Lets first talk about the buyers. Are buyer's telling themselves lies or believing lies?
Please forgive the short advertisement below but there is a point.
Today, I did an open house at Chelsea Park. Chelsea Park is a new development at 3620 19th Street half a block from Dolores Park. 39 brand new condos, the remaining condos for sale range in size from 1200 - 1500 square feet. The seller's actions show that they are ready to sell the remaining units. In fact, last Monday they did hefty price reductions. One 1501 square foot home with a HUGE and I do mean huge deck that overlooks the courtyard was reduced from $1,249,000 to $949,000($632/SqFt). Holy cow! Sometimes we see HUGE price reduction and it's $30,000 off a $1 Million price tag. That's not HUGE. 24% off the marketing price is huge! $300,000 reduction is huge!
For those of you who consider buying based on price per square foot. Like properties in this area with similar square footage recently sold at $750/SqFt. Even 1282 Church St. is a listed at $750/SqFt and it's a TIC.
I hear buyer's asking themselves lots of questions or believing the media's lies? Will prices go down further? No one has a crystal ball. There are many seller's out there who will do a price reduction. What a seller wants is for you and your agent to be smart and write them an offer. They would prefer if you called me and said, "Herb, lets write an offer on "X" property listed for: $1,125,000." We start at $1,027,018 and settle at $1,068,075.
The real question, is, "what is the cost of money?"
Lets say we follow the above example and you're putting 20% down. Your mortgage professional says, I have good news. The rate on your 5 year fixed interest only loan is 5.125% (5 1/8th).
List Purchase Rate Loan Mortgage Annual Taxes
$1.125M $1,068,750 5.125% $855,000 $3651.56 $12176
$1M $960K 6.75% $768,000 $4320.00 $10944
The above information is an estimate only.
You decided, "lets wait, prices will go lower." 6 months go by, you continue to pay rent on your place at $1600/month. Rates are now 6.75%. Holy cow! That's an extra $668.44/month. Your purchase price was $1,068,075 (20% down payment). Your monthly tax bill is $1014.67/month(1.14%). Have you saved money? Over 5 years you are spending an additional $40,106 in interest with the 6.75% interest rate. You waited for the price reduction to $1,000,000 which was a great idea, however it cost you more on a monthly basis.
- You should pick up the phone and call me on my mobile (415)341-8881.
- You say: "Herb, lets make an offer on this property today."
We spend a few days countering back and forth and we settle somewhere in between $1M and $1.125M. So what your annual taxes are over $1,200 more annually at the higher price. You saved just about that in one month's mortgage payment. If you got a 30 year fixed,ask yourself, am I going to stay there for the next 30 years?
Okay, so your price range is $1M, what about somewhere around $650-700K? You and I negotiated a $655K purchase price on a property listed for $700,000.
List Purchase Rate Loan Mortgage Annual Taxes
$700K $655K 5.125% $524,000 $2237.92 $7467
$625K $580K 6.75% $464,000 $2619.00 $6612
The above information is an estimate only.
In the red ink you waited 6 months for another property and you saved $75,000 in the purchase price. Isn't the real cost your monthly expenses? The higher interest rate is an additional $261/mo($15,660 over 5 years). By waiting 6 months, how much did you really save? Same question, are you going to live here for the next 30 years?
Of course, I have a vested interest in your buying real estate. Duh! But don't you? Many times, I see some of the same buyers running from one end of the city to the other and they are still asking themselves the same question. Is today the day?
Is it time to REFI?
Really quick. Last week one of my past clients refinanced their 6.375% loan. They locked in an interest rate of 4.75%.
Wow, so if you're waiting for rates to go lower, stop waiting. There are some great rates out there and some good savings.
Do I have to give you an example?
- $500K today's payment: ~$2700/mo.
- The new payment is estimated at ~$2100/mo.
- Can you use an extra $500 per month?
Have a great day.
- MY NEXT TWO BLOGS
- Loan Modifications
- A very personal one on one of the nicest bar owners in the city. Peter Athanas, the owner of Kilowatt Bar.
