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Homebuyer Tax Credit

February 11, 2010 4 comments

(The following article was suggested to me by one of my favorite PHDs.)  

As if tax season weren’t stressful enough, prospective home buyers have two more looming deadlines to contend with.  Both are related to the federal government’s homebuyer tax credit. In a nutshell, the federal government is paying consumers (up to $8000) to purchase a home. You need to get on your horse though. Purchase agreements (i.e. being in contract) need to be signed by April 30, 2010, and you need to purchase your home (i.e. close) by June 30,2010. 

One word of caution. If you intend on taking advantage of the credit, don’t wait until April 1st to start shopping. There is liable to be a feeding frenzy at that time which could artificially push prices higher, and nullify the value of the credit.

 Here are the facts:

What Qualifies?

The Tax Credit applies only to the purchase of a primary residence (i.e. home) where the purchase price is $800,000 or less. The home cannot be purchased from a direct relative (i.e. parents, grandparents, siblings, or children).

 Who Qualifies?

First-time Homebuyers

 First-time homebuyers are defined as people who have not lived in a home they own for the previous three years. For first-time homebuyers, the tax credit applies to 10% of the purchase price up to a maximum amount of $8000

Repeat Homebuyers

Repeat homebuyers must have owned their current home for at least five years or have lived in the same home for five consecutive years over the last eight. For repeat homebuyers, the tax credit applies to 10% of the purchase price up to a maximum amount of $6500. Notably, the new law does not require that you sell your current residence.

Income Requirements

Single taxpayers with annual earnings of $125,000 or joint filers with annual incomes of $225,000.  (Single homebuyers with incomes between $125,000 and $145,000 and married homebuyers with incomes between $225,000 and $245,000 will be eligible for a reduced credit).

When?

You must have a signed contract by April 30, 2010 and your transaction must close by June 30, 2010. This deadline is extended to April 30, 2011 for members of the military who have served outside the United States for at least 90 days between Jan 1, 2009 to May 1, 2010. 

How?

Taxpayers can claim the credit on their federal income tax returns. If the credit exceeds the amount of tax owed, the difference is paid in cash – even if the taxpayer owes no tax!

Thanks for reading. 

 
For additional information (of both the detailed and confusing kind) have a look at the IRS websites below:
 

First-Time Homebuyer Credit

Some Current Homeowners Now Also Qualify 

Form 5405

Form 5405 Instructions

Categories: Buy It

The Current Market

I have a question.

If everything I’m reading these days sounds something like housing hasn’t hit bottom.., or something like housing prices are plummeting.., or Deutsche Bank Predicts 40% Drop in New York Home Prices.., or Brooklyn leads the way in unfinished condos.., or the Real Estate crisis is finally catching up to New York..,  then why are so many “experts” out there still referring to this old fairy-tale?

The Secret

August 26, 2008 Leave a comment

An Open House in Park Slope Brooklyn

Fig 1-5, An unidentified broker documents his time at a recent open house.

Pssssst. Hey you. Yeah you: Mr. Buyer. Want to know a secret? Come over here. A little closer. Closer. Clooooser. Now listen carefully. We are not very busy. No- scratch that, we are not busy at all…OK, it’s dead out here. August is always dead. Really dead. Our open houses are poorly attended. Our blackberries aren’t buzzing. Our sales figures are down. Our sellers are not happy, so we are not happy. Our sellers are worried. We are worried. Our sellers want to make a deal. We want to make a deal.

Are you still listening? This is an opportunity for you. Here’s a suggestion: this year, why don’t you and your brethren close up the beach house early and, instead go shopping for a real estate bargain?

Here’s another secret: about two weeks after Labor Day, everything changes. Things pick-up, office phones ring, websites get hits. More of you go to our open houses. More of you make offers. And more of you actually purchase a home. How do I know? Just like August is always slow, September is always better.

So make a deal while you can – the Brooklyn Real Estate Sale ends September 14th!

What Happens Now?

July 17, 2008 4 comments

Often after someone has either made or accepted an offer, I’m asked, “what happens now?” Below is a chronological list of how things should proceed after an Accepted Offer.  

