Getting the Best Price Is Not As Important As Getting the Best Value…….

We all want to get the best price and should negotiate to get it.  There are times, however, that we may want put more emphasis in negotiating for long term value over the price.  Here are some reasons why.

Real estate markets are constantly changing, and so do interest rates.  Sometimes it’s better to lock down a property with a low interest rate, rather then waiting for it go down in price or taking a chance of not landing it at all.

I have been selling real estate in California for approximately 40 years and have been an investor longer.   I started in the real estate business when interest rates were around 20%.   Though selling property was very difficult, we managed to sell, mainly through owner financing, where the sellers were willing to carry the mortgages, often in the neighborhood of 10-16% interest.   (See my pages on CAP Rates and Gross Rent Multipliers if you are interested in learning about investing in real estate) 

The rates eventually dropped down to around 12% in the mid 1980’s and stayed there for several years until they came down into the 6-9% range after the recession in the early 90’s, where they stayed into the turn of the century.   Then came the Great Recession that started in 2007, causing the rates to drop into the low 2% range by 2009.  Since that time they have been below 5% for most products, lower for residential, and a little higher at times for investment properties.

We are now in a time where a sudden raise in rates will cause a recession, keeping governments and banks to be extra careful with their actions.

Along with interest rates, there are also years that are better or worse to sell in because of Taxes.  Some other big considerations are the availability of certain properties and locations, and local business outlook.  I.e. water front or view properties, close by universities, new business of the future moving into or out of a community.

There are lots of reasons to buy now, and also reasons to wait, depending how a person is situated financially.  There are lots of reasons to sell and lots of reasons to sell as well.  It all depends on each individuals situation.

Taking into consideration all of the above, here are some questions you may want to ask yourself, before negotiating your next purchase:

  1.  Can I afford the payment long enough should there be a recession
  2.  If I can’t make the payments? will it cashflow as a rental?  Some people rent out their homes and move to a smaller home or even rent smaller home to survive a recession or job loss.  
  3.  Is the home in a rare location, where you may not be able to find again if you wait.
  4.  If the rate goes up and price goes down, what difference will it make.  Rates will eventually go up, just as they came down.  For example, a $100,000 amortized over 30 years will be bout $110 -$ 120 more per month if the rate goes up 2%.
  5. Do I want to wait things out to see if there will be a recession.   If the property value goes down 20% to $80,000 It will be pretty much a wash.  So, if you feel the rate will go up 2%, or more, you may want to go ahead with your purchase now, rather than wait and possibly not get the home you want.