in the purchase contract the buyer is asking me to pay for his closing costs. I don't think I should have to pay any of the buyer's costs. When I purchased this home the previous owner didn't pay any of my costs. Why should I pay this buyer's cost?

Answer: It is very typical these days for a buyer to ask a seller to pay for closing costs. In fact, probably around 30% of  buyers will include it in their offers. It's usually worded in the Purchase Contract similar to this: "Seller to pay for Buyer's closing costs, points and/or prepaid expenses" 

Let's first explain what these items are. Closing costs include the attorney fees, title insurance, bank fees, etc. Points are funds that the buyer pays at closing to get a better interest rate. Prepaid expenses include insurance, taxes and interest. The total amount of the cost varies with the purchase price, down payments, loan program and the day of the month that the property closes, but typically run 2% to 5% of the mortgage amount.

Now that we know what closing costs are, why should you, the seller, be responsible for paying them? What we really want to look at is how much will you be actually receiving after paying the closing costs. For example, if someone offers you $300,000 but they want you to pay $5,000 in closing costs, you are actually going to receive $295,000 at the closing table ($300,000-$5,000=$295,000). If you are happy with receiving $295,000 then what's the problem with paying it to make the deal work? If you're not happy with the bottom line you can always give a counter offer. Just don't take away the buyer's closing costs. So say, if you really looking for $310,000, then counter at $315,000 and say you'll pay the $5,000 towards closing costs (for a net of $310,000).

A home buyer has to come up with the down payment, plus additional expenses once he moves in. Not to mention moving costs. It's in the buyer's best interest to try to keep as much cash in the bank as possible to cover these and any unforeseen expenses. Really, what the buyer is actually doing is financing his closing costs, because you would have accepted $310,000... and he is buying it for $315,000. So, even though it says in the contract that the seller is paying the closing costs, in reality the buyer is paying for them himself (over the life of the 30 year mortgage).

So, don't get hung up on paying a buyer's closing cost. If you can come to an agreed upon price, concentrate on doing what you can to get the buyer to the closing table. Paying for closing costs is a no brainer that doesn't affect you as long as you look at the bottom line.

Jim Armstrong

President/Broker

Armstrong Field Real Estate

Median Home Sale Prices are Up, Number of Homes to Choose From Still Declining

Real estate sales in Essex County were strong in the 2nd quarter of 2014, with median prices up 1.9% over last year. The number of closed sales is down, but that's a reflection of the drop in inventory from 2013 - ie: the number of homes on the market for buyers to choose from. 

Until there are more sellers taking advantage of this great selling market, the number of sales will continue to suffer. 

The Median sale price is up more than $100,000 over the 1st quarter of 2009.

- Jim Armstrong

President/Broker

Armstrong Field Inc

Click Graphic to Enlarge

6 Tough Home Pricing Truths

The pricing conversation is always a challenge. You want top dollar for your home, and your real estate agent will, too. After all, a better commission comes from a better price. But a lot of psychology and strategy goes into home pricing, and if you don’t go in with your eyes wide open, you could end up heartily disappointed.

Here are some tough truths about home pricing. While they can vary a little depending on unique market conditions, they should all be in the back of your mind as you prepare to list.

1. Some agents will try and “buy the listing.” Sad but true: Some agents will tell you what you want for the home is accurate, even if it’s too high. Figuring they can manage disappointment and reductions down the line, the less-than-ethical agent will try and cut off the more honest competition by telling you the price you think you should get for the listing is the price you should shoot for.

2. Nobody cares what you paid for the home. No buyer in the history of real estate has ever agreed to pay more for a home because of the profit a a seller hopes to get. Yes, you may have sunk $150,000 in renovations into the basement, but the market will dictate the pricing, not what you “think is right.”

3. Lowball pricing is risky. Yes, you can generate a lot of interest by undercutting other listings on the market, but people may still attempt to negotiate. While you may stay firm on your price, you could find yourself making contract compromises you’d rather not make.

4. Precise pricing suggests you’re less wiling to negotiate. List a home for $403,750 versus $400,000 and you’re basically broadcasting a kind of inflexibility. This may or may not be part of your pricing strategy, but whatever you do, don’t do it unconsciously.

5. Seasonal timing can influence pricing. Are you the only comparable home on the market in January? You might be able to get a little more, especially if schools are good.

6. Infomercial pricing can make a difference. Have a million dollar home? Swallow your pride and try your hand in the $990K+ range. Slipping under the seven-figure mark can cast a slightly wider net for buyers.

