Posted by Tom-FL on July 06, 2003 at 23:40:36:
It’s called “breaking it down to the ridiculous”. I just was reading about this in a negotiating article.
The writer related an anecdote where he was in a department store looking for sheets. His eyes rested on a set with a $1400 price tag. The sales person tried to close by pointing out that “since they will last 5 years, that’s only 58 cents per day, per person”.
Over Encumbered - Posted by Sal
Posted by Sal on July 05, 2003 at 19:05:00:
I am wanting to sell my home. Unfortunately, my first and second combined are estimated more than FMV. The specifics are as follows:
1st - $84,000 (rounded)
2nd - $33,000 (rounded)
Total - $117,000
I am waiting for realtor friend for comps. Recently taxed appraised at $89,000.
My choice(s):
Establish Price = $90,000
Offer 2 year Lease w/Option to Purchase to prospective T/B with 3%(2700) to 5% (4500) option consideration.
Monthly payments of $750 (cash flow of 207.00) on first.
Make T/B responsible for first 200.00 in monthly maintenance.
Use option consideration,cash flow, and other resources to paydown/payoff 2nd to a point where I can pass title with 1st only within 2 year lease agreement.
The question is: If the T/B wants to exercise their option anytime witin the 2 years, I’m in trouble?
Any advice?
Re: Over Encumbered - Posted by js-Indianapolis
Posted by js-Indianapolis on July 05, 2003 at 21:39:50:
The solution is simple. Raise the price. Hopefully, in 2 or three years the property will have appreciated enough to cover what you owe. Remember, the first thing an appraiser will ask your buyer, “How much is the purchase price?” I think they all have some pressure to get loans through, and give some healthy appraisals if need be.
Also, if your area is appreciating at just 5% a year, that’s up to $94,500 just after one year. Why would you sell it for $90K in TWO years?
What I’d do, if I were you, raise the price to $117K, and extend the term to 3 years. If it doesn’t appraise, lower the price to what it will sell for, and be happy you still cut your loses.
And by the way, every LO buyer asks about down payment, and monthly payments. They don’t care about he price of a home in the end.
Re: Over Encumbered - Posted by Sal
Posted by Sal on July 06, 2003 at 07:55:01:
Thanks for the response.
Although the situation may need some clarifying.
Thanks all.
Sal
Re: Over Encumbered - Posted by Jim FL
Posted by Jim FL on July 05, 2003 at 22:11:09:
JS,
One thing you said that I do disagree with, as witnessed in my own local market, and a few others where I’ve helped work deals.
You said:
“And by the way, every LO buyer asks about down payment, and monthly payments. They don’t care about he price of a home in the end.”
This used to be the case.
However, over the last 2 years or so, I’ve had most potential T/B’ers calling and asking what the price is first.
Strange perhaps?
Not really, these are the same folks getting courted by every mortgage broker in town.
The real buyers, the ones with cash money upfront, and not so good credit, still have options.
They are seeing all the houses for sale, and at least in my area, there is an abundance of “owner finance”, and “rent to own” homes for sale.
Even some builders are doing that here, because I’ve had a couple offer to sell me houses with lease options…for full market value, no thanks!
The reason my houses have still outsold others in the area, is due to the fact that they are nicer than most, (I don’t buy ugly), and I make it REAL easy for people to get in.
My mortgage broker works wonders, and has some GREAT programs to help fix blemished credit.
My end buying has certainly gone to more than the usual 18 months, now they average at 24, which is fine…if you buy right in the first place.
Anyway, just wanted to clarify that it is not always the case, where potential tenant buyers care only about “How much upfront? and how much per month?”
These certainly are the main concerns, but I’ve been getting more upfront than most, by selling nice properties, for current market value, because I buy right.
Take care,
Jim FL
Re: Over Encumbered - Posted by js-Indianapolis
Posted by js-Indianapolis on July 09, 2003 at 17:04:45:
Why do you need comps? Shoot for the moon, because it makes good business sense. If you want to get your emotions out of it, I suggest you do that already. You think you have?
“Personally, it does not sit well with me that I pass on cost relating to my personal reasons”
Right there tells me you’ve got a complex about how much you borrowed, and it’s affecting this decision.
Bottom line, someone who LO’s a house probably has bad credit, and will need to be in it for a while to cash out. You cannot predict how much your area will appreciate in the next 3 years. I’d go for what ever you can get.
and here’s a little tip, none of the LO buyers I talk to care about the price of the house. They want to know down payment, and monthly, the end. Maybe one I’ve worked with cared.
Just do it already.
Re: Over Encumbered - Posted by js-Indianapolis
Posted by js-Indianapolis on July 06, 2003 at 01:31:26:
I get people that all have $3-$5K down, or nothing down. I tell those with nothing they are what we call “renters”.
Of the ones with $$ down, I see no correlation between what price house they want, and their monthly payments. Maybe it’s because I concentrate on the monthly and up front so much, they don’t say much about the backend. It’s the American way now.
Go try to get a car dealer give you a price of a car. I’m sure if you ask, they’ll respond with, “Well, how much were you looking to spend each month?” No one talks real dollars anymore, as far as I’ve seen.