Expert: Jessica Bryan - 10/10/2005

Question
Thanks for your time,

My wife and I are planning on buying our first home. We make about $90,000 gross, have GREAT credit and pay off our credit card and bills every month in full, except for one car that is $500 per month at %1.9 interest (includes car insurance). The other car we own and only use to commute to work. We moved back to Michigan from Hawaii ( we are not crazy) to start a family and as previously stated we have little debt and great credit but we have very little for a down payment. We also want to minimize our mortgage because we want to have a family and have my wife stay home, so we plan on making about $50000 gross per year in a about 12 months. The Michigan housing market is very soft and there are many homes for sale that are vacant. Our realtor has suggested that we offer what people ask and then get them to pay the closing costs so we can minimize our out of pocket expenses. Although this makes some sense to me, some of these homes have been vacant for some time and the economy in Michigan is terrible. I feel that we should make some very low offers on some houses that are vacant do to the level of competition and home owners current situations. What would you suggest? I also did some research on a house that was for sale for about 190,000, and checked the taxes on the house and they were at $900, meaning same onwer for a long time because of a 3% cap on taxes on the appreciation. So I was thinking that the onwer probably owns the house outright or close to it and is retired on some lake house up north and would take a low offer because he is paying 2 mortgages (the house is vacant).

We are also thinking of leveraging ourselves by possibly buying a duplex and living in one side but checking all options, we have a 6 month lease agreement and are in our 1st month of the lease so we have some time. I can researchc and look at houses all day so any advice you have I will certainly appreciate.

thanks again for your time,
Mark

Answer
Dear Mark;
Buying a home in a soft market gives you quite an advantage.
I don't see any reason to pay full price for a home that has been on the market for a long time.  Offering less and asking for the owner to pay closing costs as well is even reasonable.  Obviously, I am not totally familiar with your particular market area and therefore cannot speak to the particulars, but generally speaking, when the housing market and economy are depressed, and when a house is vacant sellers are more desperate. I think that "low-balling" is worth a try.  The worst that can happen is the Seller turns you down. At that point you come back with a slightly more reasonable offer and then begin the negotiations. For example, on a home that is $190,000 asking price, why not offer approximately 10% less.  Start at $170,000 with $5,000 in closing costs.  The seller may say $180,000 with no closing costs and you might counter at $175,000 with $2,500 closing costs. Who knows?  It is always dependent upon how long the home is on the market, what the owner is doing with their money, whether the home is paid off or whether they have refinanced, etc.

As for the duplex idea…this is an excellent way to pay for one's mortgage.  It allows you to have good write offs and income while living in your home.  You should do lots of homework though before making a purchase of this type.  You will need to know rental history and allow for the possibility of vacancy.  You might want to speak with a lender and perhaps a financial advisor to make sure you can do this comfortably.

On another subject, I am a little concerned that your agent isn't giving you the best advice.  If I were you, I would have a talk with the agent and make sure that he or she is working with your best interests in mind.  Is this a Buyer's agent?  If not you won't be getting good advice because Seller's agents or listing agents are motivated to make the sale and work for the seller.

I hope that this helps you.
Good luck and Best Wishes.
Sincerely,
Jessica Bryan
Managing Broker
House to Home Realty Services