Most homes sell within 3% of a market-savvy asking price, so go with an agent who is willing to explore the deep local conditions. Curious how much your home might be worth right now? I’d be happy to put together a no-obligation pricing matrix for you.

Jim Armstrong - 978-394-6736

6 Reasons to Reduce Your Home Price

Article From BuyAndSell.HouseLogic.com

By: G. M. Filisko
Published: March 19, 2010

While you'd like to get the best price for your home, consider our six reasons to reduce your home price.

Home not selling? That could happen for a number of reasons you can't control, like a unique home layout or having one of the few homes in the neighborhood without a garage. There is one factor you can control: your home price.

These six signs may be telling you it's time to lower your price.

1. You're drawing few lookers

You get the most interest in your home right after you put it on the market because buyers want to catch a great new home before anybody else takes it. If your real estate agent reports there have been fewer buyers calling about and asking to tour your home than there have been for other homes in your area, that may be a sign buyers think it's overpriced and are waiting for the price to fall before viewing it.

2. You're drawing lots of lookers but have no offers

If you've had 30 sets of potential buyers come through your home and not a single one has made an offer, something is off. What are other agents telling your agent about your home? An overly high price may be discouraging buyers from making an offer.

3. Your home's been on the market longer than similar homes

Ask your real estate agent about the average number of days it takes to sell a home in your market. If the answer is 30 and you're pushing 45, your price may be affecting buyer interest. When a home sits on the market, buyers can begin to wonder if there's something wrong with it, which can delay a sale even further. At least consider lowering your asking price.

4. You have a deadline

If you've got to sell soon because of a job transfer or you've already purchased another home, it may be necessary to generate buyer interest by dropping your price so your home is a little lower priced than comparable homes in your area. Remember: It's not how much money you need that determines the sale price of your home, it's how much money a buyer is willing to spend.

5. You can't make upgrades

Maybe you're plum out of cash and don't have the funds to put fresh paint on the walls, clean the carpets, and add curb appeal. But the feedback your agent is reporting from buyers is that your home isn't as well-appointed as similarly priced homes. When your home has been on the market longer than comparable homes in better condition, it's time to accept that buyers expect to pay less for a home that doesn't show as well as others.

6. The competition has changed

If weeks go by with no offers, continue to check out the competition. What have comparable homes sold for and what's still on the market? What new listings have been added since you listed your home for sale? If comparable home sales or new listings show your price is too steep, consider a price reduction.

More from HouseLogic

How to ready your home for sale at little cost (http://buyandsell.houselogic.com/articles/5-tips-prepare-your-home-sale/)

How to review offers on your home (http://buyandsell.houselogic.com/articles/6-tips-choosing-best-offer-your-home/)

 Other web resources

More on setting the right price (http://public.findlaw.com/abaflg/flg-4-4a-1.html)

G.M. Filisko is an attorney and award-winning writer who made strategic price reductions that led to the sale of a Wisconsin property. A frequent contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.

DO YOU WANT TO SELL YOUR HOME?

    The last few years were a rough time in the real estate market, especially if you wanted to sell your home. Over the last year things have been slowly getting better, with 2012 home prices in Salem increasing about 3.5% over 2011.  However, no one predicted the turnaround that happened during the late winter and spring of this year.

    Potential home buyers who have been waiting on the sidelines are finally realizing that prices are rising, and mortgage interest rates, although still at record lows, are bound to start rising. The number of homes on the market have been steadily decreasing during the last two years, to the point where it can be very difficult for a buyer to find exactly what they are looking for in a home. There have been numerous bidding wars on homes that were priced right and in a good location.
    What that means to the home owner who has been waiting to move is that now is the perfect time to sell your home. This spring we are seeing homes selling for more than 10% over what they would have sold for last year, and in half the time!

You may want to ask: "If prices are going up, why don't I just wait until next year and then I can get more money for my home, right?"

    There are a couple of things to think about if you want to "wait & see what happens". First, the market right now is very unusual. Low inventory combined with high demand equals higher prices. It's basic economics. But all it takes to change this "perfect storm" we are currently experiencing is for a lot more people to place their homes on the market. If the market gets flooded with homes for sale it can even drive prices down again.

Also, there is the misconception that if you wait a year or two until prices increase then you will have more money (home equity) to put down on a new home. Let's look at this situation - the difference between selling your home now and selling your home in a year if prices have gone up 10%.

