Chapter 8
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Chapter 8. Learning Objectives (part 1 of 3). Decide whether to buy or rent. Obtain information on houses for sale Understand the benefits and costs of using a realtor to buy or sell a house Explain the common features of a bid to buy a home

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Learning objectives part 1 of 3 l.jpg
Learning Objectives (part 1 of 3)

  • Decide whether to buy or rent.

  • Obtain information on houses for sale

  • Understand the benefits and costs of using a realtor to buy or sell a house

  • Explain the common features of a bid to buy a home

  • Discuss the strategies of setting an asking price for a home


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Learning Objectives (part 2 of 3)

  • Discuss the strategies of developing a bid price for a home

  • Discuss the problems associated with the concept of square footage of living area

  • Discuss how to select a home inspector

  • Discuss the tax treatment of moving expenses


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Learning Objectives (part 3 of 3)

  • Decide what type of car you should buy

  • Explain the relevance of MSRP and dealer's cost in buying a new car

  • Discuss how to make an initial bid for a new car


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Buy vs. Rent Decision (1 of 2)

  • Sometimes no choice

    • Lack down payment

    • May not qualify for a mortgage

  • Family needs

  • Expected term of occupancy

  • Expected change in housing prices


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Buy vs. Rent Decision (2 of 2)

  • Impact on income taxes

    • Property taxes

    • Interest on mortgage

  • Opportunity cost of money

  • Mortgage interest rate

  • Closing costs


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Steps to buying a home

  • Decide type of housing desired

  • Identify desirable communities

  • Find out what is on the market

    • www.realtor.com

    • Multiple listing service (MLS)

  • Decide on whether or not to use a realtor


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Benefits & Costs of Using a realtor

  • Selling realtor vs. buying realtor

  • Agency problem

  • A listed seller has already agreed to pay for the buying realtor

  • Realtor gives access to all properties in the MLS

  • Realtor does not show FSBOs


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Making a bid for a home (1 of 2)

  • All properties have asking prices

  • Projected closing and possession dates

  • Details of what is being purchased

    • E.g., grandfather’s clock

  • Contingencies

    • Mortgage approval

    • Building inspection


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Making a bid for a home (2 of 2)

  • Earnest money

  • Counteroffer

  • Counter-counteroffer

  • Risk of third party entering


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Setting the first bid price

  • Desirability of property to buyer

  • Current level of activity in the market

    • If market hot, a good property can go in first day for a price greater than the bid

    • In a slow market, a 5 or 10% cut from the asking may work

  • Don’t won’t to turn off seller so he won’t negotiate


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Using a Realtor to Sell

  • Can try FSBO

    • Incur own marketing expenses

    • Miss substantial traffic

  • Exclusivity

  • Commissions for buying & selling realtor

  • Expiration Date of contract

  • Asking Price


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Setting the initial asking price

  • Realtor recommendation

    • Highballing & Lowballing

  • Too high

    • Lose potential buyers

    • Remains on market

    • The longer on the market, the less desirable

  • Too low => forgo profit


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Square feet of living area

  • No universal definitions for measurements

  • Some people count finished basements

  • Measurement can be based on exterior of house, interior, or from the middle of the wall’s width


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Choosing a home inspector

  • Most states have no licensing requirements

  • Realtors can recommend

  • National Association for Home Inspectors

  • American Society of Home Inspectors

  • No guarantees


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Tax Treatment of Moving Expenses

  • Mileage test

  • Time test

  • Three categories of expenses

    • Packing, shipping & insurance

    • Travel to new residence

    • Utility disconnections and hook-ups


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Selecting a car to buy

  • New vs. Used

    • New has high depreciation rates

    • Used has higher cost of maintenance & repairs

  • To minimize average annual cost of car ownership

    • Buy a slightly used car and drive it until it dies


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MSRP & Dealer’s Cost

  • Manufacturer’s Suggested Retail Price (Sticker price) is what the dealer is asking for a car

  • Dealer’s cost should be the starting point of negotiation in buying a car

  • Many recommend an initial bid of dealer’s cost + $100


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