THE COST OF STARTING THE BUYING OR SELLING PROCESS WITHOUT REPRESENTATION
One of the most common costly mistakes is to begin the buying or selling process without the assistance of a licensed real estate professional. The real estate business has been around in this country for more than 200 years. The reason the real estate industry has been around so long, is that we provide a valuable service.
Buyers will start the process on the Internet, or they will look for signs and skim through newspapers and magazines for ads. None of these are as effective as a trained professional looking through a detailed database. Buyers who start on their own are likely to miss out on the perfect house, the best deal and the best financing opportunities. They are more likely to buy through the listing agent, whose job is to get the most money for the seller, not the best deal for the buyer.
Sellers who sell on their own, statistically get less money on average, than those who sell through an agent, even after the commission expense is taken into account. Only a small percentage of available properties are sold as for-sale-by-owners. This means that a buyer's choice is to work with the help of a licensed professional, and have access to a majority of available properties, or to buy without help, and have access to only a handful of availble properties. The buyers that do the latter don't do it so they can save money for the seller. They are trying to get a deal. Also, since only a limited number of buyers look for for-sale-by-owners, that means there is less competition, which results in lower sale prices.
If you are planning on moving in a year or two, renting is probably your best option. It may be your only option if your credit isn't very good. But if you have good credit, and you are planning on staying in the same house for a while, buying is a much better financial option. While the market establishes rental rates, for a landlord to make a profit (which is why they became a landlord), they must cover their mortgage payment, purchase casts, cost of upkeep AND make a profit. So you already ARE making a mortgage payment, your landlord's! Since rent is also market-driven, your rent will go up every couple of years. In a strong market, it will go up every year. The principal and interest portion of a mortgage payment will stay the same. Taxes and insurance can increase, but the amount would be far less than the average rent increase.
In addition to rent increases, you will also lose equity by renting. If you start off paying $1000 a month in rent (probably a small townhouse), with a $100 per month increase every two years, in just five years time you will have spent $64,800.00, and will have ZERO equity in any property.
When filing both your federal and state personal income tax returns, you can deduct some of your closing costs and the interest paid on your loan for that tax year (a benefit that has been repeatedly threatened in recent years). Maryland offers additional tax credits for low-income homeowners. If a house is your primary residence, and is sold through a short sale, you can be exempted from paying tax on the debt forgiven by your lender. To receive this benefit, you must file IRS Form 982 for the tax year in which the property is sold. The form can be found at IRS.gov (type 982 in the search box).
In Maryland, if a house is your primary residence, you also apply for the Homestead Tax Credit. This will limit the amount of the assessed value on the property on which you can be taxed every year. Complete details, application procedures and a link to the application can be found here.
©Copyright 2013 Douglas R. Barry