Potholes on the Road to the Homebuyer Tax Credit

Barring a resurrection in Congress, the deadline to close escrow on a home and receive the $8,000 (or $6,500) Homebuyer Tax Credit is midnight Wednesday. Agents are being asked by NAR and other groups to do all we can to make sure escrows close in time for the deadline, which assumes we have far greater control than we really do. Take it from someone who has waited two-plus weeks for a lender to send out loan docs (and then a few extra days because the buyer left town for a few) … the final closing date usually isn’t up to the agent.

While I’ve not been a fan of the credit and particularly its extension last fall, it’s hard to argue against extending the deadline. This isn’t an expansion of the credit. It’s simply an extension to allow those under contract by April 30 to get their transaction closed.

Having said that, based on the figures being provided by NAR, I’m having a heck of a time working up a great deal of sympathy for those caught up against the deadline.

First off, the figures differ greatly. I’ve seen estimates of expected impacted buyers that range from 75,000 to 180,000. Which, to my mind, means no one’s really sure how many people may lose the credit.

The reasons cited for buyers possibly missing the deadline also are troubling. Real Estate Economy Watch hints that the issue is short sales, which take far longer to close than a traditional sale, though there are no concrete estimates as to what percentage of those in limbo are waiting on short sales.

If buyers are in fact waiting for short sale approvals and closings to receive the credit and the credit was their many reason for buying, it was a fool’s bargain from the beginning. Any agent with the slightest experience would (hopefully) tell a buyer that there was no way to guarantee a 60-day close on a short sale, though it wouldn’t surprise me if there were cases where the message didn’t get through. For those calling yard signs and working with listing agents who represent the seller, their agent (themselves) didn’t give them the advice they needed to hear.

More troubling is this …

About a third of the April signings were for homes under construction, and a quarter were for those that weren’t started.  Builders are working day and night to complete homes before the deadline next Wednesday at midnight, but many won’t make it.

If construction hadn’t been started by March or April, what on earth would make a buyer think a home is going to be ready for occupancy bu June 30? Would you really want to move into a house thrown up in the span of 60 days? This isn’t Extreme Makeover, kids.

Again, hopefully a buyers agent would have told these folks that attempting to purchase a brand new build could lead to the loss of the credit. We’re in Arizona where weather isn’t a factor; I only can imagine build times in other parts of the nation, where they have things like snow and rain slowing the process.

Of course, if a buyer walked into the builder on his own to purchase without independent representation, it wouldn’t surprise me if the tax credit discussion was coated in conditional statements … “if all goes as planned we can close on time” … etc. Sometimes it helps to have an expert on your side.

Now here’s the fun difference between a short sale and a new build, at least here in Arizona assuming the short sale addendum was used. Assuming the credit was the main reason for the purchase, the buyer can walk away from their short sale offer before bank approval and retain his earnest deposit assuming that escrow even was opened.

On a new build, however … let me throw in the disclaimer that I’m not an attorney, that every builder’s contract is different and each case is unique … in general terms, though, there are very few out clauses allowing a buyer to back out and regain the earnest deposit. Most deal with financing but as most builders have buyers using an in-house or related lender, it’s hard to argue that you didn’t qualify for a loan when the lender knows better and informs the builder as such.

In short, try and cancel because of the loss of the credit and your earnest deposit likely will disappear as well.

Which goes back to something said here and elsewhere dozens of times over the past year … the tax credit wasn’t a reason to purchase a home. Or at least it shouldn’t have been among the top half-dozen reasons to do so. You don’t spend six figures to recoup $8K. It doesn’t make any sense.

Hopefully fewer rather than many are caught watching and waiting as the deadline approaches. We shall see.

Jonathan Dalton

Jonathan Dalton is a 40-plus-year resident of the Valley and has been helping folks buy and sell homes since 2004. He can be reached at 602-502-9693 or info at allphoenixrealestate.com.