We got our home’s new assessment from the County and the value went up 50%. Yikes! Not that it was completely unexpected given how the real estate market has been. But it doesn’t mean much to us other than a higher tax base because we aren’t planning on selling.
At the same time interest rates are increasing. For someone wanting to buy a house with a 4% mortgage rate on $1 million loan they are now looking at an $800,000 loan at 6%. Quite a difference and in greater Seattle, it cuts their market down more than the 20% loan difference.
The same principle applies in business buy-sell deals. The prime rate is up 1.5% and on a $5 million SBA loan that means about $450,000 more in interest. It will be interesting to see what happens given rates will go up more. Could it be:
- The price offered goes down to maintain the same debt coverage ratio.
- Buyers put in more equity.
- The buyers get fussier and make fewer offers given this situation.
- More seller financing, as seller notes tend to be fixed rate loans versus variable rate bank loans.
- Nothing changes given it’s a frothy market with individual buyers wanting out of the corporate world (more than ever when times get tough and they realize they will be part of the company’s “cost saving plan”) and a lot of private equity money out there.
We really don’t know so stay tuned. This is one of the things that make our business interesting. There’s always something going on.
“I always wanted to be somebody, but I see now I should have been more specific.” Lily Tomlin
“Everybody has got to die, but I have always believed an exception would be made in my case.” (Novelist) William Saroyan