Wednesday, December 26, 2007
Resolve to be Financially Fit
After the caloric indulgences of the holidays, one naturally turns to thoughts of fitness and a better diet. Likewise, after the financial excesses of gift buying and overspending, thoughts of a balanced budget and financial fitness become New Year’s resolutions.
Before jumping into a successful physical fitness program, one must define measurable goals; lose 10 pounds, lower cholesterol by 50 points, lower your heart rate or drop 3 inches from your waistline.
Once you have established your goals, you will never have a problem finding or creating a plan that enables you to reach them.
Open any magazine or newspaper, especially after the holidays, and you will find every kind of diet and exercise plan possible. (Of course whether or not you follow these carefully laid plans, is another matter.)
What about financial fitness plans?
Just like the diet plan, it is necessary to define measurable goals.
Debt retirement. Prioritize your debt. Plan to retire the most expensive debt first. There is good debt and bad debt. Mortgage interest can be deducted. High interest credit card debt just accumulates. Avoid charging anything that you can’t pay off at the end of the month. If you can’t pay off the balance, always pay more than the minimum amount due. If you are not paying towards the principal, you will never pay it off!
Create a budget. The primary goal is to bring in more than you spend. It helps to live below your means.
Savings. If you are self employed you must set money aside for Uncle Sam first and don’t forget the rainy days! Most financial planners recommend saving cash equal to 6 months of living expenses.
Wealth Building. Buying a new home or improving the one you have is always a great way to build wealth. It’s never too early or too late to plan for a second home or rental property. Additions to your investment portfolio are especially beneficial when prices and interest rates are as low as they are today. Rental properties are great sources of passive income.
Income. There are two types of income, passive and active. Active income eventually tops out. There are only so many hours in the day. There is only so much time you can spend making money. On the other hand, passive income works for you while you are sleeping.
Financial fitness resolutions are a matter of Good Home $$s and Sense.
Before jumping into a successful physical fitness program, one must define measurable goals; lose 10 pounds, lower cholesterol by 50 points, lower your heart rate or drop 3 inches from your waistline.
Once you have established your goals, you will never have a problem finding or creating a plan that enables you to reach them.
Open any magazine or newspaper, especially after the holidays, and you will find every kind of diet and exercise plan possible. (Of course whether or not you follow these carefully laid plans, is another matter.)
What about financial fitness plans?
Just like the diet plan, it is necessary to define measurable goals.
Debt retirement. Prioritize your debt. Plan to retire the most expensive debt first. There is good debt and bad debt. Mortgage interest can be deducted. High interest credit card debt just accumulates. Avoid charging anything that you can’t pay off at the end of the month. If you can’t pay off the balance, always pay more than the minimum amount due. If you are not paying towards the principal, you will never pay it off!
Create a budget. The primary goal is to bring in more than you spend. It helps to live below your means.
Savings. If you are self employed you must set money aside for Uncle Sam first and don’t forget the rainy days! Most financial planners recommend saving cash equal to 6 months of living expenses.
Wealth Building. Buying a new home or improving the one you have is always a great way to build wealth. It’s never too early or too late to plan for a second home or rental property. Additions to your investment portfolio are especially beneficial when prices and interest rates are as low as they are today. Rental properties are great sources of passive income.
Income. There are two types of income, passive and active. Active income eventually tops out. There are only so many hours in the day. There is only so much time you can spend making money. On the other hand, passive income works for you while you are sleeping.
Financial fitness resolutions are a matter of Good Home $$s and Sense.
Labels: Financially fit, resolution
Thursday, December 13, 2007
Is High Offer Always the Best Offer?
Dear Sue
Yesterday I received two offers on my home. One was for $247,000 and the other was $235,000.
I thought picking the right offer was a no brainer. Duh, the higher one, right? My agent insisted on going over each offer with me before I made any decisions. She explained that it’s not only the offering price I should be interested in, but also the bottom line, or net proceeds to me.
I am still a little confused by all this. Could you please explain a little more?
Confused Calvin
Dear Calvin
A buyer’s agent will often write an offer at a high price in order to give a good initial impression and then request credits for the buyer. Those credits could include title and escrow fees, loan fees, home warranties and homeowner’s insurance. The agent can also request credits in lieu of repairs. It is not uncommon to ask for carpet and roof allowances for example.
The only way that a seller can decide which offer to take is by calculating all of the closing costs and deducting that amount from the offering price. This will reveal the bottom line.
In addition to the buyer’s requested credits, the seller needs to consider other closing costs like brokerage fees, title and escrow fees, transfer taxes, pest reports and repairs if required, septic and well inspections and tests, prorated taxes, prorated interest on existing loans, and any other outstanding liens.
In the example you provided, Offer A, for $247,000, could have included a request from the seller to pay $10,000 in buyer’s closing costs and 100% of the title and escrow fees.
