$8000 Federal Tax Rebate Updated

First-time home buyers and move-up buyers have another great reason to get off the fence, pre-approved and on the road to purchasing a home! The benefit to first-time homebuyers is a tax credit up to $8,000 and for move-up buyers a tax credit up to $6,500. But this opportunity ends in April.

• Between November 7, 2009 and April 30, 2010, homebuyers that have a signed binding contract to purchase a home may be eligible for the tax credit. The transaction must close no more than 60 days after April 30, 2010.
• First-time homebuyers may receive a credit of 10 percent of the purchase price, up to the $8,000 tax credit amount. If you have never owned a home before or have not owned a principal residence in the last three years, you are considered a first-time homebuyer.
• For home-owners, a tax credit of $6,500 is available for homeowners who have lived in their current residence for at least five of the past eight years. Homebuyers can also receive a 10 percent credit up to $6,500 when they contract to purchase a home between now and April 30, 2010, provided they close no more than 60 days after this deadline.

The tax credit does not have to be repaid provided you live in the new home for a minimum of three years. Military families are exempt from this stipulation.

For an exhaustive and detailed Q & A by Sonia M. Younglove, Esq., see the latest California Association of Realtors extensive article on this subject.

1. Who is a First-Time Buyer? The bill defines a first time home buyer as anyone who has not owned a property/home/real estate for the past three (3) years.

2. How does the Tax Credit Work? The tax credit is received when you file your taxes the year after your home/real estate purchase. In other words, the first time home buyer does not receive any cash at the time escrow closes, nor does the 1st time home buyer receive any assistance with closing costs through the escrow. Instead it is added to any refund you would be due on your taxes in the year following your home purchase.

3. Can I Receive theTax Credit of $8,000 Even If I Owe No Taxes?: You, as a first-time home buyer, can still qualify even if you own little or no taxes.

4. Do I Have to Pay Back the $8,000 Tax Credit?: In a previously conceived bill, the first time homebuyer had to repay the $8,000 tax credit. In the current Stimulus Bill, the 1st time home buyer need not repay the $8,000 tax credit as long as the home buyer resides in the property for at least three (3) years.

5. Are There Time Limitations Attached to the $8,000 Tax Credit?: The $8,000 Tax Credit is available to buyers who purchase a property/home/condo/residence between January 1, 2009 and December 31, 2009.

6. Are There Income Limitations Attached to the $8,000 Tax Credit? If you are single, first time home buyers must make less than $75,000 Adjusted Gross Income; if you are married, first time home buyers must earn less than $150,000 combined Adjusted Gross Income. If you earn more than this amount, then the total tax credit is reduced.

In sum, if you are a first time homebuyer and are considering purchasing a home, you may want to take advantage of this tax credit. Home values have declined on average between 25% and 40% from the highs, interest rates are extremely low (hovering around 5%), and the government is giving you an $8,000 tax credit to purchase a home.

Here is A First Time Home Buyer Fact Sheet on the major changes that have occurred as of January 1, 2009.

Here is the IRS Form you will need to complete in order for you to receive the first time homebuyer credit.

Here are frequently asked questions regarding the $8,000 Tax Credit:

Here are some tips from the IRS on First-Time Homebuyer options in order to maximize the new tax credit

When you, the buyer, purchase a condo in a multi-unit/hi-rise building, you may not be aware of the unintended consequences that can arise due to your neighbor(s) defaulting on their mortgage(s) and/or condo/association fees.

Depending upon how many homeowners in your condominium building are in default–those of whom have stopped paying their mortgages and association dues–will directly impact the condominiums reserves and the funds necessary to operate and maintain the integrity of the building. As a result, the HOA (Homeowner’s Association) may have to vote to increase the association dues/and or propose a special assessment for each and every homeowner in the building to cover the short fall resulting from your neighbors’ defaulting on their loans and/or dues. This problem can be compounded depending upon how many of the condos in the building are in default.

You may be faced with having to cover the shortfall along with the remaining homeowners who continue to pay their obligations or be left with a building that cannot provide the basic services such as water, electricity, maintenance that you expected would be there without question when you first purchased your condo. This is not a pretty scenario, but it is one of which you should be aware.

If you are considering a purchase in a multi-unit building, you should review the Homeowner’s Association documents, such as C,C,& R’s (Covenants, Conditions, and Restrictions), Articles of Incorporation, the last 12-months of minutes, and the annual budget and audit to make sure that the association has adequate reserves which should give you an idea of the financial well-being of the building.

