Learning Objectives part 1 of 2

1
Chapter 8
2
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

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

4
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

5
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

6
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

7
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

8
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

9
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., grandfathers clock
• Contingencies
• Mortgage approval
• Building inspection

10
Making a bid for a home (2 of 2)

• Earnest money
• Counteroffer
• Counter-counteroffer
• Risk of third party entering

11
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
• Dont wont to turn off seller so he wont
  negotiate

12
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

13
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

14
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 walls width

15
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

16
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

17
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

18
MSRP Dealers Cost

• Manufacturers Suggested Retail Price (Sticker
  price) is what the dealer is asking for a car
• Dealers cost should be the starting point of
  negotiation in buying a car
• Many recommend an initial bid of dealers cost
  100