You Gotta Know When to Fold’em: The Expiring Tax Credit & You

GENTLEMEN, START YOUR ENGINES!

Are they good and fired up?

Great, now turn them off.

As one knocks around the internet here in late April of 2010, he or she cannot go two clicks without encountering manic encouragement to purchase a home “BEFORE IT’S TOO LATE,” or proclamations that “TIME IS RUNNING OUT” to take advantage of the first-time and move-up homebuyer tax credit; each froth-inducing pitch more fevered than the last.  The only thing missing are the decrees that “THIS OFFER EXPIRES AS SOON AS YOU LEAVE THE PREMISES,” and inquisitions as to “WHAT DO I HAVE TO DO TO GET YOU INTO A HOUSE TODAY?”  P.T. Barnum had nothing on a gaggle of motivated Real Estate agents.

Here’s the thing, though, I am not a big fan of leveraging fear as a sales tool.  With just over a week left in the Federal Clearing House Tax Sweepstakes, I am pulling the plug on my own hyperbole.  If you are a first-time homebuyer and have not found a suitable home after months of feckless searching, it’s time to call off the dogs. 

“IT DOESN’T HAVE TO BE PERFECT, JUST BUY SOMETHING!!!”

“HAVEN‘T BOUGHT A HOUSE YET??? 

WHAT ARE YOU WAITING FOR???”

“DON’T GET LEFT ON THE SIDELINES! THERE’S STILL TIME!”

Lest your home buying ship wash up on the nearest reef, these bleating calls to action should go unheeded.  The wall to wall promotion does have one thing right, though:  the time is now.  Just not in the way they would have you believe.  Now is the time to regroup and ensure you do not make a poor purchasing decision.  The tax credit has been a nice perk to those fortunate enough to find the right home over the past year, but don’t sabotage a 250k purchase because Uncle Sam is holding an 8k caliber gun to your head. 

If you are just starting the hunt now, you’ll do yourself a huge disservice by attempting to shoehorn yourselves into an ill-fitting home due to the time constraint.  If you are nearing your wits end after an unsuccessful months-long odyssey, you are equally likely to do the same when facing down the looming deadline.  I am issuing a cease and desist order to those who have confused the priorities of their fledgling home purchases. 

Let it go, folks.  Let it go. 

We can start again when your only underlying concern is securing the best possible deal on your ideal new home.  With the throng of desperate lemmings running blindly for the cliff, you might just find yourself as king of the buyer’s mountain come May 1st.  With a potential reduction in the number of suitors left after the great tax credit hari-kari, you could unwittingly stumble upon higher negotiating ground via your abstinence from the purchasing frenzy.  While that 8k incentive will drive some to overbid on properties in the coming days, the smart buyer might seek to carve a larger swath out of a seller’s backside in the fertile post-April 30th hunting grounds.

“IF YOU DON’T LIKE THIS HOUSE, SEND IT BACK FOR A NO-HASSLE MONEY BACK GUARANTEE!" <or not>

The folly in the air is palpable at present.  That little governmental spiff will come and go, and you won’t even remember towards what end the money went.  You’ll be stuck with the house, however.  Make sure it is the one you want. And for God’s sakes, man, don’t make the same mistake that we all made back in the heyday of 2005-2006 by assuming you will be able to offload the house in a couple of years if it doesn’t prove suitable for your needs.

Surely we haven’t forgotten this lesson while it is still being taught in excruciating detail?

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First-Time Home Buyer Credit & Short Sales Do Not Mix!

By now, even the most procrastinating of first time home buyers understands that the end is nigh.  The end of the $8000 first-time homebuyer tax credit, that is.  While rumors abound about a possible extension past the current deadline, rumors also persist that man did not actually walk on the moon in 1969 (if you happen to believe the latter, you can moonwalk your way right out of my blog catalog).  When it comes to our esteemed legislative bodies, I am not ready to take the leap of assumptive faith that they will do the logical thing.  As things stand, you have received sufficient warning from every warm and cold blooded Realtor type in the land that you need to get on the stick immediately.  With new appraisal regulations and loans which used to take 30 days now bogged down in underwriting quicksand, it is not a good idea to venture past mid October before pulling the trigger on that home you have been patiently watching for just one more price reduction.  With a fleet of fellow procrastinators waiting until the absolute zero hour (closing prior to 12/1/09), there is also the added risk of running into title company soup.  Think the end of the month is busy at your friendly title company and subsequently hectic in terms of getting your deal closed?  My hunch is that typical happenstance will be a walk along a tranquil beach in comparison to the buyer tsunami that figures to crash upon every escrow office near you between 11/1 and 11/30.

