Have you ever been in the middle of a negotiation and had someone ask "is it really worth losing over the few extra bucks?" In real estate, that question is asked by buyers, sellers and Realtors® every single day.
Imagine this: John listed his home for sale with a Realtor® for $600,000. Ken is a strong buyer and decided to make an offer to purchase John's home for $590,000. Ken really likes the home and knows that both the list price and his offer would likely be considered fair but Ken really wants to feel like he's getting some kind of "deal" and therefore has offered just a little under asking. John is not desperate to sell and says that the $10,000 difference is important to him and he is unwilling to budge on the sale price. Therefore, Ken either brings his offer up by $10,000 or he doesn't get to purchase the house. The house is everything that Ken has been looking for and $10,000 seems like a lot of money for a buyer who is also not desperate to purchase a home. Is it worth the extra $10,000?
To answer the "is it worth it" or "is it worth losing over 'x'" question though, you may need a little more information. We all certainly have a point where "yes" it is actually too much and "no" it's not actually worth it. But ... let me break it down into some simpler terms to put things into perspective.
First, let's talk about what your monthly payments typically include:
P = Principle (basically, your mortgage payment)
I = Interest (the interest on your mortgage payment)
T = Taxes (property taxes)
I = Insurance (homeowner's insurance)
A = Association Dues (homeowner's association dues paid to live in a specific community)
So, often times the "P" & the "I" are put together ... P + I ... in other words, when your lender says your payment will be "x" ... they are usually talking about Principle + Interest. Why not the rest? Well, tax rates could be different from one area to the next, insurance will change too based on property size, type, etc. and association dues may or may not be present (or vary in cost) depending on the community you are purchasing in.
With interest rates where they are today, the estimated rule that I use is this: for every $10,000 you finance (get a loan for) ... your estimated payment is about $40 per month. So, if you are getting a loan for $100,000 then your monthly P + I is estimated to be about $400 per month.
If Ken were to increase his offer and assume that he was actually increasing his loan by the $10,000 increase in his purchase price, his total monthly payment would go up by about $40 per month ... or $480 per year ... or by $1.31 per day.
Ken most likely will not be holding onto this home for thirty years. Therefore he won't be paying interest for the full thirty years. That might just make this whole thing worth it.
In short, if you are ever stuck on going up on your offer by a few thousand dollars or trying to get a "deal," just remember that $10,000 really sounds like a lot (and it is) but you're really looking at more like about $40 per month. Increasing your offer by that sum of money usually doesn't result in you having to take that full dollar amount out of your bank account to make it happen. When you break it down like that, it makes me wonder why so many buyers walk away from deals that are not that far off on price.
Whether or not it's worth it to Ken to bring this deal together is his call. But, knowing it doesn't really cost me the $10,000 to increase my offer by that amount, I'd be buying that house all day long.
*If the example doesn't make total sense and you want a further breakdown, please visit my "Hire Me" page for my contact information and I'd be happy to clear up any questions you may have.