Moreover, you should consult with a Realtor who can give you valuable information on the number of active listings in the building that are in the process of foreclosure (short sales, notices of default), or REO’s (real estate/bank owned properties). This should send up a red flag as to the health of a particular condominium building.

Remember that what appears to be today’s good deal or “steal” may wind up being tomorrow’s bank owned property. It is wise to consult a real estate professional who is active in the local neighborhood before you jump in and become collateral damage in the future wave of further defaults.

Photo Courtesy of NBC.com
The buzz in home purchases/sales revolves around distressed properties these days–namely, REO’s or bank-owned homes. If there is one story that peaks a buyer’s interest, it is the REO home market. The reason is simple enough: the buyer believes that REO’s equal great deal or steal. But are bank-owned homes the real deal? Let’s take a closer look:

If you happen to be a first-time homebuyer or a novice in terms of the homebuying process, an REO (Real Estate Owned) home or bank foreclosure requires seeking the assistance of a knowledgable real estate professional. At first blush, the pricing may look enticingly attractive.

In her article entitled “Foreclosure Sales And Pretend Pricing,” Kris Berg of The San Diego Home Blog writes that the “pretend pricing method or (PPM) is an entirely different and oft-mysterious approach to the whole conundrum of determining what the market value really is for a home. Once a lender has foreclosed on a home, the PPM comes into play.”

Foreclosures are often priced 20-30% below a “regular sale”–that is a home that actually has equity in it and is not over encumbered or “under water”, so to speak. That said are REO homes real deals or not? Most home foreclosures are priced way under the market just to create hype. Welcome to the wild west side of the home pricing market. These properties will garner multiple offers with the final sales price often thousands of dollars above the original asking price. Not only does this breed disappointment, disillusionment and frustration among buyers who are looking to own and occupy the property, but these homes typically will sell to the highest bidder who also has a large cash down payment.

As a first-time home buyer, you should factor in whether you will have the time and money to fix up a bank-owned property. These properties more often than not have deferred maintenance issues, missing appliances, fixtures, or have been trashed by disgruntled owners or renters. Remember that bank-owned properties are sold in “as is” condition. The bank need not provide the buyer with many of the disclosures that are normally completed by a seller in the normal course of a home purchase/sale. The buyer is on his or her own to pay for inspections to ensure that the home’s condition is reviewed and verified by licensed and bonded home inspection companies.

It is also prudent to check out the neighborhood thoroughly; how many homes/condos have “for sale” signs. Too many homes up for sale may be an indication that there could be further erosion of prices in the community. Since prices have declined in many of the newly built communities, most of these homes or condos will have fallen back to or below the original prices offered by the builders. Look in neighborhoods that have limited supplies of housing inventory. Also check out the neighborhood’s schools for their ratings. Even if you do not have children or are not be planning to start a family, there is a correlation between high school ratings and housing values. Neighborhoods that are known for their excellent schools will have less price erosion and will see prices stabilize sooner than school districts that are poorly rated.

Remember the old axiom, “Let the Buyer Beware.” Sellers have an obligation to disclose defects, history, and the condition of the property, while with bank owned properties, they do not have any responsibility at all to the buyer except to try to recapture as much of the assets or limit the loss for their investor. Therefore, when searching for a home use caution, utilize due diligence, and do not be rushed into a quick decision or your home purchase may become tomorrow’s REO property.

Photo courtesy of The Truth About Mortgage
With the financial markets in turmoil, and with the luster lost in the real estate market, one wonders where the savvy buyer/investor is placing his/her dollars. If you remove gold bullion, and/or stashing your money under the mattress from the safe haven equation, I would say that the REO (real estate or bank-owned) market is currently vying for the home buyer’s/investor’s cash.

I’ve been tracking the REO market here in Irvine for my buyers and sellers. Buyers want to know that if they decide to purchase a home now that their investment is protected from a further market decline. They feel that if they focus on foreclosed properties, then they have, to some extent, a built-in cushion just in case the real estate market experiences further declines. Whether or not this perception proves to be true is still debatable. However, this is the buyer’s/investor’s view of the current state of the real estate market.

On the other hand, sellers want to know how the foreclosure market is impacting their ability to sell their home in a declining and credit-tight real estate market. Equity rich sellers (and there are still some of those out there) who need to sell their home in the current real estate market, are finding that they have to price their property as aggressively as the REOs if they hope to be able to compete for today’s buyers. Even if sellers were to postpone selling their property in the immediate future, foreclosed properties in individual neighborhoods will certainly impact the comparable values of those future sales.

