On November 6th the President signed a bill passed by the US Senate and House of Representatives extending the current First Time Home Buyers Tax Credit AND creating a tax credit for 2nd time and subsequent primary residence purchasers. The First Time Home Buyer credit has not changed except to be extended through the end of April 2010. Any home buyer qualified under this program and is under contract to buy a home by the end of April; closing by the end of June will be able to receive an $8,000 credit from the government.

The First Time Home Buyer Tax Credit in particular has really help stabilize our area home prices which fall into the typical First Time Home Buyer segment. For example, before the tax credit had been set at an $8,000 credit vs. the previous $7,500 government loan we had been seeing nearly a years worth of inventory in our market in the $100,000-$250,000 price range. That means that if the same number of buyers kept purchasing homes it would have take a year to sale every home in that market segment. That is assume no more homes came on the market, of course. At the end of October 2009 we see that segment at about 7 months of inventory which is very close to having a balanced market.

The NEW tax credit is for 2nd time and subsequent purchases available to individuals and couples who are buying a primary residence to replace the one they currently own. If you have lived in your current primary residence for 5 of the last 8 years and you meet the income limits you would be qualified to receive a $6,500 credit for a couple or $3,500 for an individual. The signing date of November 6th 2009 is significant because any qualified purchase after that date can file for the credit.

One interesting note is that the bill doesn’t seem to say you can’t rent your current home and then buy the new primary residence thereby waiting for a little better time to sale that home. There would be some tax consideration for doing or not doing this but it may be something to consider if you think you may want to be an investment property owner for a little while.

Also of interest, this is truly a CREDIT not a tax deduction. For example if you are due $1,000 back on your taxes at the end of the year and you qualified for the $6,500 credit, you would then receive a check for $7,500.

There are Income limits and home purchase limits with both of these credits. Both are fairly generous. You can not make over $125,000 Single, and $225,000 as a Married couple. The home purchase can not be over $800,000.

For additional information on this credit we have created a side by side comparison for you. Please do not hesitate to contact me if you have additional questions.

Todd Long
Broker-In-Charge
Coldwell Banker United Realtors
todd.long @ cbunited.com

Some people may look at this and say so what, September/October, what is the difference? It may only make a difference to me, and the agents I manage, as we try to guide our clients as to the best course of action in their Real Estate endeavors. I feel like it is my job to know what has happened locally and nationally in the historical past of Real Estate, what the media is reporting with a little market lag time, what is actually happening right now and what the future indicators are forecasting. On a personal note, I really enjoy being knowledgeable about a subject, real estate, that is of interest to a wide variety of people. Real Estate makes for fun social conversations.

I think we are going to see the extension of the first time home buyer $8000 tax credit extended as well as expanding this to move up buyers for $6500 who want to sale a primary residence and buy a new one. We have seen the first time home buyer credit bring our inventory back to a manageable number of homes on the market in the sub $250,000 price points. The expansion of this credit to move up buyers should have a similar effect on price points above $250,000. This credit will most likely end with contracts written in April which is probably an appropriate time because we usually see a small upswing in purchase activity in the summer anyway. We still need to get unemployment under control. I firmly believe the 9-10% unemployment number is estimated low. I think it is closer to 17% nationally and maybe a little higher around Mooresville. No matter what I feel like we are seeing a bottom form in house prices in this area. There is no way to predict the absolute bottom to any market. If you are thinking a home purchase is a good decision for you don’t try to time the market. You will be missing a great opportunity at historic low prices and historic low interest rates if you do not act by the spring of 2010. That is my bit of advice.

Below is a video from one of the presentations I found interesting at Bar Camp Charlotte this past weekend.

Internet Marketing Training - SEO Google from Robert E on Vimeo.

Todd Long
Coldwell Banker United, Realtors
Broker-In-Charge
Coldwell Banker Mooresville

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I’m going to outline one way a lease option may be structured but I highly suggest you and your Real Estate agent enlist the help of a qualified Real Estate attorney if you are going to enter into a Lease with Option to buy or Lease Purchase agreement. 

There are a few details that need to be thought through before structuring your Lease Option.   1) How long of a lease term, 2) how much of the monthly payment will be applied to the option money (down payment), 3) how much will be paid up front to secure the contract, 4) how will repairs be handled 5) at the end or the lease option what will be the purchase price?  So lets cover a few of these.  How long of a lease term many times this will depend on why you are considering a lease option in the first place.  The buyer may just need 6 months to qualify for his loan as in the example above.  Other time the buyer may be trying to place 20% into the option money pool which will then be their down payment for the loan. 

That leads me to number 2 from above.  The amount of the monthly payment will vary depending on many factors: the amount the seller needs coming in each month to cover expenses, the amount the buyer can afford each month, or the amount negotiated towards option and rent.  Normally there is an amount of each payment that applies toward the option amount that is being paid from buyer to the seller to apply to the purchase price if the buyer decides to exercise the option at the end of the term.  For example if the monthly payment is $1000 then $500 of that could be going towards the option and $500 could be rent.  No matter what, that $1000 is paid to the seller each month and is not refundable.  If the buyer exercises the option at the end of say 2 years they would have $12,000 as down payment they have already made to the seller towards the $100,000 purchase price.  Usually the final purchase price is established at the outset of the Lease Option contract.  This can be a little trick to predict what the future value of the property will be in 2yr, 3yr, or 5yrs.

Often the upfront money from buyer/lessee to seller/lessor is considerably higher than a standard security deposit of 1 1/2 times the monthly rent.  The upfront money to secure the contract may be 5%-10% of the purchase price.  But this money does typically apply to the purchase price if the buyer exercises the option.  From the seller’s point of view this upfront money needs to cover any cost that are incurred such as moving expenses and real estate commissions.  Speaking of real estate commissions the NC Exclusive Right to Sell Listing Agreement paragraph 8 details the total fee to be paid from the seller to the agency.  ”Such fee shall be deemed earned under any of the following circumstances:” 8b “If the ……. Seller agrees to sell, exchange, convey or transfer the Property at any price and upon any terms whatsoever, during the Term of this Agreement or any renewal hereof”.  So a fee is due.  My opinion is something could be worked out where the seller pays a portion of the fee at the initiation of the lease option and the rest a closing of the transaction.  However, that is not the wording in the listing agreement and would need to be worked out on a case by case basis.

Repairs can be handled many diffrent ways but I have had a good experience having the buyer/lessee cover all repairs up to $100 and any single repair over $100 is split 50/50 with the seller/lessor.  You will need to work out how estimates are acquired and so on. 

As you have read above, many of the terms and conditions of the lease option are negotiable and can be handled in many diffrent ways.  As I mentioned before I highly suggest you enlist the help of qualified professionals if a lease option seems like it might be a solution to your real estate needs.