The year ends with a flourish!

I am pleased to say that the housing market has picked up here and that the end of this year has been very busy.

I think it is important to update everyone on the status of homebuyer credits. As you may have heard, the first-time homebuyer credit has been extended--but more exciting than that, there is a tax credit now for existing homebuyers!

The absolute best description I have seen comes from our marvelous Prosperity Mortgage expect, Pam Catts. Here it is--

In addition to extending the tax credit of up to $8,000 through June 30, 2010, the extension measure also opens up opportunities for others who are not buying a home for the first time.

So Who Gets What?
The program that has existed for FTHBs remains intact with the one exception that more people are now eligible based on an increase in the amount of income someone may now earn.

Additionally, the program now gives those who already own a residence some additional reasons to move to a new home. This incentive comes in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

Deadlines
In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.

Higher Income Caps in Effect
The amount of income someone can earn and qualify for the full amount of the credit has been increased.

Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligible.

Joint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.

Maximum Purchase Price
Qualifying buyers may purchase a property with a maximum sales price of $800,000.

First-Time Homebuyer Tax Credit – Frequently Asked Questions
Here are answers to some commonly asked questions about the tax credit.

What is a tax credit?
A tax credit is a direct reduction in tax liability owed by an individual to the Internal Revenue Service (IRS). In the event no taxes are owed, the IRS will issue a check for the amount of the tax credit an individual is owed. Unlike the tax credit that existed in 2008, this credit does not require repayment unless the home, at any time in the first 36 months of ownership, is no longer an individual's primary residence.

What is the tax credit for first-time homebuyers (FTHBs)?
An eligible homebuyer may request from the IRS a tax credit of up to $8,000 or 10% of the purchase price for a home. If the amount of the home purchased is $75,000, the maximum amount the credit can be is $7,500. If the amount of the home purchased is $100,000, the amount of the credit may not exceed $8,000.

Who is eligible for the FTHB tax credit?
Anyone who has not owned a primary residence in the previous 36 months, prior to closing and the transfer of title, is eligible. This applies both to single taxpayers and married couples. In the case where there is a married couple, if either spouse has owned a primary residence in the last 36 months, neither would qualify. In the case where an individual has owned property that has not been a primary residence, such as a second home or investment property, that individual would be eligible.

As mentioned above, the tax credit has been expanded so that existing homeowners who have owned and occupied a primary residence for a period of five consecutive years during the last eight years are now eligible for a tax credit of up to $6,500.

How do I claim the credit?
For those taking advantage of the tax credit in 2009, you may choose to either apply for the credit with your 2009 tax return or you may apply for the credit sooner by filing an amended 2008 tax return with Form 5405 (http://www.irs.gov/pub/irs-pdf/f5405.pdf).

Can you claim the tax credit in advance of purchasing a property?
No. The IRS has recently begun prosecuting people who have claimed credits where a purchase had not taken place.

Can a taxpayer claim a credit if the property is purchased from a seller with seller financing and the seller retains title to the property?
Yes. In situations where the buyer purchases the property, even though the seller retains legal title, the taxpayer may file for the credit. Examples of this would include a land contract, contract for deed, etc. According to the IRS, factors that would demonstrate the ownership of the property would include: 1. the right of possession, 2. the right to obtain legal title upon full payment of the purchase price, 3. the right to construct improvements, 4. the obligation to pay property taxes, 5. the risk of loss, 6. the responsibility to insure the property and 7. the duty to maintain the property.

Are there other restrictions to taking the credit?
Yes. According to the IRS, if any of the following describe your situation, a credit would not be due.

• You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.
• You do not use the home as your principal residence.
• You sell your home before the end of the year.
• You are a nonresident alien.
• You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)
• Your home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)
• You owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2009, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2006, through July 1, 2009.

Can you buy a home from a step-relative and be eligible for the credit?
Yes. Provided the person you are buying a home from is not a direct blood relative, the purchase would be allowed.

Can parent(s) who will not live in the property cosign for a mortgage for their child and the child that is a qualifying FTHB still be eligible for the credit?
Yes.

Can a separated spouse who has not owned a home for four years qualify for the FTHB tax credit if the spouse has owned a property anytime in the last three years?
No. However, the spouse may be eligible for the repeat buyer credit. The best path to take in any situation regarding income taxes is to speak with a professional tax preparer or CPA.

If you have any questions that fall outside the situations here, give Pam Catts a call at 757-564-2626 and if you do not have an accountant to speak with, she can refer you to one.

See-Saw News Stories!

News is what sells newspapers, captures your attention as you pass the TV or while listening to the radio in your car. To capture your attention news needs to be short and sound exciting--whether it is good or bad.

We have been conditioned to react to extremes. Not so long ago, we were hearing only gloom and doom from the media regarding the housing market. Now, everyone is suddenly excited by all of the recent headlines that say "homes sales are increasing."

What home sellers often interpret such headlines as meaning is--the market is doing much better so I can ask the same price as my neighbor did last year or the year before. Okay--that might seem logical, but what if the reason more houses are selling is because they have been foreclosed on and are selling for much lower than market value, driving prices down further?...or perhaps prices are increasing 2% after something like a 22% drop? Well, that turns the Seller's assumption upside down!

