Fsbo

Browsing through the net I came across several ideas on saving a good deal of money while buying a house. Summing them up, I can say that the best moneysaving experience is based on playing games with commission paying.

Traditionally, when you buy a house you just give the purchase money to the seller and the seller pays the 5% commission out of that. But when you think about it, you are agreeing to pay 5% more for the house and that translates to a bigger down payment, a bigger mortgage and bigger property taxes every year. So I figured it would be brilliant to subtract the 5% off the purchase price and pay the agents’ commissions separately myself. Seems like no big deal, right? Wrong.

Let’s say I agreed to pay $750k for the house. Traditionally, the seller would give the agents $37,500 in commissions and take the remaining $712,500 to pay off his expenses, etc. I need to cough up $150k for the down and take out a $600k mortgage. My property tax is $9,375 per year.

But if I just give the seller his $712,500 directly and then pay the 5% commission to the agents separately, the 5% is reduced to $35,625 (saving $1,875) because it is based on $712,500 and not on $750k. The seller is getting the exact same thing, only the agents’ commission is reduced.

My 20% down is likewise reduced to $142,500 (saving $7,500). My mortgage is reduced to $570k (saving $30k principle and 30 years’ interest on that). My property tax is reduced to $8,906.25 (saving $468.75 each year I own the home).

The idea is sweetened by its simplicity. Anyway, a fair question rises: if it is so simple, why people do not use it widely? Is something wrong with the idea? Is it a cheat or a real moneysaving opportunity?

And what do you think, my dear readers?

This entry was posted on Tuesday, December 9th, 2008 at 9:18 am and is filed under FSBO. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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