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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
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
learning objectives part 2 of 3
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
learning objectives part 3 of 3
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
buy vs rent decision 1 of 2
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
buy vs rent decision 2 of 2
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
steps to buying a home
Steps to buying a home
  • Decide type of housing desired
  • Identify desirable communities
  • Find out what is on the market
    • Multiple listing service (MLS)
  • Decide on whether or not to use a realtor
benefits costs of using a realtor
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
making a bid for a home 1 of 2
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
making a bid for a home 2 of 2
Making a bid for a home (2 of 2)
  • Earnest money
  • Counteroffer
  • Counter-counteroffer
  • Risk of third party entering
setting the first bid price
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
using a realtor to sell
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
setting the initial asking price
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
square feet of living area
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
choosing a home inspector
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
tax treatment of moving expenses
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
selecting a car to buy
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
msrp dealer s cost
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