A few times we've run into the question of whether it's a good idea to view apartments that are slightly more than what you would like to spend. The short answer would be yes. The longer answer, as you might imagine, is that it depends.
Whether a property is a co-op, condominium, townhouse, or multi-family home, one of the key factors when considering whether an apartment fits within your price range is to distinguish between an apartment's listing price and its monthly carrying cost.
Listing price only takes into account the amount that the owner believes the property is worth. Listing price does not take into account the total monthly charges. For instance, if Apartment A is listed at $575,000 and Apartment B is listed at $525,000 then it would make sense to assume that Apartment A is the more expensive property. However, a closer look might reveal a different story.
For instance, assuming that both apartments are in co-operative buildings that require a minimum downpayment of 25%; if Apartment B has a monthly maintenance charge of $1,500, while Apartment A has a monthly a monthly maintenance charge of $700, the monthly carrying costs of the apartments would tell a different story.
Apartment A's Monthly Carrying Cost:
$575,000 over 30 years at a 3.75% interest rate - Monthly mortgage payment = $1,997
Plus the monthly maintenance charge of $700
Total = $2,697
Apartment B's Monthly Carrying Cost:
$525,000 over 30 years at a 3.75% interest rate -
Monthly mortgage payment = $1,824
Plus the monthly maintenance charge of $1,500
Total = $3,324
Here, while Apartment A is listed at a higher price, the monthly carrying cost of Apartment B would actually be greater than Apartment A. The key take-away here is that if, for instance, a buyer has decided that she will not look at any apartments that are listed above $550,000, then she would miss out on an apartment that's slightly above $550,000, but in actuality, would allow her to keep a bit more change in her pocket each month than an apartment that would be less than $550,000.
Not Every Listing Price is The Closing Price
Additionally, one other incentive to view apartments that may be slightly more than what you'd like to spend lies within the fact that you can always make an offer on a place that is less than what the owner has asked for.
While the market helps dictate whether an owner will be more or less inclined to accept an offer that is less than the listing price, it's helpful to keep in mind that every seller's motiviation is unique. One of the key factors in determining whether an offer that's less than the listing price will be accepted connects with the number of days (or months) that a property has been on the market. Typically, the longer an apartment has been listed for, the more amendable the owner will be to negotiating the sale price.
While there's no hard and fast rule that controls whether it's a good idea to view apartments that are higher than what you'd like to spend, the shortest answer is that it may be most helpful to start by gathering all of the information that you can before making a decision. While the listing price may be above your budget, the monthly costs may actually make the apartment more affordable.
Moreover, depending on the length of time that the home has been on the market, you may be able to negotiate a property that's slightly above your price range to a number that's within your budget.
Happy searching, and as always, if you have any real estate related questions, we would be happy to hear from you.