Let’s assume that the property is listed with a 6% brokerage fee. Subtract $14,820 for brokerage fee. Subtract $10,000 for buyer closing costs. Subtract $2600 for title and escrow and home warranty. Subtract $1000 for miscellaneous including pest repairs. Subtract $272 for transfer tax. The total cost of the sale is approximately $28,692. This does not take into consideration the existing loans or any other property tax and interest perorations. Assuming the property is free and clear, the bottom line of Offer A is $218,308.
Offer B is $235,000. This offer requests that title and escrow and home warranty is to be split 50/50 between buyer and seller. Subtract $14,100 for brokerage fee. Subtract $1300 for title escrow and home warranty. Subtract $1000 for miscellaneous including pest repairs if required. Subtract $259 for transfer tax. The total costs are $16,659. The bottom line of Offer B is $218,341.
While Offer A appears at first to be substantially better than Offer B, after subtracting all the closing costs both offers are essentially the same.
I always say, “The offer giveth and the addendum taketh away. But in this case, the offer giveth and the terms taketh away.”
However, the bottom line is not the only thing to consider.
One consideration would be the financial strength of each buyer. Is either one paying all cash, putting a substantial amount down or doing 100% financing? Did the offer include a buyer pre-approval letter? The scales should tip towards the most financially fit buyer.
Another consideration would be contingencies. While inspection contingencies are standard even with an “as-is” sale, a contingency giving the buyer time to sell a property in order to come up with the money for a down payment can be dicey at best.
Does the escrow period and other time frames such as inspection periods meet the needs of the seller? All of these factors must be taken into consideration.
Choosing the best offer involves many factors. Calculating the bottom line, evaluating the financial strength of the buyer and considering contract terms and contingencies are matters of good Home $$’s and Sense.
Yesterday I received two offers on my home. One was for $247,000 and the other was $235,000.
I thought picking the right offer was a no brainer. Duh, the higher one, right? My agent insisted on going over each offer with me before I made any decisions. She explained that it’s not only the offering price I should be interested in, but also the bottom line, or net proceeds to me.
I am still a little confused by all this. Could you please explain a little more?
Confused Calvin
Dear Calvin
A buyer’s agent will often write an offer at a high price in order to give a good initial impression and then request credits for the buyer. Those credits could include title and escrow fees, loan fees, home warranties and homeowner’s insurance. The agent can also request credits in lieu of repairs. It is not uncommon to ask for carpet and roof allowances for example.
The only way that a seller can decide which offer to take is by calculating all of the closing costs and deducting that amount from the offering price. This will reveal the bottom line.
In addition to the buyer’s requested credits, the seller needs to consider other closing costs like brokerage fees, title and escrow fees, transfer taxes, pest reports and repairs if required, septic and well inspections and tests, prorated taxes, prorated interest on existing loans, and any other outstanding liens.
In the example you provided, Offer A, for $247,000, could have included a request from the seller to pay $10,000 in buyer’s closing costs and 100% of the title and escrow fees.
Let’s assume that the property is listed with a 6% brokerage fee. Subtract $14,820 for brokerage fee. Subtract $10,000 for buyer closing costs. Subtract $2600 for title and escrow and home warranty. Subtract $1000 for miscellaneous including pest repairs. Subtract $272 for transfer tax. The total cost of the sale is approximately $28,692. This does not take into consideration the existing loans or any other property tax and interest perorations. Assuming the property is free and clear, the bottom line of Offer A is $218,308.
Offer B is $235,000. This offer requests that title and escrow and home warranty is to be split 50/50 between buyer and seller. Subtract $14,100 for brokerage fee. Subtract $1300 for title escrow and home warranty. Subtract $1000 for miscellaneous including pest repairs if required. Subtract $259 for transfer tax. The total costs are $16,659. The bottom line of Offer B is $218,341.
While Offer A appears at first to be substantially better than Offer B, after subtracting all the closing costs both offers are essentially the same.
I always say, “The offer giveth and the addendum taketh away. But in this case, the offer giveth and the terms taketh away.”
However, the bottom line is not the only thing to consider.
One consideration would be the financial strength of each buyer. Is either one paying all cash, putting a substantial amount down or doing 100% financing? Did the offer include a buyer pre-approval letter? The scales should tip towards the most financially fit buyer.
Another consideration would be contingencies. While inspection contingencies are standard even with an “as-is” sale, a contingency giving the buyer time to sell a property in order to come up with the money for a down payment can be dicey at best.
Does the escrow period and other time frames such as inspection periods meet the needs of the seller? All of these factors must be taken into consideration.
Choosing the best offer involves many factors. Calculating the bottom line, evaluating the financial strength of the buyer and considering contract terms and contingencies are matters of good Home $$’s and Sense.
