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You can apply the principle you have learnt in the Finance class 101 in this article. Here it the gist of what Time Value of Money means to you as a buyer in a real estate transaction.

In a real estate transaction, everything is NEGOTIABLE. We do not just negotiate on the price but the terms such as closing date, closing costs, option fee, earnest money and who pays for what in the transaction.

Let's understand this Time Value of Money concept in terms of the closing costs.

As a buyer, you can negotiate the closing costs ie the Seller having to contribute to your closing costs in the real estate transaction instead of taking that amount (say $500 for example) towards the price reduction.

Why is that?

The answer is the Time Value of Money recognized today is not the same as if it was taken over a long period (30 years, in terms of a mortgage note for example). The $500 seller contribution towards closing cost will net what you need to bring ($500 less) to the closing table. If you have asked for a price reduction, $500 you are paying $2 less a month in your monthly payment. A rather small amount that will not make or break your monthly household budget.

Also, $500 is worth $500 today rather than the $500 spreaded over the life of the loan.

So, when you negotiate a real estate contract, do consider asking for some closing costs even after the price has been agreed upon. It probably be worth more today than many years from now.

Presenting the Offer:

At times, offering a higher offer with closing costs is a win-win situation. The Seller first sees a higher number and can sometimes think that subconsciously, he is closer to his asking price. It can be a pride thing. Then, it could mean negotiating from both angles (the closing costs and price). In human negotiations, most people strive for win-win. Hence, when someone tries to gain a higher sales price could usually mean making strive in allowing the closing costs. Try it!

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