There’s always something to howl about

Why should you enlist a buyer’s agent to help you buy a home? Because you’ll get a much better deal — even if you pay full price

This from my Arizona Republic real estate column (permanent link):

Are home-buyers best served by the vigilant efforts of an experienced buyer’s agent? Consider a transaction we have in play right now.

The buyers are a young couple, about to be married. They have about $10,000 in cash.

With a conventional loan, they could put 20% down on a dismal starter home. Or, with Private Mortgage Insurance, they could put 10% down on a nicer home.

But with an FHA loan, $10,000 is 3.5% down on a $285,000 home. We can argue the wisdom of making so small a down payment, but the FHA loan program is the path to homeownership for millions of Americans.

And $285,000 is too much house for our buyers. They found a nice lender-owned two-story home in the suburbs selling for $169,000. The down payment on that home would be $5,915. But the closing costs would probably run to another $5,000 — which comes to more money than they have.

They qualify for the $8,000 first-time home-buyer tax credit, but they won’t get that until they file their tax return. They also qualify for a state-funded grant program that will contribute up to 22% of the purchase price — but which can’t be used for the down payment or the closing costs.

Here’s the deal we put together. We offered $175,000, $6,000 over list price. In exchange, we asked the seller to contribute 4% of the full purchase price to defray the buyer’s closing costs.

The down payment will be $6,125, leaving the buyers $3,875 in cash to pay for the endless expenses of moving into a new home.

And there will be about $2,000 left over after the closing costs are paid. This will be used to buy down the interest rate. The buyers will end up with just over 25% equity in the property for a cash outlay of $6,125 — all at a very low monthly payment. And they’ll still have their $8,000 tax credit to look forward to.

This is the kind of outcome a skilled buyer’s agent can achieve.

Steal this book: So far I’ve written two columns on this theme. If you want to use either of them on your real estate weblog, feel free. Just give me a link back to


17 Comments so far

  1. J Messina July 25th, 2009 11:59 am

    This used to work pretty well before HVCC went into place. Better hope the appraisal will come in to support the home price on your example. If it appears that you increased the price to pay for closing costs, sales in the neighborhood at lower prices might thwart your efforts. Another idea might be to use a FTHB down payment assistance program to help them with the closing costs, or the couple can get a gift from a relative. Sorry to be so negative, but in this market and credit enviornment it’s good to have a backup plan just in case.

  2. Greg Swann July 25th, 2009 12:11 pm

    The house is going to appraise. It may surprise you to learn that, having done this hundreds of times, I know how to make sure that the deal I’m writing can actually work. But: The beauty of an FHA appraisal is that it endures. So even if the house does not appraise, the seller has nowhere to go but down.

  3. Brian Brady July 25th, 2009 4:55 pm

    “This used to work pretty well before HVCC went into place.”

    FHA hasn’t adopted HVCC

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  5. David Losh July 26th, 2009 4:26 pm

    Being a Real Estate agent is hard work. It takes a certain set of skills and one of those skills is putting a deal together. The larger picture is to get the deal accepted and closed.

    Every body, I mean every body, thinks it’s so easy. You just fill out some paper work, the seller agrees, and the bank gives the money to close.

    Did you say Builder? Are you in Arizona? Navigating the builder market is a mine field. I’ll just say that for you, because you didn’t make a point of it. Will it clear title is the question, the appraisal will probably take care of itself.

    I respect and admire those dedicated individuals who have stayed to provide Real Estate services at a time when they are needed more than ever.

    I had made a point about compensation at the beginning and decided it was better put at the end. I have a Real Estate license and operate other businesses related to maintaining property. By far my businesses generate more dollars. Even though I know people who make hundreds of thousands of dollars in commissions it’s the dedication to the craft that keeps them coming back.

    The over head, which most people see, and some envy, is also an expense. The people with the Mercedes and Club Membership are working. Real Estate is a twenty four hour a day, seven day a week business. It’s brutal and nerve wracking. I talk with agents who now think I’m smart to have diversified, but the truth is Real Estate agency is hard, and I wish I had the skill set to do. it better.

