Archive for the 'Closing' Category
$8,000 First Time Buyer Tax Credit Change
In keeping up with the latest news, there was been a significant change in one of the current Administration’s tax credit programs. Yesterday, the Secretary of HUD announced that FHA is going to permit its lenders to allow home buyers to use the $8,000 tax credit as a down payment when obtaining a government insured mortgage.
This is a change in the way that the program had been setup when it arrived as part of the American Recovery and Reinvestment Act of 2009. The law states that qualifying homebuyers may claim up to $8,000 (or $4,000 for married individuals filing separately) on either their 2008 or 2009 tax returns. Before this change, homebuyers would have to wait until they filed their 2008 or 2009 returns to receive the credit. Now, FHA consumers can access the homebuyer tax credit fund when they close on their home loan so that the cash can be used as a down payment.
The details on this are not scheduled for release until next week. We’ll have a more in-depth post on this next week, but wanted to get the information out there, as this can significantly impact the market for some buyers. Yay!
West Hartford Sales Contracts
Real estate activity in West Hartford feels like it has really picked up over the past few weeks. Agents are buzzing around like busy bees, and houses are going under contract. We’re seeing some homes sell very quickly after they are offered for sale, and we’re seeing multiple buyers compete for properties. There is clearly still broad interest in living in West Hartford.
I was curious to see if the data supported our “feel” for the market, so I decided to try to look at the number of homes that went under contract in the town of West Hartford since the beginning of the year. My initial plan was to plot the number of contracts written on a week-by-week basis and then compare that to last year. Unfortunately, I was foiled by the MLS data source. We are only allowed to see the date on which a property went under contract after the listing agent moves it to “Deposit” status.
Properties flow through five standard categories in the MLS during the sales process. They go from “New” to “Active” to “Show” to “Deposit” to “Closed.” The “New” status helps flag new inventory for agents and lasts for a maximum of 7 days before a property is automatically moved to “Active.” Homes that are considered “for sale” are in either “New” or “Active” status. Once an offer has been accepted, the listing agent sets the status to “Show,” which means that buyer’s agents can still show the home to other potential buyers just in case the current deal falls apart. Since most deals stay together, we don’t typically show properties in “Show” status. There are no formal rules about when a property moves to “Deposit” status, but most agents wait until the mortgage commitment contingency has been satisfied.
Which brings me back to my data problem. Most of the recent contracts have not achieved “Deposit” status, so I’m not allowed to see the date on which it went under contract. All I can see is that of the 176 contracts that have been accepted so far in West Hartford in 2009, that 52 have closed already, 53 have reached Deposit status, and the remaining 71 are in Show status. Circumstantial evidence that there has been a flurry of deals, but nothing concrete.
The research got me thinking about the number of contracts written each month versus the number of closings during that month. Agents do a lot of work in the spring, but the results don’t show up until later when the closings actually happen. And West Hartford in particular seems like a town where people like to close during school summer vacation. Below is the number of contracts written versus the number of closings for each month in 2008.
From January through May, the number of contracts exceeded the number of closings by a considerable margin. In June, the number of closings nearly doubles, setting the stage for more closings than contracts through September. Contracts written has a final hurrah in November, followed by a spike in December closings.
The real estate market is busiest when buyers and sellers are agreeing to contracts. That’s when the action is for the agents too – we have to be able to keep up with all of our buyers and sellers. Once the contract is in place, the focus shifts to the inspection, mortgage and legal team members as buyers work through their purchase contingencies on their way to closing.
The time between a buyer and seller signing a purchase contract and the actual closing can vary considerably. What’s hidden in the chart above is that contracts written earlier in the spring tend to close more slowly than average. And contracts written over the summer tend to close more quickly than average.
Although every situation is different, contracts written during March, April and May take noticeably longer to close than those written in July and August. There’s not really any way to prove motive, but the trend seems to support the hypothesis that closings are intentionally scheduled within the summer school vacation if possible. Deals negotiated in the spring extend the closing, while deals negotiated during the summer accelerate it. Deals negotiated when the summer school vacation is not in play cluster around 40 days to close.
So there we have it – a meander through real estate purchase contracts, MLS statuses and days to close. The data seems to support my mental models about both when the real estate market is most active and that West Hartford buyers and sellers tend to work around the summer school vacation. Hopefully I’ll remember to look into my initial question once the 2009 data is available…
Registering Home Alarms
Most towns require homeowners to get permits for their alarm systems. Unfortunately, this is not a widely publicized fact and many homeowners learn the hard way.
The City of Hartford, as an example, requires that alarms be registered annually. There is a $15 registration fee. The process is not difficult, homeowners simply need to fill out a one page form and mail it to the Department of Emergency Services & Telecommunications. All of the information is available on their website, though you do have to know to go look for it.
One of the brochures mentions the possibility that the alarm company would buy blocks of permits for their subscribers. I gave our company a quick call to see if they were involved in the registration process. The friendly customer service people said that because each town has different rules, the security company is unable to maintain permits on behalf of their customers. They recommended just getting in touch with the specific town and working through their processes.
Enforcement of the alarm ordinance in Hartford is done with fines for false alarms. Homeowners that have not registered their alarms are hit with a $99 fine right off the bat. Then, they are also subject to a $90 response fee for false alarms. My reading of the ordinance is that there would be no fine or fee if the alarm was legitimate. Homeowners that have registered their alarms are allowed two free false alarms and one half price ($45) response per year before getting to the full $90 response fee for all additional false alarms. And of course they would not have to pay the $99 fine.
