Saturday, January 13, 2007

Our first bona fide offer to buy (Y1/M9/D13)

We did it. We made our first offer on a house. Here's all the boring details but no photos until I know the results.

The couple is asking $553 a square foot. That's high for the area. This style house in their neighborhood averages $450 to $475 a square foot. We offered $513 a square foot which some might call generous but I really like both the street and the lot. Also, I know that even at this price they will take a loss. See, this couple bought the house exactly two years ago with 100% financing (or 0% down) and then, they took out another $150k home equity loan last June. And they didn't put a dime into the house (all the improvements were done by the prior owner). If they accept the offer as written they will lose$140k minimum (not included the interest payments they made on that outrageous loan for the last two years).

I'm sure they will counter and ask for another $20k -- which still leaves them $120k in the hole. But I am not budging much on my total cash out of pocket so here's what I'm thinking: I'll offer to pay all the closing costs and the brokers' fees on both sides, BUT the total home price will be reduced by that figure. Why do this? Because the seller will get the same exact net dollars for the house plus their closing costs paid -- that's an advantage they didn't have before. I will get a lower cost basis in the house because the brokers' fees and the seller's closing costs are not included in the home sale price. Thus, I have a lower tax basis in the property every year. Further, the extra closing costs we'll pay are tax deductible for us. So for just a couple of thousand dollars more, we end up with serious tax savings but haven't really budged on our total cash output.

I also told my agent not to let them know they have an offer until AFTER their open house tomorrow. I did this because their house is overpriced so I want all other prospective buyers at the open house tomorrow to think: "Well, this house is overpriced and nobody is making offers so I'll wait until they lower the price to make an offer." If the agent is telling people at the open house that they already have an offer, others may panic and make an offer now and also make a generous offer because they don't know what's already on the table. Of course, this is all just speculation. The other argument is that if the seller's agent tells open house people that they have an offer it may cause them to just keep shopping.

At any rate, we should have a response by Monday night. So nerve wracking!

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