	2013	2014
Your Home's Sale Price	$300,000	$330,000
Cost of Your New Home	$400,000	$440,000
Difference	$100,000	$110,000

    What you see in the above example is that your new home will actually cost you $10,000 if you wait for prices to go up. Yes, you will get more money for your home, but remember that the home you buy next year is also going to be higher in price. If you can buy your new home now and wait to sell your current home by renting it out to cover all your costs  (mortgage, taxes, insurance, water, sewer, etc.) then it might make sense. Otherwise, you are better off selling now while the market is hot.
    Mortgage interest rates will almost certainly rise by next year and add even more to your costs if you wait to sell. You could actually end up paying hundreds of dollars more each month for your new home next year than if you had purchased it this year at the current record low interest rates. Let's take the above example and see what our mortgage payment would be in each scenario based upon interest rates going up just 1% over the next year.

	2013	2014
Cost of Your New Home	$400,000	$440,000
20% Down Payment	$80,000	$88,000
Mortgage Amount	$320,000	$352,000
Interest Rate	3.75%	4.75%
Monthly Mortgage Payment	$1482	$1836

   As you can see you could be paying over $350 more per month for the same home in 2014 over 2013. Of course, all these examples are based upon speculation of what is going to be happening with the real estate and financial markets. Though we deal with both these markets on a daily basis, we do not claim to be able to predict whether they will go up or down, but can only give our best guess based upon all the stats available to us.
We would love to sit down with you and talk about whether it makes sense for you to sell your home now, or maybe wait awhile. We have been serving the North Shore community for a long time, and pride ourselves on the no obligation, no pressure information we provide. Contact Jim Armstrong - 978-394-6736 or fill out this contact form 

Seller’s Market Developing in Much of the U.S.

DAILY REAL ESTATE NEWS | FRIDAY, FEBRUARY 22, 2013

Existing-home sales edged up in January, while a seller’s market is developing and home prices continue to rise steadily above year-ago levels, according to the National Association of REALTORS®. Sales rose in every region but the West, which is the region most constrained by limited inventory.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 0.4 percent to a seasonally adjusted annual rate of 4.92 million in January from a downwardly revised 4.90 million in December, and are 9.1 percent above the 4.51 million-unit pace in January 2012.

Lawrence Yun, NAR chief economist, said tight inventory is a major factor in the market. “Buyer traffic is continuing to pick up, while seller traffic is holding steady,” he said. “In fact, buyer traffic is 40 percent above a year ago, so there is plenty of demand but insufficient inventory to improve sales more strongly. We’ve transitioned into a seller’s market in much of the country.”

Total housing inventory at the end of January fell 4.9 percent to 1.74 million existing homes available for sale, which represents a 4.2-month supply at the current sales pace, down from 4.5 months in December, and is the lowest housing supply since April 2005 when it was also 4.2 months.

Listed inventory is 25.3 percent below a year ago when there was a 6.2-month supply. Raw unsold inventory is at the lowest level since December 1999 when there were 1.71 million homes on the market.

“We expect a seasonal rise of inventory this spring, but it may be insufficient to avoid more frequent incidences of multiple bidding and faster-than-normal price growth,” Yun explained.

The national median existing-home price for all housing types was $173,600 in January, up 12.3 percent from January 2012, which is the 11thconsecutive month of year-over-year price increases; that last occurred from July 2005 to May 2006. The January gain is the strongest since November 2005 when it was 12.9 percent above a year earlier.

Distressed homes — foreclosures and short sales — accounted for 23 percent of January sales, down from 24 percent in December and 35 percent in January 2012. Fourteen percent of January sales were foreclosures and 9 percent were short sales. Foreclosures sold for an average discount of 20 percent below market value in January, while short sales were discounted 12 percent.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 3.41 percent in January from a record low 3.35 percent in December; it was 3.92 percent in January 2012.

See the rest of the article at: Seller’s Market Developing in Much of the U.S.

Selling your home out of season? A great deck makes a difference

In a perfect world, no one would ever have to face the challenge of trying to sell a house when there's snow on the ground and the trees are bare. In reality, people have to sell and buy homes throughout the year.

While winter may not be the optimum season to showcase your landscaping, there is one improvement you can make that will help you boost your home's outdoor appeal no matter what the season: a deck.

When potential buyers visit your home in winter, they might not be able to envision how green and lovely your backyard will look come spring. But they will be able to see with their own eyes the square footage that a deck adds to the home's living space.

Decks, patios, sunrooms and porches have always been popular with home buyers, but real estate agents say that too often those spaces are neglected or not used to their best advantage. Yet outdoor improvements like a deck can significantly enhance your home's value and appeal. In fact, at the time of resale, a deck will recoup, on average, about 73 percent of the original cost of building it, according to Remodeling Magazine's Cost vs. Value report.