That said there is only about 20 to 40 real estate owned properties on the market at any given time in the city of Irvine–a relatively small number as compared to other south county cities. Those bank-owned properties that are aggressively priced and in an “interior” location (not backing to a busy street/freeway) are selling quickly and on multiple offers–many of which are all cash rather than lender financed.

Personal experience has demonstrated that unless you prepare your buyer for the REO experience, your buyer/investor may be disappointed, and may not be the successful/”winning bidder.” All REOs require that any offer be backed by high credit (FICO) scores, i.e., those 729 and above (and rising) if lender financing is applicable, and verified funds for the down payment and closing costs related to the purchase. Most will require that buyers be pre-approved by the individual bank’s lender of choice. Bank-owned properties are sold in “as is condition,” subject to the buyer’s inspection rights. What you see or what the inspectors find is what you get or choose not to get. If the costs of repair are prohibitive, the buyer need not continue with the purchase.

However, be aware that some of these foreclosed properties have deferred maintenance or are in need of repairs–the cost of which should be taken into account by buyers who are not contractors or who may not have easy access to one (i.e., a family member who can help refurbish). Also understand that the bank, who has already taken a huge loss, is not interested in the buyer’s list of repairs/requirements.

The REO properties in which I have personally been tracking have been sold at or above the asking price with little or no repairs being made. This may also include termite damage. A bank may provide a Termite Report, but may require the buyer/investor to cover the cost of any or all of the repairs. Other items for which buyers may have to pay include Association transfer and or document fees, and any other fees the bank chooses not to cover. These may show up in a lengthy addendum that the bank furnishes to the prospective buyer(s). Be aware that the bank/seller does not sign on any documents until there is full agreement by the buyer(s) with initials/signatures on all the paperwork including the bank’s addenda.

A striking example is one in which my partner and I previewed on a Sunday evening a week ago. It was a 3 bedroom, 2 bath single family residence on an interior corner lot of over 5,000 square feet in an established Irvine neighborhood. Upon entering, we discovered that the home had been vandalized to the extent that windows were broken, appliances were smashed, and holes were put through walls throughout the homes. We immediately phoned the bank’s agent to advise him of the state of the home. A return phone call the following day revealed that the listing agents were well aware of the vandalism (sadly it turns out that the irate homeowner who lost the home had unleashed a blind rage resulting in the destruction throughout this one-time upgraded and cared for home). The bank, however, we were told, would not be making any repairs except for the broken windows and would not be responsible for approximately $7,000 in termite damage that a recent report had revealed. However, no worries, there were already several offers, a few of which were all cash, and the property was going to be placed in “back-up” status that very day. Why would there be multiple offers on a home that someone had taken a sledge hammer to? One reason might have something to do with the fact that it was a single family home on a large lot in a good location within an established Irvine neighborhood that the bank had priced under $500,000! The other reason might have to do with the REO fascination factor: namely, buyers perceive properties that are tagged as “bank-owned” to be where the “great deals,” are whether they ultimately cost the buyer more in the long run in out-of-pocket fix-up costs.

On Saturday, I previewed a 3 bedroom, 2 bath single family residence in an adjacent neighborhood which was also in need of some repairs. However, it was in a good, interior location on a large lot. Yesterday, I brought back a potential buyer. Within minutes of my arrival, several more real estate agents some of whom had brought their prospective buyers with them arrived. By the time I left the property with the buyer to whom I had showed the property, there were agents and buyers lined up outside the front door waiting to go in! Today, Monday, upon checking the availability of the property, the agent representing the bank already had two offers in hand, one of which was all cash over the asking price and offers were still coming in! Why all the activity? Again, simply stated an apparent strong demand for a single family home in Irvine on a large interior lot aggressively priced at under $500,000, and a plethora of ready, willing, and able buyers–some of whom have ready cash.

A similar multiple offer situation occurred on an Irvine four bedroom former model home price in the upper $600,000 range in which there were four all cash offers in addition to several others structured with lender financing. The listing agent for the bank came back to only the four all cash offers (they didn’t even consider the ones that required financing), with a “best and final price.” The home ultimately sold above the asking price to the highest and best bidder.

What about the higher end properties–above $1,000,000? These too are receiving multiple offers, and the successful buyers are the ones that are either purchasing with all cash or those who are financing only a small portion of the overall price of the home. Buyers who are trying to negotiate off the listed price, and/or those who need conventional financing seem to be considered if the all cash buyers do not show up. But show up they do, and they are the ones that are the successful buyers/investors–at least for now.

