In: Real Estate News6 Sep 2011
Everyone has their budget for buying their next home. This “budget” starts out at an amount that the buyers know they can comfortably afford. Then buyers typically end up putting in offers for the maximum that they can afford, and eventually they end up buying the home for much more than they can afford, and much more than they had originally planned on spending.
Here is an example of how the home buying scenario usually takes place. For example, a family might be pre-approved for $450,000. They say to themselves that they will be comfortable buying a home for $400,000. “No point buying at our max and being house poor”. They start by looking for homes in the $400,000 range. None of these homes are ideal for them. There are too many concessions (not enough bedrooms, poor neighbourhood, small back yard, commute is too long…). The buyers then begin to see what they could purchase for $450,000. They realize that they can get more for their money at this price range. They start to see granite countertops, better sides of the street. Closer to parks, bigger bedrooms…Because the buyers had originally said that they did not want to be house poor and buy at the top of their budget, they start to “persuade” themselves. They need to “rationalize” their decision to spend more money on a home. But it doesn’t stop there.
When they put in a few offers on homes in the $450,000 range, they realize that there is a lot of demand for these nicer homes. Multiple offers are common, and they see that these $450,000 homes eventually sell for $480,000 and higher. After loosing out on a few house, the buyers begin to become fearful.
Here are 10 ways to persuade yourself to buy a home that is over your budget.
Comparing the home that you will purchase with a similar home in another city or neighbourhood is a way to justify the price. The argument doesn’t make any sense and you should never compare apples to oranges. Location is a significant factor in the price of homes. Paying two million dollar home two hours away from Toronto is not the same as buying a two million dollar home in a Forest Hill. Homes far away from urban centres are typically the first to drop in value.
This is true, but you also have to have money to live while you are alive. As much fun as it is to own a great house, it’s no fun to be forced to sell because you cannot afford the payments. Nor is it fun to be obliged to work well into your 60′s (and perhaps 70′s) to pay off your mortgage.
When you are in the middle of a multiple offer situation (bidding war), this is one way to convince yourself to raise your bid. However, it’s rarely true. There are other homes. New homes come on the market every day.
Monthly costs (carrying costs) are a measure by which many people make decisions. However, the total cost should be much more important. Who cares if you can afford the monthly cost? This is a marketing trick used by car dealerships, phone companies, and electronic stores Would you buy a pair of jeans if the monthly costs were only $10? What if payments were due for the next 60 months? You end up paying $600 for those jeans? When you buy a home, the important question is the total interest costs of the home that you want to buy?
This might actually be a valid argument. If you are buying the home that you will be comfortable in for the next 30 years, it might make sense to pay more for the home. It’s actually better to pay a little more for a home that you will live in for a long time, than to pay less for a home that you will need to sell. Selling and moving costs tens of thousands of dollars.
Rent is not always “throwing money down the drain”. If you can rent for less than the mortgage interest costs and property tax, then renting costs less money. For example, if you can rent for $20,000 a year, but you would need to have a $500,000 if you bought, then renting is not “throwing money down the drain”. $500,000 x 4% = $20,000 in interest + $4,000 in property taxes = $24,000 a year “down the drain” because you bought an expensive home.
Can you hear your grade school teacher says “if everyone else jumped off a bridge, would you?”. “Keeping up with the Jones’ ” is the expression given to people that spend money on items they cannot afford, just to keep up with their friends. It’s a real phenomenon. It actually drove the American economy, until people realized that house prices can crash and people can lose their jobs.
This reason is not really valid. It’s true that you can choose to sell if you cannot afford the costs of the home, or if you need money. But real estate is not a very liquid asset. It can take time to sell and the real estate market can change. If you become desperate to sell, you will need to accept a lower price for your home. Forces to sell your home is not a good position to be in.
This is true. Home prices can generally increase across different price ranges by the same amount. Ie. Home prices increased by 10%. A $200,000 home increased to $220,000 and a $600,000 home increased to $660,000. So if you buy a more expensive home in a rising home market, you will make more money, if you sell. If you sell is the important part of that last sentence. Of course, in a rising market, you can sell your home for a higher price, but then you will need to buy a home for a higher price.
This is generally true. You could make an argument to that you will be able to afford the home costs based on what you will make in the future. However, what if you lose your job? Would you ever use the fact that you might get laid in order to talk yourself out of buying a home?
There are many arguments to talk yourself into doing something that you know you should not do. It might be a buying a home, it might be something with less or more negative consequences. It will be your ability to step back from the situation, your will power, and your common sense that will ultimately determine your decision…but often, you’ll just make the decision that will keep your spouse the happiest!
For all of your real estate questions please call PropertySold.ca Inc. today at:
1-855-900-SOLD and speak to a customer service representative. We have licensed real estate professionals on staff ready to take your call right now. List your property for sale by owner today. New! We now accept real estate listings from real estate agents and new home builders & developers. More Information »
Real estate news in Canada including buy and sell information, local market updates, guides, tips for Canadians in the real estate market.