"Anything that adds living space adds value, and the least expensive way to gain space is to build a deck or turn the one you have into an outdoor room by staging it so that it flows seamlessly with the rest of the house," says Mary Beth Harrison of The Harrison Group, a Dallas-based real estate agency. "A great deck can set your home apart from others with the same interior floor plan or square footage, and deck additions typically add value when it comes time to sell."

The cooler temperatures of fall and early winter make the season a great time to add a deck to your home. Or, if you already have a deck, you can enhance its appeal by adding simple touches and accessories.

A bonus space - for example, a tiny deck or rarely used balcony off a master bedroom - can be transformed into a romantic getaway by staging it with cozy, cushioned seating and a raised firepit. You can safeguard your deck and add designer style with Latitudes deck stones, 16-inch interlocking square tiles made of natural slate or granite. Deck stones can provide an effective fire barrier that's an asset under firepits or grills, or when used to create an outdoor kitchen.

Lighting is another way to boost appeal. LED deck lighting kits, like those offered by Deckorators, are both practical and visually appealing. Adding lighting to a deck can be an important safety feature, and also helps create a warm, welcoming mood for evening entertaining.

Another improvement that speaks to both safety and visual appeal are deck railings. Decorative railings with ornate balusters, post cap and postcovers can give virtually any wood or composite lumber deck a distinctive look for a modest investment.

"More than ever before, people look at their decks as outdoor entertainment areas," says Chris Fox of Universal Forest Products, producers of Latitudes Composite decking and Railing and Deckorators, a leader in decking railing systems and deck accessories. "For some, it's a kitchen; for others, a living room. Decks can be party spaces or quiet retreats. With so many different types of deck materials, lighting, rail systems and decorative accents, it's possible to turn a plain deck into a great outdoor space."

"Potential home buyers always react positively to nice decks that look like a great place to hang out," says Harrison. "From a buyer's perspective, if all else is equal, it's true that the home with the best deck wins."

Question About the Costs if Selling a Home

Question:
 If we sell our house for 245K, and we owe 232K, the Realtor's commission is 5%, and then there are closing costs. How do we do this? Do we just show up with our check book to pay any money owed? Will there be money left over for us to have any small profit? What do we expect? Do we need to be prepared to have several thousand dollars in cash?

Answer:
Here are your typical seller costs:

• Marketing Fee/Broker Commission (using 5% as an example*)
• $12,250
• State Transfer/Stamp Taxes ($4.56 per $1000)
• $1117
• Deed Preparation
• $150
• Recording Fees (mortgage discharge)
• $75
• Misc Charges (tracking, Fedex & payoff fee, etc.)
• $200

These fees would total $13,792. Subtract this from the selling price and you end up with $231,208 towards paying off your mortgage, so you would have to bring $792 to the closing table to pay off the balance of your mortgage. Typically, you would have to bring a bank or certified check for that amount to the closing.

These numbers are only examples. Your mortgage balance changes daily. This example also does take into consideration any real estate taxes that are due or paid in advance on the date that the property closes, so the amount could be more... or less. The attorney or title company handling the closing will be computing the final numbers, so that it the best person to talk to.

*The 5% commission rate is used as an example only. Each company or office sets its own fee structure. By law, all real estate commissions are negotiable.

Fielding a Lowball Purchase Offer on Your Home

Article From BuyAndSell.HouseLogic.com

By: Marcie Geffner
Published: June 10, 2010

Consider before you ignore or outright refuse a very low purchase offer for your home. A counteroffer and negotiation could turn that low purchase offer into a sale.

You just received a purchase offer from someone who wants to buy your home. You're excited and relieved, until you realize the purchase offer is much lower than your asking price. How should you respond? Set aside your emotions, focus on the facts, and prepare a counteroffer that keeps the buyers involved in the deal.

Check your emotions

A purchase offer, even a very low one, means someone wants to purchase your home. Unless the offer is laughably low, it deserves a cordial response, whether that's a counteroffer or an outright rejection. Remain calm and discuss with your real estate agent the many ways you can respond to a lowball purchase offer.

Counter the purchase offer

Unless you've received multiple purchase offers, the best response is to counter the low offer with a price and terms you're willing to accept. Some buyers make a low offer because they think that's customary, they're afraid they'll overpay, or they want to test your limits.

