First Time Buyers – Don’t File Your 2008 Tax Return Yet!

The IRS announced today that you may include your first time buyer’s tax credit to your 2008 tax return!  That means you can get $8000 back this year, even if you didn’t buy your house until 2009!

I am not a tax expert, so please check with one to verify this, but the instructions at the IRS website says “for first-time homebuyers who purchase in 2009, the maximum credit is $8,000 and can be claimed on a buyer’s 2008 federal tax return.”

I was really surprised, because I always thought that tax returns could only include the financial activity for the year you are reporting.  If you file before buying a house, maybe you can file an ammended return to get that money sooner.  I’ll contact a couple of tax pros and get some opinions on that in the next couple of days!

 

Before You Buy in an HOA!

This photo has nothing to do with this post - I just liked it!

If you are planning to buy a condo, or a house in Lake Forest, Mission Viejo, Rancho Santa Margarita, or other South Orange County area, there is a good chance that you will be buying in to a home owners’ association (HOA).  If that is the case, make sure you read over all the HOA documents soon after you receive them.  These are usually provided to you during the escrow process, and you will normally have 5 days after receiving these to either approve them, or cancel the purchase and get your money back.

What should you look at, or what should you look for?

Start with the budget. This will show you the items that are expected to be paid each month by your dues.  Some budget items can be expected to go up almost every year – like costs for electricity, water, utilities, gasoline, insurance, and most labor.  Also, look at the year-to-date actual financial statements to see how they compare to the budget.  Have there been unexpected or substantially over-budget expenses?  Is the income (from dues) under the budgeted amount?  If there have been a lot of foreclosures in the association, the unpaid dues from those homes will have to be written off, and the shortfall will have to be made up by an increase to the next year’s dues budget.  By law, in California, the HOA dues may be increased by the board of directors by up to 20% without a vote of the homeowners.  If a 20% increase is not enough to cover any shortfall, a “special assessment” of up to 5% of the annual budget may be declared by a vote of the board of directors.  Most associations publish their new budgets in November for the following calendar year, and the new dues assessments go into effect in January.

Review the Rules. Most HOAs have rules that address many areas of your life.  Putting a basketball hoop on your garage, or a portable one in the driveway, may be restricted.  Do you have a boat or RV?  Many HOAs require that they not be visible from any other property or from the street, or that you may only park your RV in front of your house for the time it takes to load or unload it after a trip.  Also, if you drive a commercial vehicle, know that there may be restrictions on keeping that in your driveway.  Do you work from home?  Some associations will not allow any kind of manufacturing or retail types of businesses, or will restrict the hours that you can operate.  What kind of pets do you have?  Chickens, ducks and pot-bellied pigs are often outlawed, and some associations put a weight limit on the size of dogs that are allowed.  Read over the rules and make sure there aren’t any that you can’t live with!

Architectural Guidelines. Before you plan that room addition, front porch, patio cover, or major remodel to your new home, find out what is likely to be approved by the architectural committee.  If you want to add a 2nd story, or change the exterior look of the home, find out before you buy that it will be allowed!

Meeting Minutes.  The minutes from the Board of Directors’ meetings will tell you what is going on in the Association.  Much of the time, the minutes are quite routine and boring, but check to see what issues are coming up at board meetings.  Are neighbors fighting about something?  Is the association failing to enforce the rules?  Are they anticipating discontinuing any services, or upgrading any of the commonly owned facilities?  Are there any lawsuits threatening the Association?

Buying a home that is part of an association means that you are buying ownership in that association.  Do your homework – You need to know what you are buying!

 

Sellers – When you get an offer respond quickly!

In the current market, when a buyer makes an offer on a property, it is in the seller’s best interest to respond quickly.  The buyers today are not impulsive, frenzied, or in a panic to “buy now or be priced out forever.”  If any urgency is felt by a buyer, it is more likely based on interest rates rising.

The standard contract in California provides an expiration date of 3 days after an offer is signed.  That doesn’t mean that the seller should take their sweet time to make a decision.  I have seen buyers go through a careful thought process to first decide to make an offer at all, and then to come up with the terms and price that would make them happy with the results.  At the time an offer is signed, most buyers are looking forward to coming to a conclusion of their home search, and moving forward with their plans to move in, arrange furniture, get settled in, and basically get on with their life.

During the wait time, between offer and response, the buyer’s emotions may swing substantially while imagining the offer being accepted, rejected or countered.  Since nobody likes rejection, a defensive ”I don’t really care that much” attitude often develops.  At the same time, the buyer may also be mentally justifying their original offer and while it originally may have been a strategy to negotiate to a “middle ground,”  it can evolve into a “they can take it or leave it” decision.

While dragging out a decision by the seller, there is also the chance that another home will become available that will be more attractive to that buyer.

Sometimes, it is difficult to respond immediately because one or more of the sellers may be unavailable to review and consider the offer, but with email and fax machines available from almost any corner of the globe, availability should not be an excuse for long.  Unless the home is brand new on the market, the listing agent should keep the seller well-informed and prepared by having regular discussions about what to expect and how to respond.   Providing information to the seller about agent feedback, recent sales (the ones that buyers bought, instead of yours), new listings, local foreclosures, buyer activity level and interest rates should be an important part of a listing agent’s job. 

Several years ago, I worked with some buyers who submitted an offer on a newly-listed , but substantially over-priced property.  (We justified the offer price with recent comps, many of which my buyers had visited.)  The listing agent was in no hurry to help the sellers make a timely decision, but they eventually countered 3 days later.  By then, my buyers were mad that their offer was treated so casually.  They decided to keep looking, ended up buying a different house, and 6 months later the original house sold for $15,000 less than my buyer had offered! 

Sellers – You have had your home on the market because you said you want to move.  When an offer comes in, it should not be a surprise – that’s why you’ve let all these strangers come through your house.  When you get an offer, thank the buyer (no matter what, it’s still better than not getting an offer) and tell them whether or not you want to sell at the price they offered.  Dragging it out will only hurt you in the end!