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Gustaf Karlholm
Broker

RSVP Real Estate
1823 NE Ravenna Blvd
Seattle, WA 98105
Phone: 206-245-8320
Cell: (206) 245-8320

Why Buying a House is a Good Idea

 

The Best Investment

As a fairly general rule, houses appreciate about four or five percent a year. Some years will be more, some less. The figure will vary from neighborhood to neighborhood, and region to region.

 

Five percent may not seem like that much at first. Stocks (at times) appreciate much more, and you could easily earn over the same return with a very safe investment in treasury bills or bonds.

 

But take a second look…

Presumably, if you bought a $200,000 house, you did not pay cash for the house. You got a mortgage, too. Suppose you put as much as twenty percent down – that would be an investment of $40,000.

 

At an appreciation rate of 5% annually, a $200,000 house would increase in value $10,000 during the first year. That means you earned $10,000 with an investment of $40,000. Your annual "return on investment" would be a whopping twenty-five percent.

 

Of course, you are making mortgage payments and paying property taxes, along with a couple of other costs. However, since the interest on your mortgage and your property taxes are both tax deductible, the government is essentially subsidizing your house purchase.

 

Your rate of return when buying a house is higher than most any other investment you could make.

 

Determining Your Offer Price

 

When you prepare an offer to purchase a house, you already know the seller’s asking price. But what price are you going to offer and how do you come up with that figure?

 

Determining your offer price is a three-step process.

 

First, you look at recent sales of similar properties to come up with a price range. Then, you analyze additional data, such as the condition of the house, improvements made to the property, current market conditions, and the circumstances of the seller. This will help you settle on a price you think would be fair to pay for the house. Finally, depending on your negotiating style, you adjust your "fair" price and come up with what you want to put in your offer.

 

Comparable Sales

 

The first step in determining the price you are willing to offer is to look at the recent sales of similar houses. These are called "comparable sales." Comparable sales are recent sales of houses that compare closely to the one you are looking to purchase. Specifically, you want to compare prices of houses that are similar in square footage, number of bedrooms and bathrooms, garage space, lot size, and type of construction.


If the house you are interested in is part of a tract of houses, then you will most likely find some exact model matches to compare against one another.

 

There are three main sources of information on comparable sales, all of which are easily accessed by a real estate agent. It is somewhat more difficult for the general public to access this data, and in some cases impossible. Two of the most obvious information sources are the public record and the Multiple Listing Service.

 

Writing an Offer to Purchase Real Estate

 

Once you find the house you want to buy, the next step is to write an offer – which is not as easy as it sounds. Your offer is the first step toward negotiating a sales contract with the seller. Since this is just the beginning of negotiations, you should put yourself in the seller’s shoes and imagine his or her reaction to everything you include. Your goal is to get what you want, and imagining the seller’s reactions will help you attain that goal.

 

The offer is much more complicated than simply coming up with a price and saying, "This is what I’ll pay." Because of the huge dollar amounts involved, especially in today’s litigious society, both you and the seller want to build in protections and contingencies to protect your investment and limit your risk.

 

In an offer to purchase real estate, you include not only the price you are willing to pay, but other details of the purchase as well. This includes how you intend to finance the house, your down payment, who pays what closing costs, what inspections are performed, timetables, whether personal property is included in the purchase, terms of cancellation, any repairs you want performed, which professional services will be used, when you get physical possession of the property, and how to settle disputes should they occur.

 

It is certainly more involved than buying a car. And more important.

 

Buying a house is a major event for both the buyer and seller. It will affect your finances more than any other previous purchase or investment. The seller makes plans based on your offer that affect his finances, too. However, it is more important than just money. In the 1 to 2 hours it takes to write an offer you are making decisions that affect how you live for the next several years, if not the rest of your life. The seller is going to review your offer carefully, because it also affects how he or she lives the rest of their life.

 

That sounds dramatic. It sounds like a cliché. Every real estate book or article you read says the same thing.

They all say it because it is true.

 

Choosing the Best Loan

 

There are many types of mortgage programs available. The right type of loan for you depends upon several factors:

  1. Your current financial picture.
  2. How you expect your finances to change.
  3. How long you intend to keep your house.
  4. How comfortable you are with the possibility your mortgage payment may change in the future.

When considering loan programs, the first decision is usually if you prefer a fixed-rate mortgage or adjustable-rate mortgage. For example, a 15-year fixed-rate mortgage can save you thousands of dollars in interest payments over the life of the loan, but your monthly payments will be higher. An adjustable-rate mortgage may get you started with a lower monthly payment than a fixed-rate mortgage, but your payments could increase when the interest rate changes.

 

Use this comparison table to help you determine your preference. After you decide, visit the fixed-rate mortgage or adjustable-rate mortgage sections to learn more about the features and benefits of fixed-rate or adjustable-rate loan programs.

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