Labels: bottom line, credits, high offer
Wednesday, December 5, 2007
Should Buyer Go Directly to Seller and Bypass Seller’s Lousy Agent?
Dear Sue,
We made an offer on a home that we loved. The offer was contingent on the sale of our home.
My agent said she thought because the property had been on the market quite awhile, a contingency offer would probably be considered.
After the offer was presented, the seller’s agent told our agent that the offered price was acceptable, but a contingency offer wasn’t.
The seller’s agent then said that we were asking too much for our home and it would never sell. Our agent said that their agent isn't local and doesn't know our market.
Yesterday morning the seller’s agent finally called our agent and said to expect a fax with a counter offer on Friday afternoon.
At the exact time our offer was to expire, the seller’s agent called and started complaining about the asking price of our home again.
Our agent said that actually there was no longer a valid offer because it had expired. She also told the seller’s agent that we were very unhappy and couldn’t understand why the seller didn’t have the courtesy to respond to a sincere offer in a timely manner.
Isn’t an agent remiss not to make sure their clients respond to an offer before it expires?
I don’t feel that this agent is representing her clients very well.
Is it unethical for us to try to contact the owners directly and see if they are even aware that a formal offer was made?
As you can tell, we really like the house but we think that the seller’s agent is lousy.
Would appreciate your thoughts on the subject.
Thanks,
Dissed Diane
Dear Dissed,
You don’t know whether or not the seller’s agent is speaking on behalf of the seller or themselves. Surprisingly, many agents do like to act as the principal. Others choose to represent the wishes of their client.
In any event, it is not wise to go directly to the seller. You do not want to alienate the seller or their agent. If you want that property it is important to keep good relationships with all parties involved.
That agent was selected by the seller to represent them in the sale of their home. Who knows? The agent could even be a relative or close family friend. Regardless, there is a relationship of trust present between the seller and the agent.
I would recommend that you resubmit the offer with a cover letter to the seller expressing your feelings about the property. Be sure to let the seller know that you are not interested in selling your home unless you can buy his or her home.
Since it is difficult for an out of area agent to know the values, include the CMA (Comparative Market Analysis) on which you based your property’s value. It is difficult to argue with the facts. The numbers presented properly should keep opinions and emotions out of the equation.
I think it is also helpful to offer to provide periodic reports to the seller’s agent so that she is aware of the activity around your home.
Providing a letter to the seller and providing information to the seller’s agent regarding the basis of your home’s price and the activity surrounding it are all matters of good Home $$s and Sense.
We made an offer on a home that we loved. The offer was contingent on the sale of our home.
My agent said she thought because the property had been on the market quite awhile, a contingency offer would probably be considered.
After the offer was presented, the seller’s agent told our agent that the offered price was acceptable, but a contingency offer wasn’t.
The seller’s agent then said that we were asking too much for our home and it would never sell. Our agent said that their agent isn't local and doesn't know our market.
Yesterday morning the seller’s agent finally called our agent and said to expect a fax with a counter offer on Friday afternoon.
At the exact time our offer was to expire, the seller’s agent called and started complaining about the asking price of our home again.
Our agent said that actually there was no longer a valid offer because it had expired. She also told the seller’s agent that we were very unhappy and couldn’t understand why the seller didn’t have the courtesy to respond to a sincere offer in a timely manner.
Isn’t an agent remiss not to make sure their clients respond to an offer before it expires?
I don’t feel that this agent is representing her clients very well.
Is it unethical for us to try to contact the owners directly and see if they are even aware that a formal offer was made?
As you can tell, we really like the house but we think that the seller’s agent is lousy.
Would appreciate your thoughts on the subject.
Thanks,
Dissed Diane
Dear Dissed,
You don’t know whether or not the seller’s agent is speaking on behalf of the seller or themselves. Surprisingly, many agents do like to act as the principal. Others choose to represent the wishes of their client.
In any event, it is not wise to go directly to the seller. You do not want to alienate the seller or their agent. If you want that property it is important to keep good relationships with all parties involved.
That agent was selected by the seller to represent them in the sale of their home. Who knows? The agent could even be a relative or close family friend. Regardless, there is a relationship of trust present between the seller and the agent.
I would recommend that you resubmit the offer with a cover letter to the seller expressing your feelings about the property. Be sure to let the seller know that you are not interested in selling your home unless you can buy his or her home.
Since it is difficult for an out of area agent to know the values, include the CMA (Comparative Market Analysis) on which you based your property’s value. It is difficult to argue with the facts. The numbers presented properly should keep opinions and emotions out of the equation.
I think it is also helpful to offer to provide periodic reports to the seller’s agent so that she is aware of the activity around your home.
Providing a letter to the seller and providing information to the seller’s agent regarding the basis of your home’s price and the activity surrounding it are all matters of good Home $$s and Sense.
Labels: contingency offer, go direct to seller, lousy agent
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