February 28th, 2023 | Buyers
Is It Really About The Money? Why Buyers Should Pay More!
I never used to love running, in fact, I probably disliked it at one point. It wasn’t until grade 9 that I started to fall in love with the sport, it took a gym teacher who forced us to run 1-2 KM ahead of each class for me to slowly see the beauty in it. Since then, running has always been a part of my life, a sort of therapy if you will! I zone out, I think about everything and nothing, all at once. Every once in a while, I like to push myself, and sometimes I even like to race … more to push my mind than my body.
A few years back I took part in the Scotiabank half-marathon, a great time! I remember feeling awesome for about 20 KM or so, but all of sudden, I felt like I had hit a wall. I wanted to walk, I needed to walk! I saw the marker, “500m” it said, but man, it felt like 500 miles at that point. I was done – at least it felt that way. But, I knew I wouldn’t be happy if I had run all that way only to give up at the finish line – I had to dig deep. My legs felt like led, my previous pace was shot, but I pushed, one stride at a time and right through the finish line – that’s how you finish … through it, not at it … you drive yourself forward and accelerate through … it feels fantastic! (then you collapse)
Now, let’s change gears for a second, let’s talk about a different kind of race, a negotiation. Negotiations can certainly feel like marathons, you feel good, then … not so much.
It’s the 11th hour of a negotiation, the Buyer and Seller have been going back and forth for days and are now locked in a standstill! The Buyer has come up from their original offer and the Seller down from their original expectation, they are now 20K apart on a multi-million-dollar deal … it’s a game of chicken (it seems) – who should budge?
We’ll get straight to the point – our opinion, the Buyer! Sorry Buyers, it’s not that we’re siding with the Seller here, but we’d like to objectively look at your situation and explain why we believe you’re making a mistake in this case.
First, let’s make a few assumptions, ok? You presumably like, if not love, this home that you’re bidding on. Further, you’ve likely been looking for some time and may have even lost out on a few bids. Lastly, you’ve been pre-approved and are certain that you can afford the purchase and the 20K premium – but, you’re “just not comfortable.”
Fair.
But, ask yourself, is it really about the money at this point? Let’s use some real numbers, shall we?
- Asking Price (of your dream home) = $2M
- Your Original Offer = 1.8M
- Your “Max” (as you’ve articulated to your Realtor + self) = 1.860M
- Your Pre-Approval (Mortgage) = 1.950M
- The Seller’s Counter = 1.9M
After much back and forth, the Seller has agreed to come down further to 1.880M, but you’re still 20K apart, and 1.860M was your max when you set out to bid on this home. While you’re approved up to 1.950M, you don’t want to go that high and decide to stay put. You’re at 1.860M, the Seller is at 1.880M, and that’s that! The deal hangs in the balance.
Let’s look at the actual cost difference between these 2 scenarios:
Scenario 1 – PP 1.860M
- 35% down (or $651K), 30-yr amortization, 5.14 5-yr/fixed
- LTT – $67,350
- $6,554/month
Scenario 2 – PP 1.880M
- 35% down (or $658K / +7K), 30-yr amortization, 5.14 5-yr/fixed
- LTT – $68,150 (+800)
- $6,624/month (+70)
Difference Between Scenario 1 & Scenario 2
- Down – 7K more
- LTT – $800 more
- Mortgage – $70/mth
So, the numbers show the difference being an upfront cost of $7.8K more and $70 more per month to carry the mortgage. Naturally, there is also interest accrued on the additional 20K over the term of the loan – but, for simplicity, we’re looking at monies upfront + monies per month.
Is it still really about “comfort” or “money”? Or perhaps, could it be that you’ve hit a wall? A mental block maybe??
These “walls”, while seemingly physical, tangible, objective reasons for slowing down or wanting to give-up, are actually more mental, wouldn’t you agree? It’s why I fell in love with running – the mental component more so than they physical. This idea that you can push through the fatigue and come out stronger on the other side – very romantic, you know?
And while we understand that unlike a run, this is really money we’re talking about, here’s the bottom line …
The Seller gets 1 shot at selling – that’s it and that’s all. Once the property is sold, the Seller cannot go back and gain from any appreciation in the property, they don’t have the luxury of time anymore, whatever they sell for, that’s their bottom line. Meanwhile, for the Buyer, you have time on your side, while you may pay 20K more up front, you can wait out and seek it on the tail end (when you go to sell). The 20K, in our opinion, is more real to a Seller, as their account will either see an additional 20K on closing or not, period. For the Buyer, it represents 7.8K more up front + $70 in additional monthly payments. In this price range, if 10K or $70/month are deal breakers, you must reduce your budget. The Buyer may not know it or be willing to accept it, but this is a mental block. And in our opinion, it’s the Buyer that’ll lose out, especially if the home in question is “the one” for them!
Just remember, run through the finish line – that’s how you finish … through it, not at it … you drive yourself forward and accelerate through … it feels fantastic! (then you collapse)
