Friday, August 28, 2009

Home Buyer's Tax Credit Deadline

The federal government's "First-Time Home Buyers" tax credit expires on Nov. 30. The current offer is a tax credit for 10% of the purchase price of a property, up to $8,000. First-time home buyers doesn't just mean young people buying their first home -- this term applies to anyone who has not owned a principal residence during the three-year period prior to the date of purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.

First time home buyers are flooding the market and creating a flurry of showings and activity in the real estate world. Mortgage approvals, residential inspections, and other steps in the buying process typically take about two months, buyers hoping to take advantage of the incentive will need to have a contract by the end of September at the latest.

Those of you planning to take advantage of this tax credit at the last minute should be aware that mortgage approvals are currently taking longer than normal because home Appraisals have been placing very different values on homes than the buyer and seller agree to and for which the buyer tries to get financing. This is not an issue when the appraisal is too high but can bring the transaction to a screeching hault when the appraisal is too low.

What can you do? If you find yourself in a transaction where the appraisal has devalued your house or your perspective house, find out why. Ask for a full copy of the report and information on any comperables that were used. Be sure to point out any features of a property that would enhance the value and consider requesting a new appraisal. In many cases Appraisers are using other recent local sales to provide a benchmark value for your own property. The problem with this in the current market condition is that some of those comps may be Short Sales and/or Foreclosures meaning that the circumstances under which they were sold were perhaps different from the circumstances in which you are trying to sell or buy.

The critical message here is that real estate value is not a science. It comes down to a combination of factors

  1. What are current market conditions?
  2. What dollar value does the buyer place on the property?
  3. What dollar value does the seller place on the property?

Remember that you can seek alternate sources of finance. Remember to shop for your financing and in doing so you may find that the appraisal value is not as important. The foreclosures and short sales are bringing values of homes down but that doesn’t mean that the value of your home has to change.

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