If you have an alarm system, please check with your town to find out about the registration requirements. For your convenience, here are links to information for some towns in Greater Hartford. Bloomfield, East Hartford, Farmington, Glastonbury, Hartford, Newington, Manchester, Simsbury, West Hartford, Wethersfield.
Financing Closing Costs
One of the most rewarding aspects of being a Realtor is being able to call a client and say, “Congratulations, your offer has been accepted – you got the house!” Amy made one of those calls just last night and, even though I was sitting a good four feet away from the phone, I could practically feel the buyer’s excitement. I couldn’t make out the words, but their volume and pitch increased significantly as they celebrated. It’s a very exciting moment.
It’s also the moment when the buyer realizes that they have to start rounding up the money for the purchase. The first deposit is submitted when the offer is accepted, the second deposit is typically due after the inspection contingency has been satisfied, and the remainder of the down payment is due at closing. All of these payments are cold, hard cash, the last two coming in the form of bank checks.
The buyer also has to have money available for closing costs. These cover the attorney fees and prorated expenses like heating oil and property taxes that the seller has paid in advance. It also includes the homeowners insurance that is paid in advance, as well as title insurance premiums for the bank and the buyer. Your agent or mortgage broker will be able to give you approximate closing costs for each house of interest.
Closing costs can be paid in two ways. Bring more cash to closing or accept a credit from the seller and roll the closing costs into the mortgage. Ideally, people would have enough cash to cover both closing costs and their down payments, but that doesn’t always happen in the real world. Sellers may offer closing credits, and buyers can sometimes negotiate them, but the reality is that they result in a higher purchase price. The higher purchase price must be accepted by the bank through an appraisal. And the amount of the credit is typically limited to 3-6% of the mortgage amount, depending on the mortgage type. Ask your mortgage banker for specifics.
The phrase “financing closing costs” is another way to say that they have been rolled into the mortgage. Once in the mortgage, they are charged interest and require regular payments. They are not broken out separately on the monthly statements and are quickly forgotten. However, the impact of financing closing costs can be calculated separately to help think about whether or not it is the right financial decision.
As a simple example, suppose a buyer financed $1,000 in closing costs using their 30 year fixed rate mortgage on which they are paying a 6.0% interest rate. Those closing costs would increase their monthly payment by $6.00 per month, and require total payments of $2,158 over 30 years. The information in the table can be scaled to any closing cost amount. For example, rolling $10,000 of closing costs into a 30 year mortgage at 7% would add $66.50 to the monthly payment and require total payments of $23,950. Just multiply the monthly and total payments by the appropriate factor, in this case 10 ($10,000/$1,000).
The point here is not that financing closing costs is evil and should be avoided like the plague. Although it is more expensive than paying cash, it is a perfectly valid strategy for coming up with the significant amount of up-front money that buying a home requires. And it is often the only viable strategy for younger buyers that have not yet built up enough savings to commit their cash to an illiquid investment.
The key is to understand how financing closing costs will impact the buyer’s overall situation and make sure that it is the right decision. For some buyers the decision is a trade-off between depleting their cash versus making a higher monthly payment. For others it is a choice between buying now versus holding off until the nest egg is a little bigger.
Most importantly, buyers need to plan ahead with their finances so that when they get the call from their agent they can savor the moment…
Congratulations, your offer has been accepted – you got the house!
"Sale Pending" Signs
Generally, I am not a superstitious person. I don’t bury St. Joseph statues in the yards of my listings (there will be a future blog on this), I don’t have a lucky pair of underwear that I wear to listing appointments, and I don’t read the horoscopes of my buyers to figure out if today is the day we’ll find them a house. However, there is one thing in real estate that I am overly superstitious about; “Sale Pending” signs. If there is one kiss of death for a sale that has not met all of its contingencies, it’s the Sale Pending sign.
There are no “rules” agents abide by when hanging the Sale Pending rider on a For Sale sign. They are free to do so at any time once a house has a signed contract. Some agents hang them immediately, typically to proclaim “Look at me! I sold this house in 1 day” or “Look at me! I FINALLY sold this house!” Some agents hang them just a few days before closing, after all of the contingencies (inspection, appraisal, mortgage commitment, clear title, etc.) have been met. And some agents never hang them at all. It’s a matter of personal preference, in most cases.
I am convinced Sale Pending signs are bad luck, particularly if they are hung before all of the contingencies are met. Earlier this year I drove up to a house to meet my buyer for the home inspection and there was the Sale Pending sign, mocking me, blowing in the breeze. My reaction? “Oh crap. Why did they hang that sign already? This is never good…” And it wasn’t. Radon came back off the charts and the deal was dead. No more Sale Pending sign at that house.
Some sellers request that their agent hang the Sale Pending sign as soon as they’ve signed the contract. “We want people to know our house is sold.” As an agent I don’t necessarily want all of the interest in your house to die because if for some reason the deal falls through, I want some people I can go back to that might have interest. You can never be too careful.
Some buyers wonder why the Sale Pending sign isn’t up after their offer is accepted. I explain that there is no rule about if and/or when an agent has to hang the Sale Pending sign. Buyers want to see the sign so that other buyers know the house is off the market. Basically, “stay away from my new house!”
I am not a fan of counting chickens before they hatch, hence you’ll typically never see a Sale Pending sign on one of my listings. Or if you do, we’ve gotten the clear to close and the house will transfer owners in the next day or two. As much as I’d like to proclaim to the world that I’m awesome and helped my client sell a house quickly, I’d rather just quietly go to closing. Because selling the house is truly the end goal, not basking in the glory of some silly sign rider.