6 Key Facts About the First Time Buyer Tax Credit

The tax credit may be enough of an incentive for potential buyers to jump off the fence. That is, if they know about it.
By Robert Freedman | November 2008
The $7,500 home ownership tax credit that the federal government created earlier this year as part of the Housing and Economic Recovery Act (H.R. 3221) is another tool at your disposal to encourage potential buyers to jump off the fence and get into the real estate market.

When you combine the tax credit with today’s low interest rates, wide selection of for-sale inventory, and affordable home prices, many of the pieces are in place for your customers to buy now. But tax credits can be confusing. To help your clients understand how the credit works and why it would help them, you must learn the details.

Here are 6 things you should be able to explain to prospects and clients:

1. Buyers have until July 2009 to make a purchase that qualifies.

The tax credit was passed in July of this year as part of the Housing and Economic Recovery Act (H.R. 3221). It’s worth up to $7,500 and can be taken in a single tax year. Authorization for the credit ends July 1, 2009, so if your customers wait to buy in the first half of 2009 they can take the credit on their 2009 tax return. Taxpayers can take the credit on their 2008 tax return if they bought their house this year after April 9.


2. Buyers don't really have to be "first-timers."

The tax credit is actually available to any individual or household that hasn’t owned a home for at least three years. And the NATIONAL ASSOCIATION OF REALTORS® has asked Congress to expand the credit to all buyers, not just those who haven't owned a primary residence in recent years.


3. Even if buyers exceed the income limit, they can benefit from the credit.

The actual credit amount is set as a percentage of the home purchase amount. That percentage amount is 10 percent, so your customers can get 10 percent of the home price credited against their tax liability, up to a maximum $7,500. Sounds like a great deal. But what if your clients make more money than the income limit of $75,000 for individuals and $150,000 for households? Good news: Individuals whose income exceeds the $75,000 limit but don't make more than $95,000 can still take the credit but on a reduced basis. The same thing applies to households earning up to $170,000. By the way, any house is eligible as long as it’s a primary residence and is in the United States.


4. Think of it as an interest-free loan.

The federal government requires the tax credit to be paid back in small, 6.67-percent increments over 15 years, although repayment will be no more than $500 yearly and payments will not start until 2011. For that reason, some analysts have likened the credit to a 15-year, interest-free loan to help make home buying affordable. NAR is pushing congress to remove the repayment provision, making this tax credit a true tax credit rather than an interest-free loan.


5. You don't have to be authorized before making a home purchase.

There is no pre-purchase authorization, application, or other approval process. Eligible buyers simply have to claim the credit on their IRS Form 1040 tax return and/or any form that the IRS might devise.


6. New-home construction qualifies.

For a home that a buyer constructs, the purchase date is the first date the buyer occupies the home.However, any home that is not a primary residence, such as a vacation home or income property, does not qualify.


NAR Asking Congress to Expand Credit

As mentioned above, NAR has asked Congress to do away with the repayment provision of the first-time buyer tax credit and expand the credit to all home buyers, not just first-timers. The proposals were part of a four-point housing stimulus plan the association submitted in mid-October.

“Housing has always lifted the economy out of downturns, and it is imperative to get the housing market moving forward as quickly as possible,” said NAR President Richard F. Gaylord. “It is vital to the economy that Congress take specific actions to boost the confidence of potential homebuyers in the housing market and make it easier for qualified buyers to get safe and affordable mortgage loans.

Article courtesy of Realtor Magazine

Do's and Dont's of Pricing

Pricing can be a sticky issue in a challenging market. These take-away tips from experts will make it easier for you to work with sellers on setting a realistic price tag.

Setting the right price is the key to turning a listing into a timely sale, especially in today's tough market. REALTOR® Magazine has published information over the years on how to work with sellers to reach a price that works. Here's a collection of the best tips from experts we've consulted.


Do your homework before the listing appointment.

Perform a competitive market analysis to present to sellers. This compilation of market data shows what homes similar to the prospective listing have sold for and how long those sales took. It's absolutely vital for educating sellers about pricing and days on market. Your CMA should feature a snapshot of several similar homes on the market, the average price per square foot of each, pending and recently closed transactions in the area, and days on market to close a sale



Don't forget to check out home-valuation sites.

Your sellers have probably visited Web sites like Zillow.com to see what their home is worth. Is the information at those sites accurate? Maybe, maybe not. But one thing is for certain: You need to know what those Web sites say about your listing before you arrive at the appointment. If the value stated on the Web site is not correct, you need to be prepared to explain to sellers how the Web site works and where the numbers are coming from.


Do consider the sellers’ urgency.

If sellers must move in 30 days because of a job transfer, snagging the highest price may not be a top priority. A lower price may help move the house more quickly. When speaking with sellers, find out how important it is for the home to sell quickly.



Do weigh the home’s condition.

If floors are scuffed and the place is cluttered, explain that a stale, worn look will negatively affect pricing and the ability to sell. “Somehow you have to dig up the nerve to tell them that buyers will expect a coat of fresh paint and new carpeting. If they won’t update, I have to consider that in the pricing of the house,” comments Judy McCutchin, RE/MAX Preston Road North, Dallas.



Don't be derogatory.

Be sure to point out pluses and minuses of the home’s location and condition compared to other homes that sold—and didn’t sell—recently. But do it in a polite, professional manner. Sellers are often sensitive to comments made about their home. That's why it's always important to compliment the home in some way, too.



Do use MLS illustrations to show the risks.

Show examples from the MLS of overpriced listings. Illustrate the number of times the price was reduced and how long it ended up taking to sell the house. Look for listings—initially overpriced—that eventually sold for less than their worth. Expired listings also serve as an effective reality check, particularly in areas with long days-on-market stats. Provide information on expired listings to remind sellers that if they’re not realistic about pricing, they could end up on that list.



Don't be wishy washy.

When you get to the pricing discussion, it's imperative to be professional and firm. Carol Royse, a sales associate at Keller Williams Realty East Valley in Tempe, Ariz., uses the following dialogue: “I know you told me you think your house is worth $500,000. With your permission, I’m going to show you some data to help us determine an accurate price for your home.” She then goes through each comp, asking for the sellers’ agreement every third or fourth home: “This house is two blocks over with your same floor plan, and it recently closed for $405,000. Do you see that house?” What if sellers claim their house is nicer? “I’ll say, ‘I understand your house has some nice upgrades. However, that house had similar upgrades. I’m going to mark this as a star comp, very similar to your house within the last 30 days.' If I’ve done my job well, they’ll ask what I think their home should be priced at, and I’ll give them my number.”


Do agree with sellers on a price-reduction plan.

If you agree to an unrealistic price, you’ll know within a couple weeks. Get sellers to agree to a price reduction plan upfront. For example, tell them that after a set period—two weeks or so—if you aren’t getting traffic and offers, it's time to revisit the pricing issue.



Don't hesitate to walk away if sellers are unrealistic.

If sellers are adamant about going with a price you know is too high, walk away. Says author and trainer Ralph Roberts, Ralph Roberts Real Estate, Warren, Mich.; “I’d rather turn down the listing than disappoint you by not being able to sell the house for what I think is an unrealistic price.”