Q: A friend was negotiating to buy a condo. He offered $670,000. The seller countered with $697,000. My friend thought about it overnight and decided to pass on that condo and look at some other properties. Later that day his agent called and told him the seller had accepted his offer of $670,000. Is this legal? What if my friend had made a successful offer on another property? Would he still have been obliged to buy the first condo?
A: Your friend probably got a good deal. The seller obviously wanted to sell and did not want to lose your friend as a buyer.
In your friend's situation, he offered $670,000 and the seller counteroffered with $697,000. That counteroffer legally eliminated your friend's offer, so had he signed a contract for another property, he would not be liable to this seller.
Suppose, instead, that the buyer made an offer that the seller subsequently accepted without counteroffering. Unless your friend had formally withdrawn his offer, a strong argument can be made that they have a binding contract, even if your friend had entered into a contract on another property.
That's why it's a good idea to say that an offer is valid for a finite period of time — until 6 p.m. the next day, or for 48 hours after presentation by the agent, or whatever seems appropriate. Typically contracts say that "time is of the essence." It's in everyone's interest to put time limits on offers so both sides move a deal along or agree to walk away and things aren't left to drift.
Mortgages have financial benefits
Q: I'm hearing a lot right now about how owning is more expensive than renting, especially given the recent real estate downturn. But, no one ever discusses the positive tax consequences of owning. My husband and I would be paying close to $20,000 additional income tax each year without the mortgage interest deduction. (We wouldn't be able to itemize deductions without it.) Am I missing something, or is it just that for many people the mortgage interest doesn't make as much of a difference in their tax bill?
A: You have raised a very significant issue: Should you get a mortgage or pay all cash when you buy a house?
I have to disagree with your statement that no one ever discusses the tax consequences of ownership. On the contrary, most financial columnists — and all of the mortgage lenders — tout the benefits of being able to deduct your mortgage interest when you file your annual income tax return.
Rarely do I read about the benefits of paying cash for your house.
In my opinion, it makes no sense to own your house free and clear unless you have enough money stashed away and are comfortable that you will be able to financially cope with emergencies that may arise in the future. You do not want to be house rich and cash poor.
Let's face it, however. If, for example, you are in the 28 percent tax bracket, for every dollar that you pay in interest to your mortgage lender, only 28 cents is deductible. The remaining 72 cents is just coming out of your pocket.
But, as you suggest, if you did not have this deduction you would not be able to itemize. That's one clear advantage.
Perhaps the most significant advantage is that the money you have invested in your house is just dead equity. If your house appreciates in value, it would do so regardless of the amount of your equity. If your house depreciates, the equity is also going to go down.
Why not use this cash for other purposes? Travel, buy furniture, or just put it in a safe, insured investment for that rainy day.
Benny Kass can be reached at email@example.com.