Can’t We Just Arm Wrestle for the Difference?

        At some point during the negotiation process when buying or selling a home, the buyer and seller will get to a point where neither side wants to give an inch. Of course the seller doesn’t want to feel like they have left money on the table and the buyer doesn’t want to feel like they have over paid.  Money is money and for the majority of us $5000 is a lot of money, I know it is for me.  What I want to do is give you a quick example of how by “over paying” $5000 will really at the end of the day, have a negligible effect on your over all investment.       Scenario: A first time buyer is looking to purchase a brand new condo.  The unit is built but has never been lived in.  The seller purchased the unit through the  builder at the pre-construction stage and has now decided to sell.  The builder is selling their remaining units at $388.41/sqft (the average new construction condo will sell for $465/sqft), plus $30,000 for underground parking and a floor premium of $3000 minimum per floor.  There is a comparable unit on the third floor so we will add $6000 in floor premiums. The unit you are looking at is 834sqft, on  the fifth floor, with south and west views.  If we use those numbers to come to a price, we get:

834 (sqft) x 388.41 ($/sqft) = $323,939

$323,939 + $30,000 (parking) = $353,939

$353,939 + $6000 (floor premium) = $359,939

      So for argument sake, we will say that the market value of the condo is $359,939, which is almost unheard of for a condo like this. The seller originally had the condo listed at $374,900 and has dropped the price through negotiations to $365,000.  The buyer is only willing to pay $360,000.  For the seller to drop the price again by $5000 is a lot harder for the seller to do than it is for the buyer to come up.  The seller is literally giving up $5000 of profit immediately, while the buyer can pay that $5000 over 25-30 years.  Your monthly payment on $360,000 at 3% over 25 years will be $1618/month assuming 5% down.  A $365,000 mortgage at the same rate, amortization period and down payment, will cost you $1641/month, a difference of $23 a month.  I get that $23 is $23 but over the year, that unit will appreciate $21,600 if you use the Ottawa average rate of appreciation of 6% a year.  In one year you will pay an extra $276 for the unit if you paid the extra $5000, however your unit will be worth $21,600 more, giving you a yearly profit of $21,324.

       At the end of the day of course money is money, but you will make up that extra $5000 in the first three months of living there.  So are you really going to lose your perfect home for $5000?

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About tylerlaird
Having been born and raised in Ottawa, this city is more than my home, it is a part of who I am and the basis from which all other cities must be compared. I have watched it grow and progress in its size and over time I found myself naturally drawn to the different neighbourhoods, with their varying characters, layouts and styles. After earning a BA in Law from Carleton University, Tyler discovered a new passion, real estate. In 2010, he began to use his passion for Ottawa’s various housing styles and diverse neighbourhoods, to help many people find that place that they can call home.

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