1. Chapter 8

2. Learning Objectives (part 1 of 3) Decide whether to buy or rent. Obtain information on houses for sale Understand the benefits and costs of using a realtor to buy or sell a house Explain the common features of a bid to buy a home Discuss the strategies of setting an asking price for a home

3. Learning Objectives (part 2 of 3) Discuss the strategies of developing a bid price for a home Discuss the problems associated with the concept of square footage of living area Discuss how to select a home inspector Discuss the tax treatment of moving expenses

4. Learning Objectives (part 3 of 3) Decide what type of car you should buy Explain the relevance of MSRP and dealer's cost in buying a new car Discuss how to make an initial bid for a new car

5. Buy vs. Rent Decision (1 of 2) Sometimes no choice Lack down payment May not qualify for a mortgage Family needs Expected term of occupancy Expected change in housing prices

6. Buy vs. Rent Decision (2 of 2) Impact on income taxes Property taxes Interest on mortgage Opportunity cost of money Mortgage interest rate Closing costs

7. Steps to buying a home Decide type of housing desired Identify desirable communities Find out what is on the market www.realtor.com Multiple listing service (MLS) Decide on whether or not to use a realtor

8. Benefits & Costs of Using a realtor Selling realtor vs. buying realtor Agency problem A listed seller has already agreed to pay for the buying realtor Realtor gives access to all properties in the MLS Realtor does not show FSBOs

9. Making a bid for a home (1 of 2) All properties have asking prices Projected closing and possession dates Details of what is being purchased E.g., grandfather’s clock Contingencies Mortgage approval Building inspection

10. Making a bid for a home (2 of 2) Earnest money Counteroffer Counter-counteroffer Risk of third party entering

11. Setting the first bid price Desirability of property to buyer Current level of activity in the market If market hot, a good property can go in first day for a price greater than the bid In a slow market, a 5 or 10% cut from the asking may work Don’t won’t to turn off seller so he won’t negotiate

12. Using a Realtor to Sell Can try FSBO Incur own marketing expenses Miss substantial traffic Exclusivity Commissions for buying & selling realtor Expiration Date of contract Asking Price

13. Setting the initial asking price Realtor recommendation Highballing & Lowballing Too high Lose potential buyers Remains on market The longer on the market, the less desirable Too low => forgo profit

14. Square feet of living area No universal definitions for measurements Some people count finished basements Measurement can be based on exterior of house, interior, or from the middle of the wall’s width

15. Choosing a home inspector Most states have no licensing requirements Realtors can recommend National Association for Home Inspectors American Society of Home Inspectors No guarantees

16. Tax Treatment of Moving Expenses Mileage test Time test Three categories of expenses Packing, shipping & insurance Travel to new residence Utility disconnections and hook-ups

17. Selecting a car to buy New vs. Used New has high depreciation rates Used has higher cost of maintenance & repairs To minimize average annual cost of car ownership Buy a slightly used car and drive it until it dies

18. MSRP & Dealer’s Cost Manufacturer’s Suggested Retail Price (Sticker price) is what the dealer is asking for a car Dealer’s cost should be the starting point of negotiation in buying a car Many recommend an initial bid of dealer’s cost + $100