  1. Pick an attorney.  It’s pretty tough, in New York, to complete a real estate transaction without an attorney. It is also pretty tough to get on their calendar. So, I highly recommend that you do this before you put your home on the market or before you start shopping for a new one. A good lawyer is your advocate throughout the transaction and if you are a buyer, often the only person who has your best interests in mind.  I personally would not buy or sell real estate without one and you shouldn’t either. Rules for picking a lawyer are the same as they are for picking any professional: get a recommendation if you can and pick someone you trust and feel comfortable with. 
  2. Start the attorneys communicating.  The person on the other side of this transaction will have an attorney as well (if they don’t, good luck getting into contract). You’ll want to insure that both attorney’s have each others contact information. What good agents and brokers usually do is give each attorney a one page Deal Sheet. The Deal Sheet contains the contact information for the buyer, the seller, their attorneys, the sales price and the escrow down payment (this is usually 10% of the purchase price and is different from your down payment for financing). If you are not working with a broker, then just put you’re your own deal sheet together.  You should send the deal sheet to each lawyer within a day of the accepted offer. A well organized Deal Sheet will save a busy lawyer time and get you to contract sooner rather than later.
  3. Seller’s attorney will send out a contract to the buyer’s attorney. The attorneys will probably negotiate a bit on some of the details, but they usually come up with a document that they will let their clients sign. You really want to make this happen within two weeks  -before the person on the other side of this transaction changes their mind.
  4. Sign the contract. You will meet with your attorney who will advise you about the specifics of the contract.  You should ask any questions you have here and if all goes well you’ll sign the contract. If you are the buyer you will also write out a check -usually 10% of the purchase price- which will be deposited in an escrow account. 
  5. Choose a mortgage broker or bank (buyers only).  Like picking an attorney, this is something I recommend you do before you even start shopping for a place. Most lending institutions will issue you a pre-qualify letter which will state that you are capable of borrowing up to X amount of dollars. This is a good way to prove to a seller or broker that you and your offer should be taken seriously.
  6. Appraise the Property.  When you boil it all down, banks only judge a transaction by two criteria.  Will the buyer pay back the loan? And is the property worth enough to justify the loan? To determine the latter, the bank or mortgage broker will hire a licensed appraiser to estimate the value of the property.  
  7. Bank issues a commitment letter.  After the bank has done its due diligence on the buyer and the property, it will issue a commitment letter. This is the letter that says the buyer is approved for the mortgage. It states the interest rate, amount, and term of the loan (among other things).  Once this letter is received you can schedule the closing.
  8. Schedule the date of the closing. The seller, the buyer, their attorneys, the bank’s attorney, and a title insurer, will all break out their date books and figure out the best day to finalize the transaction (be patient, this can be harder than seating your relatives at a wedding).
  9. Close.  This is where the rest of the money exchanges hands and the buyer gets the keys.  Essentially this is how the money will be distributed:
  • a) The seller’s attorney will write a check to the seller from her escrow account. This will be equal to the check the buyer wrote when he signed the contract.
  • b) The buyer’s bank will write a check to the seller for the amount that the buyer is borrowing from the bank. (That’s right; the buyer never gets his hands on the money.)
  • c) If after steps a) and b), there is money still due to the seller, the buyer will write a check for this amount.In addition to all of this, with your attorney’s help, you will sign half a ton of documents(buyers, you will actually sign a ton and a half). Once you are done you can …
  1. …Move!  In or out, depending on who you are. And you can almost always do this immediately after you close.

Feel free to forward any questions my way.  Thanks for reading, Jim.

Categories: Buy It

Take Five

April 6, 2008 1 comment
Thinking about real estate in Park Slope Brooklyn

The author demonstrates the Take Five method

People often solicit my opinion about a given neighborhood. “Is it safe?”,they ask. “How is the area? What are the locals like?”, etcetera, etcetera,… I flat out try to evade these questions and I have my reasons. For one, I’m very fond of the neighborhoods I work in and don’t feel capable of answering objectively (It would be like bad-mouthing a family member to an outsider). For two, other than the number of times I’ve been fleeced by the Department of Finance (see How to Park It), I don’t worry all that much about crime in my neck of the woods. And three, the locals question? I don’t even want to know what people are getting at there. So I don’t answer any of these questions. But this is what I do say. I say, “because everyone has a different comfort level when it comes to these things, you need to explore the neighborhood yourself. That means more than just a cursory look. You need to take five extra minutes with some of the residents and get to know them. Doesn’t matter how you do it, but you need to engage a few locals. Ask for directions or the best place to get coffee. Say good morning or good afternoon. Whatever it is, just talk to people. If you do this, I guarantee, that if you really do this, you will see the neighborhood and you will see the entire city of NY in a very different light.”