Photo courtesy of Tim Larson of Grey Clad Mystery

We all search for perfection in the real world. We look for the perfect person with whom we can bond. We look for the perfect culinary or wine-tasting experience. We look to catch the perfect wave. We look to achieve the perfect SAT scores; well, you get the picture. We all strive toward that elusive dream of perfection in whatever it is that we deem important in our lives.

Fast forward to the way in which buyers/consumers search for the perfect place to call home versus the way in which real estate web developers construct a real estate site. In his funny and illuminating article entitled Rethink Real Estate Search, in Inman News, Marc Davison, of 1000 Watt Consulting points out that real estate internet sites are engineered by programmers–”guys and gals with 180 IQ’s–guided by folks who get their kicks from Excel.”

A programmer might construct a search by zip code, or create an application that includes home-value estimates that “can never be accurate, no matter how many Ph.D.s are thrown at them;” or create searches that are “cluttered by advertising;” or provide maps that are either “hybrid,” “satellite” or “list” views (“humans don’t search from space”), instead of speaking to what real people are looking for when they search for the perfect place to live.

And while it is true that statistical data has demonstrated that over 80% of buyers/consumers begin their search for the perfect home online, their home search continues off line, on the ground, and at the local level in conjunction with a real estate professional

A real person–a “human,” if you will, pursues their search for a home by actually driving through neighborhoods, by talking with neighbors, by “test-driving” the commute from work to a prospective home, by asking about the neighborhood schools and test performance, by checking the proximity of schools to the home under consideration; real people ask about whether the home or condo has a yard large enough for a pet or a garden, whether the house has a home office, a main floor bedroom, a hobby room, a media room, a living room in addition to a family room, a master suite downstairs, a chef’s kitchen, a finished garage; whether the garage is attached or detached, a two or three car garage, where the neighborhood shopping centers, parks, fitness center, bike paths, movie theatres, restaurants, local pharmacy, cleaners, barber shop are located–you get the picture: the things/stuff/features that make a home the fulfillment of a buyer/consumer’s dream home and a neighborhood that is a perfect fit for their lifestyle.

The buyer/consumer wants to have a dialogue, a conversation, with their real estate agent about what the buyer considers to be the most important features in their search for the perfect home. This then, as Marc Davison suggests, can be formatted in an innovative way by programmers who would create a “natural search paradigm” that would describe homes in a manner that reflects how people really think.

And by the way, buyers/consumers want to see pictures, lots of them, and not crummy, blurry pictures, and not three pictures of toilet bowls with the seat raised, as Lynne Pope illustrated in her recent post. Imagine buyers finding an unlimited number of pictures, say 50 photos–more than enough to capture the essence of the room’s space and with descriptions that stir the imagination and paint a picture of what it would be like to live the lifestyle that this home evokes.

And what about creating and sharing a video of the neighborhood amenities–a journey into the heart of the community, highlighting the nearby pools, spas, tennis/sports courts, parks, restaurants, shopping centers, and schools.

Now I’m sure that you get the picture–in focus, evocative, and enlightening–and so will the buyers if you dialogue with them about what they would like to see in their search for the perfect home. And maybe the conversation will inspire change—moving the discourse toward a more perfect home-buying experience on-line through a human centric search algorithm, and off-line, through the human contact with your local real estate professional.

We lived in Tucson, Arizona when our children were infants, and, in the desert climate, we socialized around the pool. To ensure that our kids were pool safe, we enrolled them in a program that would help them survive in the event that they fell or found their way into the pool in an unguarded moment. The swim program taught babies 6 months to 6 years old to save themselves in an accidental water encounter. This was a first-step in trying to avert a tragedy.

In the Friday, May 30th edition of the Orange County Register, Michael Mello, in his article entitled “Take Steps for Safer Swimming,” sums it up in a few words: “Three seconds. One inch of water.” This is the time and the amount of water needed for an infant or toddler to drown. A kiddie pool holding water only an inch deep demonstrates all it takes to drown a small, unattended child.”

Were you aware that drowning is the leading cause of death in children under five? Fire officials urge homeowners to install multiple barriers, as well as other safety measures around pools and spas, such as fences with self-closing and locking gates, and net covers. Other approaches to pool safety include the following: adult supervision, barriers, and classes such as swim lessons and CPR.

The U.S. Consumer Product Safety Commission recommends multiple safety measures such as “pool and spa drain covers to help keep children from becoming entrapped and an alarm that will go off after seven seconds if a door to the back yard is opened by a child.”

Even if one doesn’t have children of their own, homeowners need to be mindful that their neighbor’s children can get into their yard, where the pool or spa may not have a cover or a fence.