  6. jim canion July 26th, 2009 7:36 pm

    Interesting skills. A few questions.
    What are qualifications for the 22% grant?
    How do you get a higher than asking price appraisal for
    all those hundreds of purchases?
    Why offer more than list. Why not just ask seller to
    contribute the 4% for closing costs?
    Thanks for the ed.
    Jim Canion

  7. Greg Swann July 26th, 2009 8:42 pm

    > How do you get a higher than asking price appraisal for all those hundreds of purchases?

    Higher than list, lower than presumptive appraised value. It’s not hard to do. I’ve been wrong four times, two of those this year. In both of those cases, it was FHA loans and we got the sellers to drop the price in both cases.

    I realized after I had posted that comment that “hundreds” is misleading. I know I’ve represented more than a hundred buyers, and probably more than two hundred, but I haven’t written deals like this hundreds of times — not as accepted contracts, anyway.

    > Why offer more than list.

    If the list price is a true bargain, it’s a mistake to try to take things too far. I want to write a deal that is highly likely to come back signed without counters. If I can, I want to double-think the seller exactly, so I hit all of their must-haves at the lowest price I can attain. Brian’s idea on discount points is a killer for this reason, especially with FHA, where I can take more than 3% in closing costs. This is really going to matter if Tom is right about interest rates.

  8. Aaron Catt July 27th, 2009 7:11 am

    Excellent example of how a thoughtful, diligent agent can get some things done for buyers.

    What’s important to note, is that the buyers agent had to be working closely with the lender to understand the caveats associated with the buyers financing. The lender has to be on the ball as well.

    I haven’t closed a deal in two years where the buyer didn’t get some portion of the closing costs paid…needed or not.

  9. james canion July 27th, 2009 8:48 am

    Thanks for the reply but the most important
    question is how is that 22% state grant
    administered and how does one qualify for it?
    Jim Canion

  10. Greg Swann July 27th, 2009 8:55 am

    Good credit, good ratios, lower income. But: This is not important if you don’t live in Arizona.

  11. Robert Kerr July 27th, 2009 5:56 pm

    Am I the only one here reading this story and grimacing about this buyer’s finances?

    If you’re buying a home and you have just $3,800 left in on-hand cash, especially after that much creative financing, you’re a candidate for next year’s foreclosure listings.

    I wish the couple luck, but just one financial hiccup along the way is all it will take to sink this ship.

  12. Greg Swann July 27th, 2009 6:06 pm

    Damn! You’re right! “Just one financial hiccup” and all they will have is… $40,000 in equity in their home.

    I cannot image what a disappointment heaven is going to be for you. 😉

  13. Doug Quance July 27th, 2009 7:20 pm

    I am not a CPA, but I understand that there are tax preparers who will, after closing, modify your last year’s taxes to take advantage of the tax credit NOW.

    I have not had a client do this – and therefore can not certify that this is possible – but if so, the buyers could easily replenish the coins in their piggy bank.

  14. Robert Kerr July 27th, 2009 9:39 pm

    Damn! You’re right! “Just one financial hiccup” and all they will have is… $40,000 in equity in their home.

    Equity on paper is not cash in hand, Greg. You know that.

  15. Jonathan Bunn July 27th, 2009 9:56 pm

    It is amazing how people do everything on their own now. However, with the help of buyers agent people have the chance to save thousands.

  16. Dale Monroe July 28th, 2009 9:59 am

    This is an excellent article touting the “thinking out of the box” thinking. Kudos on this enlightening and informative blog post.

  17. Sean Purcell July 29th, 2009 10:24 am


    I agree with your premise, but not your conclusion. Yes, there is some risk to leaving one’s self little liquidity and yes, “just one financial hiccup along the way is all it will take to sink this ship.” But that does not necessarily lead to the conclusion they should not buy a home.

    Life is risk Robert. One little hiccup along the way can sink their ship even if they don’t buy. Hell, crossing the street at the wrong time can “sink your ship!” What’s the point of a life lived in safety? Or to use your analogy, what’s the point of building ships and not taking them to sea where “one little hiccup” might sink them?

    IMHO, the problem we are recovering from is not one simply of risk taking, but one of uninformed risk taking. If the buyers understand the risk/reward and have looked at the best guess probabilities for both (and you know with Greg Swann as their agent they have!), then take the risk and get on with living a passionate life.