But these are the things you already know.  Just like you already know that the credit is not reserved solely for first time buyers, but also those who have not owned Real Estate within the past three calendar years.  This information is so readily available that I haven’t even bothered to write about it before now.  At great risk of being the guy who runs into the empty room to yell “Fire,” I do believe there is one more wrinkle that needs to be discussed.  With the deadline steadfastly approaching (just because it looms closer, doesn’t mean the pace has suddenly morphed to earn “rapidly approaching” designation, now does it?), lost in the prodding for first-timers to buy now is any discussion as to the kinds of homes you should be considering.  I shall rectify this egregious oversight now.

Earlier in the year, the Real Estate world was your oyster.  REOs, short sales, HUD homes, auctions … bring them on.  As long as you wrapped up your purchase prior to December, you were golden.  Thus, you had the ability to trawl every last oceanic trench to scrape up your sunken treasure.  It probably didn’t take long to realize that the biggest finds, those Titanics of the Real Estate deep, were teeming with sharp-elbowed and deep-pocketed prospectors.  Basically, you with more purchasing power.  Every time you made a play for a new bank property, you and your FHA-fueled dingy were left eating the wake of 50 foot conventional vessels and staring into the live canons of the scourge of the first timer’s sea: cash buyer pirates.

Resigned to the fact that your 3.5% down and government-backed loan vehicle is not a fair fight against the types of buyers that the best values attract, you most likely started looking at resale and short sale properties.  Resales have been tricky because most sellers are not in a position to compete with the banks.  Many that you would be interested in continue to be priced out of your affordability.

Now you may be thinking that short sales are the way to go.  The bank wants to offload a property that is in default without incurring the expense of foreclosure.  The seller just wants out and is not motivated by profit, thus creating a tantalizing asking price.  Sure there are only a couple months left to close on a house to secure your credit, but this listing says they are using a “Certified Negotiating Specialist.”  This other one says they have a 95% success rate!  Another even says that they are near bank approval!

Don’t do it.

I know you have gotten your teeth kicked in on the bidding wars that erupt on the bank properties, and the resale market is still too pricey, but short sales are not the way.  Not now.  If you had submitted an offer on one several months ago, you would have a shot, but I am telling you right now that YOU WILL NOT RECEIVE YOUR $8000 TAX CREDIT IF YOU WRITE ON A NON-APPROVED SHORT SALE LISTING at this point.  It is quite typical for the process to take 3-6 months, and the resolution is far from a sure thing.

Keep looking at the bank properties, but reset your sights a little.  Great values are still out there.  You can lock one up that isn’t priced so stupidly low that every buyer and his pet chimpanzee show up to vie for it, driving the price into the stratosphere.  Some of the best buys made right now are actually the ones with list prices that aren’t necessarily the most attractive.  When banks, just like typical sellers, miss that sweet spot, you have a better shot at negotiating the price lower versus bidding the stupid cheap one up.

This is also not a bad time to take another hard look at the resale market.  Sellers of properties that will fit the budgets of first time buyers should be receiving advice from their agents right about now that they really need to get competitive if they are to capitalize on the last minute purchasing rush.  Granted, many sellers simply are not in a financial position to lower their prices, I have noticed more and more resale listings working their way into my searches.

Finally, I would be remiss if I didn’t caution that the tax credit should not be the be all and end all for your purchasing decision.  If you simply cannot find the property you want at a price you can afford, don’t get caught up in the frenzy.  The worst decisions are often made in the face of such artificial pressure.

But if you are ready to take the plunge, find yourself a property in which the seller can give you a thumbs up or thumbs down within days instead of weeks.  Walking the short sale plank with less than 90 days to get it closed will net you an $8000 cold shower.


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