Photo Courtesy of the Orange County Register On-Line, 05/29/08

For further information, please visit the following web sites:

http://www.abcpoolsafety.org

http://www.usla.org

http://www.swimforlife.org

http://www.choc.org/community/safetycenter.cfm

If you are considering an Adjustable Rate Loan Program be an informed consumer by asking the following questions:
1. Ask what the initial interest rate will be (your start rate).
2. Ask how often the interest rate will adjust and the dates upon which the interest rate changes will occur.
3. Ask the name of index used to adjust the interest rate (e.g. Libor, COFI, etc.)
4. Ask what the interest rate spread will be or what your interest rate will adjust to when your rate change does occur.
5. Ask how often your interest rate will adjust.
6. Ask what the lifetime cap of the interest rate will be above the initial start rate.
7, Ask how many points you will have to pay (each point translates into a percent of the loan amount for which you are paying) and what your total fees will be.
8. Ask what your APR or Annual Percentage Rate will be (your interest rate plus the total cost of your loan)
9. Ask if there is a pre-payment penalty associated with your loan and what the cost will be (No, you do not want one!)
10. Ask as many questions as you need in order to understand the loan program you are obtaining. You should have received a written Truth-in-Lending Statement outlining the interest rate you were promised, along with all of the charges associated with the loan, at the beginning of the loan process. Don’t sign the loan documents if they do not appear to be correct.

For more information on the subject, click here

According to the National Association of Realtors, on average the value of a home doubles every ten years. In addition, most people’s personal wealth comes from real estate. A personal note: I bought a condo in Irvine in 2000 for $178,500; I sold it in 2007 for $429,000. You can do the math, and see that I made a nice profit, even after paying all costs of the sale.

Education produces the same profit potential. High school graduates don’t have much future earning power. College graduates at the B.A. or B.S. level have a much higher earning power. And it increases exponentially with a Master’s Degree or Doctorate Degree. Whether it’s for yourself or your children… just keep writing those tuition checks… there will be future pay-back in terms of long-term earnings.

In Irvine, we are fortunate in having several higher level education opportunities. Several two-year colleges in the area, regional four-year colleges including the award-winning Chapman University, and the Irvine campus of the prestigious University of California.

And what about current investment in real estate? Interest rates are still at historic lows, and prices of Irvine real estate are comparatively low. It’s a great time to buy! A possible scenario: a home you could have bought two years ago for $600,000 is now priced at $500,000 or less. Given that real estate always appreciates over time, doesn’t that sound like a good time to call a Realtor?

As of 6 pm on April 23rd there are 887 active listings in Irvine; 479 of them are under $729,750 (the new guidelines for first time buyer loan programs); 411 of them are two bedrooms or more with one or one and one-half baths; 391 of them are two bedrooms and two baths. If you are not a first-time buyer, there are still many opportunities for continued home ownership: 133 2-bedroom, 2-bath homes priced up to $500,000; 258 2-bedroom, 2-bath homes priced up to $600,000.

Isn’t it a good time to call a Realtor?

I usually make it a point to scan the Real Estate sections of the L.A. Times, the Orange County Register, and the New York Times at some point over the weekend. However, I overlooked an article regarding 10 zip codes in Southern California that actually experienced price appreciation in the 1st quarter of 2008 as compared with the 1st quarter of 2007. Thankfully I came across Elaine Carlson’s article in PalosVerdesSource.com entitled Hottest SoCal Zip Codes.

The numbers were based on at least 20 sales in each of the zip codes as reported by DataQuick Information Systems. In Orange County, Irvine’s zip code 92603, which encompasses the villages of Quail Hill, Turtle Rock (including Shady Canyon), and Turtle Ridge, experienced an 18.0% increase in the median sales prices for existing single family detached homes as compared to the 1st quarter of 2007, Newport Coast’s 92657 zip code had an increase of 27.4% in the median sales price, and Newport Beach’s 92663 zip code encompassing Lido Isle and Balboa Peninsula had a 66.8% in the median sales price as compared to the 1st quarter of 2007.

Why do “some markets sizzle, while others fizzle?” Proximity to the beach where demand is high and inventory is relatively low has a great deal to do with price appreciation. These coastal areas have buyers who are able to qualify for good fixed rate loans, whereas the interior part of the state had borrowers who were stretching to afford homes, many of whom fell victim to the sub-prime mortgage debacle. (See my article entitled Which Cities are on Top for Home Sellers in California).

To view the cities with the biggest losses, Click here.