A counteroffer signals that you're willing to negotiate. One strategy for your counteroffer is to lower your price, but remove any concessions such as seller assistance with closing costs, or features such as kitchen appliances that you'd like to take with you.

Consider the terms

Price is paramount for most buyers and sellers, but it's not the only deal point. A low purchase offer might make sense if the contingencies are reasonable, the closing date meets your needs, and the buyer is preapproved for a mortgage. Consider what terms you might change in a counteroffer to make the deal work.

Review your comps

Ask your REALTOR® whether any homes that are comparable to yours (known as "comps") have been sold or put on the market since your home was listed for sale. If those new comps are at lower prices, you might have to lower your price to match them if you want to sell.

Consider the buyer's comps

Buyers sometimes attach comps to a low offer to try to convince the seller to accept a lower purchase offer. Take a look at those comps. Are the homes similar to yours? If so, your asking price might be unrealistic. If not, you might want to include in your counteroffer information about those homes and your own comps that justify your asking price.

If the buyers don't include comps to justify their low purchase offer, have your real estate agent ask the buyers' agent for those comps.

Get the agents together

If the purchase offer is too low to counter, but you don't have a better option, ask your real estate agent to call the buyer's agent and try to narrow the price gap so that a counteroffer would make sense. Also, ask your real estate agent whether the buyer (or buyer's agent) has a reputation for lowball purchase offers. If that's the case, you might feel freer to reject the offer.

Don't signal desperation

Buyers are sensitive to signs that a seller may be receptive to a low purchase offer. If your home is vacant or your home's listing describes you as a "motivated" seller, you're signaling you're open to a low offer.

If you can remedy the situation, maybe by renting furniture or asking your agent not to mention in your home listing that you're motivated, the next purchase offer you get might be more to your liking.

Marcie Geffner is a freelance reporter who has been writing about real estate, homeownership and mortgages for 20 years. She owns a ranch-style house built in 1941 and updated in the 1990s, in Los Angeles.

Visit houselogic.com for more articles like this. Reprinted from HouseLogic with permission of the NATIONAL ASSOCIATION OF REALTORS®
Copyright 2011.  All rights reserved.

The First Question You Should Ask Your Listing Agent

The First Question You Should Ask Your Listing Agent

What is the most important thing a seller should look for when hiring a real estate agent to sell their house? We are often asked this question. Is it the size of the company they are licensed with? Is it their marketing program? Their years experience in the business? Should you choose the agent who suggests the highest listing price?
There are many things that should be taken into consideration when hiring someone and giving them the responsibility for selling your home. In our opinion, the most important question you can ask a potential listing agent is a simple one:

Do you truly believe that now is a good time to buy a home?

Why should this matter when hiring someone to SELL your home? Buyers are nervous about purchasing right now. They want to know they are making an intelligent choice. We believe, especially in today’s market, you need to hire someone who realizes that this is one of the best times in American real estate history to buy. If an agent doesn’t believe that, how will they be able to convince a potential buyer to buy your home?
When interviewing a real estate professional, ask them to explain why purchasing a home makes sense today. They should be able to explain it simply and effectively. See how many of the following facts (which should be shared with every potential purchaser) the agent knows:
The Wall Street Journal last week stated:

“With home sales starting to improve, and with prices now possibly forming a bottom, real estate could well be the asset class that represents the best low-risk buying opportunity out there today.”

Donald Trump was just quoted saying:

“I’m pretty sure this is a great time to go out and buy a house. And if you do, in 10 years you’re going to look back and say, ‘You know, I‘m glad I listened to Donald Trump’.”

John Paulson, a multibillionaire hedge fund operator and the investment genius who made a killing betting against housing a few years ago, is now bullish on residential real estate market. He recently said:

“If you don’t own a home, buy one. If you own one home, buy another one. If you own two homes, buy a third. And, lend your relatives the money to buy a home.”

A recent Gallup Poll showed that 67% of American’s think that now is a ‘good time’ to buy a home. The Gallup Organization went on to say:

“Overall, there is good reason for most Americans to think now is a good time to buy a house. Interest rates remain near historic lows. Home prices are down sharply, providing many incredible buys.”

The iconic financial paper in this country, the country’s most famous real estate investor, the most successful prognosticator of the housing market and 2/3 of all Americans say now is the time to buy a home. Shouldn’t your agent agree?

Bottom Line

Selling is nothing more than the transference of conviction. How can agents transfer that conviction if they themselves are not convinced? Find a listing agent who truly believes that someone should buy your home – TODAY! This is the single most important thing you should look for in a potential listing agent.