Hey everyone! It’s Austin Solomon with The Solomon Group. Welcome to this week’s episode of The Real, which is “why drawing a hard line on price point may not be as wise as you may think.”
For some of you, you might be thinking, “Austin… is he telling us not to stick to a budget? That doesn’t sound like a good thing to say.”
I think it’s good to stick to a budget; however, I think there are other variables that go into purchasing a house and other variables that should be considered, other than just a maximum dollar amount or maximum price point.
Some common thoughts around that are, hey, I’m going to set my price at X and I don’t want to go over X, which makes financial sense to draw a line and not go above it. However, I’m going to give you guys some examples.
The purpose of this podcast is to open up your thinking a bit to be open to other variables, other than price, that should be factored in when you’re buying a house.
So, let’s say you’re willing to go up to $200,000 but not a penny over. Would you be willing to go to $205,00 if you knew the monthly payment was less, or would you be willing to go to $205,000 if you knew the amount of money you’d have to put into the home in the next 5 years is way less if you buy a house at $200,000.
There are so many variables and sometimes drawing that hard line can limit the scope of your thinking. Let me give you a couple more examples of how this would play out in real life when I’m working with buyers.
The number one thing is probably tax amount. Especially in the Wausau area, you go from municipality to municipality and there can be a difference. You go from a house for sale in Wausau for $200K and a home for sale in Ringle for $200K could realistically be $1,000 to $2,000 difference.
So if you buy that home in Ringle, the property taxes let’s just say are $1,200 less, then that’s $100 / month less that you’re paying and that can be pretty significant. Even with that Ringle house… well let’s say the Wausau house is $200K and the Ringle house is… and I’m just spitballing here… let’s say about $220K, maybe. With those property tax differences, your monthly payment would probably be about the same. You might have to check my numbers on that because I’m just spitballing there, but I think that’s about right.
Ok, #2 is the condition of the house! Let’s use an example, let’s say the roof. Again, I’m not going a penny over $200,000, but that house at $205,000 has a brand new roof, and a house at $200,000 needs a new roof in 3 years. Well, let’s factor that out. Let’s say over the course of 5 years, you’ll replace it in 3 but you’ll spread out the amount over 5 years. So, let’s say it’s $10,000 for a roof over the course of 5 years, that’s $2,000 per year.
So, even though you’re paying less for that $200,000 house, because of that defect, or not defect necessarily, because of the age of the roof, you might put more into that home over the next 5 – 10 years versus paying a little bit more to get something newer. Again, there’s no right answer there, it’s just something to consider.
Ok, so efficiency-wise, this is another factor to consider and can make a big difference in your utility usage and how much you pay per month for utilities. So, for a house that has updated windows, new furnace, efficient features, it might not be super significant, but it might be $25 – $40 a month savings because of the energy efficiency levels and again, that’s just something to consider.
So, here’s the conclusion – it’s great to have a budget in mind and I would encourage every buyer to stick to a budget and when I’m working with a buyer, am not one to push one’s budget, however, a budget doesn’t have to be a hard number or price you need to stay under. There’s more to it than just the price point like we talked about today.
If you think about some of the other variables, the tax amount, the condition of the house, the efficiency of the property, is it in a neighborhood that’s increasing in values, there’s all those different variables that might factor into it and maybe the price isn’t as important because some of the other variables outweigh paying a little bit more. So, just some thoughts on why drawing a hard line on price point, may not be as wise as you think.
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Austin Solomon | The Solomon Group – Coldwell Banker Action – (715) 212-4693