I can hear the collective moan coming over the big T1 line in the blogosphere. You are out of your mind Jim. This is New York City! You can’t just talk to people on the street. You’ll scare them, or they’ll be suspicious, or they’ll get mad. My experience has taught me otherwise. When I first started exploring Crown Heights, I would stop random people on the street and ask them what they were paying for rent. If anyone asked why, I would simply say that I was thinking of buying a three family building in the neighborhood and wanted to know what I could lease the apartments for. And you know what? People talked to me. They were friendly. They were nice. They were very helpful. I even got invited into someone’s apartment to have a look. I couldn’t believe it either, but I learned a valuable lesson about my city. Nowadays, I almost always say hello, good morning, and good afternoon and my neighbors usually say it back.

So you want to know about a neighborhood? Take five extra minutes and get to know its residents. Thanks for reading, Jim.

Lawyer Up

March 12, 2008 2 comments

Fiduciary Responsibility(Let it be known that I type this post, whilst an 11 lb baby boy sleeps in a sling around my neck).

In my line of work, there is plenty of ambiguity. I’m often not sure how to get the best return for my limited time; or if I should spend money on hiring an Admin, or an SEO consultant; or if someone is telling me the truth; or, my least favorite, if a particular agent says he is working for the buyer or the seller is he really? This last one frequently bites people-especially inexperienced buyers-in the derriere. Why is that? Real estate transactions and residential real estate in particular, are often negotiated through third parties. In these instances, you want to unambiguously trust the person you’ve hired.

I’m sure you’ve all walked into an open house and had the agent, i.e. the seller’s agent; tell you that the owner was flexible or would take much less than the asking price. Say what? That agent, in theory, is working on behalf of the seller, their client. So why are they lowering the asking price behind the seller’s back? Furthermore, I’ve had “buyer’s brokers”[1] come to my open houses and tell me things like, my client will offer X, but I think that she can go as high as Y. Well thank you for that information, Sir or Madam. Now I’m going to go right back to my client and tell him to counter your client with Y+Z.

Granted, these examples don’t typify all agent/brokers, but they do represent some. One problem is the business is very loosely regulated and the requirements are slim (in New York State, it’s just as difficult to be licensed as a cosmetologists, not that I’m knocking cosmetologists).

My point, after all of this, is that you need to hire a real estate attorney before you enter into a transaction. They are highly educated, they work only for you, and they eat, sleep, and breathe the attorney-client privilege thing. Whatever you say to them is between you and them. Everything they do is for the benefit of you, the client. Nice huh?

Here are just some of the services they’ll provide:

  • Draw up and negotiate a contract of sale;
  • Order and Review Title Insurance;
  • Review all bank documents;
  • Review a co-op’s or condo’s offer plan, financial statements, and meeting minutes;
  • Attend the closing;

And if that’s not enough, they’ll answer all of your questions honestly, and have nothing at all to sell you. Their only focus is completing the transaction for you. They also provide a fresh, impartial set of eyes on your deal – which is particularly helpful to first-time buyers and buyers who are, themselves, lawyers (yes, you lawyers should hire lawyers too).

That’s all for now. Thanks for reading, Jim.


[1] For more on so-called “buyers brokers” read I work for you (but I don’t work for you)

Categories: Buy It

Closing Costs 101

December 2, 2007 1 comment

Lots of people tell me that they are surprised at the enormity of the closing costs involved in the sale or purchase of real estate. Astonished may be the right word, and incensed probably works even better. This is especially true for those people who have scraped and saved for years only to find out that they are still $10,0000, $20,000, $50,000 or more short when the closing costs are factored in. What are the closing costs for? Who gets the money? Why didn’t anyone warn me about this?

Closing costs are called closing costs because they are generally paid at the time of the closing. They fall into two categories. Those paid to a government entity, usually in the form of taxes, and those paid to the various professionals you hired at various stages of the transaction. These include your broker, your lawyer, the bank, the appraiser, the title closer, etc. That’s right, indirectly; you did hire a title closer.

The next several posts will explain and help you calculate your closing costs for several scenarios. Here’s how things will breakdown.

  • Closing costs for a residential sale.
  • Closing costs for a residential purchase.
  • Closing costs for the purchase of a newly constructed condo.

Stayed tuned, all will be explained soon. Thanks for reading, Jim.

Categories: Buy It, Sell It