Ah, the Santa Barbara market: its own little bubble in the real estate game. Unlike other metropolitan areas, we have just now hit three-month supply here. Our real estate is, ultimately, constrained to allowed land use and supply, of which our precious mountains and ocean embrace. Yet, if more is on the market, then certainly more of the market is negotiable. In a shifting market, what are a few strategies you can look to?
Price versus credit — to which is your gain? If you have a negotiated amount, should you use it to reduce the sales price, or should you use it as a credit from the seller? The former is basic: reduced price, lower long-term tax basis. The later can be split into several different categories. Between the two, the seller should have the “same” tax basis. I have to use quotations here because I am not a tax professional, and their advice and your situation trump anything I could ever know. Though, my understanding is that, generally, the math works the same for the seller in either situation.
On the buyer side, though, you have quite a few options. You can work to use the amount to offset direct, recurring, and non-recurring closing costs. This could be anything from origination costs and points to tax impounds or title work. It could also be a buy-down against your mortgage payment — temporary or permanent, as your situation allows. And that certainly can impact your monthly payment! The structure of your financing will determine how credits can be utilized, so be sure to chat with your lending team if these are being considered.
Additionally, taking negotiations as credits against closing costs versus off the sales price allows for higher leverage opportunities. This can give you different tax benefits and holding costs than with a lower sales price. Your initial closing disclosure is ideally the final time to refine the situation and answer questions before signing loan documents. Executing this with no questions essentially is a thumbs-up for the closing of your loan, and the finalization of terms and conditions.
If negotiations exist for additional funds on the table, review your options and decide what is best for you at that time. Our market may be shifting; however, the right spot in the 805 is still one of the most delightful around. And that, my friends, is a credit to all of us.
Austin Lampson is a licensed mortgage professional and branch manager of Origin Point Mortgage. She has spent the last quarter-century helping her clients balance math and emotion to achieve their financial goals. Reach Austin at (805) 869-7100, austin@austinlampson.com, or visit austinlampson.com.
