2008 Aug 4th

Making An Offer on a Hoboken Condo or House

A Different Kind of Gambling

One of the most frequent questions I hear from buyers is “Do you think the seller will accept my offer?  Is my offer is good enough?”  I often reply with an unorthodox response.

I’ll ask the buyer if he has ever played blackjack and then I present them with a hypothetical scenario.  Let’s say you’ve got eleven, the person next to you has eighteen and the dealer is showing a six.  According to “the book”, you should double your bet as the next card is most likely to be a ten, your neighbor should stand, and the dealer (assuming his down card is a ten) is most likely to bust.  But when you take your next card its a three, your neighbor takes a hit and gets a three and the dealer (whose down card was in fact a ten) also pulls a three.  The dealer beats you 19 – 14 and your neighbor wins 21 – 19.  You played right and lost; he played wrong and won.  That’s just not fair!

No it’s not – but this is not science, it’s gambling.  Bidding on a home is a form gambling too.  Sellers gamble that the price for which they list their property is right and will attract interest.  Buyers gamble that the offer they make is high enough for the seller to accept, or that they won’t get outbid.  You can make a very fair offer (maybe even full price) and still get outbid.  That’s playing right and losing.

When You Finally Find the Perfect Property

I also like to tell people this very appropriate (and 100% true) story.  When my husband and I were house-hunting in Hoboken nine years ago, I called him to say I had found the “perfect” house that had everything we wanted.  I urged him to come look at it right away.  He agreed that it was an outstanding house and that we should make an offer.  Although the house had just come on the market, we knew that there already was an offer on the place, but that it had not yet been accepted, so we assumed it was low.  We chatted about how much we should offer and I suggested we offer $10,000 below asking price.  My husband said that was very fair, but asked me one simple question:

“If we offer $10,000 below asking, and you don’t get the house, how bad are you going to feel?”  My answer was that I would be “devastated.”

Take a Long Range View

There’s your answer.  Are you willing to bet the house of your dreams to save $60 a month?  That’s right – $10,000 more at 6% on a 30 year fixed mortgage only adds 60 tax-deductible dollars a month to your mortgage payment.  Do you think that’s a good wager?  Ultimately we made a full price offer, got the house and now, nine years later, couldn’t be happier.  If you are considering how much to bid, ask yourself if there are other comparable houses or apartments that you will be equally happy with, or if losing this particular property will crush you.  Determining how much to offer will be a much easier decision.

 

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  1. Joanne

    Can you tell me how how you calculated $60 per month extra for offering $10,000 more? I think that’s a great way to look at it and just can’t get the math!

    Thanks!

  2. Ron

    in excel:

    =PMT(.005,360,10000)

    .005 is the monthly interest rate, in this case 6%/12
    360 is the number of months – 12 * 30 years
    10,000 is the principal

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