Now look at an actual recent headline that said "New Construction is up 11%." Sounds WONDERFUL. Let's celebrate! We're fine! Wahoo!!! But, if you take the time to look deeper and see that looking back at the average increase historically shown in that particular month, this was the worst increase since 1982. Suddenly, you see that all of the excitement and celebrating is unfounded.

Unfortunately, people who rely only on what they read, hear or see in headlines and soundbites can be misled by phrasing, as well. Take this statement that is written in the manner of many headlines--"The chicken is ready to eat." Depending on how you read this, it can be determined that your chicken dinner is served--or--looking at it another way, your pet chicken is hungry and waiting to be fed.

Another thing the press does can give us whiplash. You get one headline--like when the Wall Street Journal--a very respected publication--prints a story in July that says Home Sales are Up All Around and that is followed less than a month later with one saying that the housing market's "Foundation Appears Firm but Prices Keep Falling."

Relying on just headlines and soundbites to tell the true story doesn't work. Aug. 25, 2009 MSNBC posted an AP story with this headline--"Home prices post first quarterly rise in 3 years." Continue farther down in this same article and you get this summation--"Prices, however, have a long way to go to recover completely. Every metro showed annual declines, with fifteen reporting double-digit drops." Again, not the rosy picture you expected from the headline.

Delving deeper into the facts is what we need to do. As your Real Estate professional, it is my responsibility to keep up with the facts and to be ready to interpret the headlines based upon the reality of the facts that are behind the headlines. I will be happy to discuss the current market conditions with you and to explain how things are going. Just call or email me anytime!

Appraisals versus Assessments

TRUE OR FALSE? Property Appraisals and Assessments are the same.

FALSE!

There can be a significant differences between the two.

Assessed Value:

Assessed value is a value placed on a home by your local jurisdiction’s tax assessor. It strictly for tax purposes and is used determine tax payments. An entire jurisdiction is usually assessed yearly with values determined by a qualified team who'll ideally survey numerous properties in different neighborhoods and look at recent sales. Ideally this assessed value should reflect the going market value of the properties in your town, and neighborhood, but since these calculations are not based upon specific details a visit to your home might reveal, they are generally less accurate than an appraisal.

While tax assessors are required to determine the value a property is to be taxed on each year, they're not required to adjust the assessed value of those properties to reflect market value. Also, different places may have differing parameters for determining assessed values, so it's very possible that the assessed value will not reflect the true market value of a home.

Appraised Value:

A qualified appraiser comes to your home, takes measurements and notes the specific features and attributes of you home. The appraiser will complete a report this visit to your home and how your home relates to comparable homes in the area to determine it's market value. An appraisal is an accurate way to determine the market value of your home.

Generally an appraiser will use a combination of approaches to accurately determine a fair and current value of your home. The Market Approach, is one method whereby an appraiser will compare recently sold, similar properties and make adjustments between the subject properties and it's comparables. The Cost Approach is a method where the appraiser will determine the cost to re-build the property in question. Lastly, the Income Approach is a method that relates to income-producing properties such as apartments. It is based on the theory that a home's value includes the present worth of the income stream that the property is capable of producing when developed to it's highest and best use.

So, before you assume that your home's assessed value is a fair representation of it's current market value, consider hiring an appraiser to get a more accurate view of the current worth of your home. If you are buying a home, your Realtor should do a Comparative Market Analysis to see if the asking price is close to market value.

An important thing to remember is that both assessments and appraisals are merely snapshots in time giving you an idea of the value of the home at the time the assessment or appraisal was done. Based upon the economy, the market and other factors, they are subject to change in either direction--up or down!

Market Assessment....for today

Now that Spring has arrived, we see new activity in the local market. The $8,000 first-time homebuyer credit (anyone who hasn't owned in 3 years also qualifies) and low interest rates have started a flurry of interest in homeownership. With home prices down and the interest rates at all-time lows, this is the perfect time for Buyers.

Homeownership continues to outstrip most other investment opportunities. Historically, the value of homes nationally has increased at a n average rate of between about 5 and 6% a year. If you look back to the 1980's in five year increments, you will see averages around the 25% range + or - 2%. However, in the period between 2000 and 2006 there was an unprecidented increase---not 28%-- not 30% or even 50%, but almost 89%!

An increase of this magnitude should have sent up red flags, but our entire economy was in an unprecidented boom, so we were all happy to believe that this might be a "new norm." Well, it is not and our markets have suffered as we deal with the necessary correction.

Sellers who have owned their homes for awhile will still be in great shape if they want to sell. They just have to remember that what homes sold for in the past few years was an anomaly. It really is only those who bought in the last few years financed at close to 100% of the value or took out interest only loans and have not paid down the principle on their loans who are in dire straights if they need to sell. For these folks it might just be that their home's current value is below what they still owe!---Of course, changes in administration policies take place daily and there may be hope for people caught in this predicament.

Welcome to Suzanne Dana's Blog

Welcome to my real estate Blog. Please check back often as I will be posting regular updates.

Sincerely,
Suzanne Dana