Archive for the 'Closing' Category
Greater Hartford Real Estate Market Statistics- Summer 2008
Labor Day unofficially marks the end of summer. Vacations are over for the most part. Kids are headed back to school. The drawbridge to the Cape is raised.
Now is the perfect time to look back at the full spectrum of data for the spring real estate market in the Hartford area. Most people try to plan their moves between the months of May and August. This behavior follows the break in the school cycle, slower times at work, and the desire to move during nicer weather. People relocate throughout the year and others don’t necessarily time their buying for this 4 month block, but the majority of transactions take place in this window.
So how did towns in the Hartford area fare this spring market when compared to the spring real estate market of 2007? Here are the results, for single family homes only. All data is pulled from the CT Statewide MLS, deemed reliable but not guaranteed…
1. Each of the 16 towns I reviewed saw declines in the number of closed sales when comparing 2008 to the same time period in 2007. A few towns saw minor fluctuations, but 11 of the 16 towns had declines of more than 20% in the number of closings.
2. 11 of the 16 towns also saw declines in the median price when comparing 2008 to 2007. Six of the towns saw median price declines of 10% or more.
3. I have no idea what the heck is going on in South Windsor. The number of closings dropped off a cliff, declining by 44%, but the median price increased by 17%. There were no new construction projects which skewed the data. I’ve rechecked the numbers and they’re right. Right now, South Windsor is a riddle wrapped in an enigma.
4. The yellow shaded boxes in the Months of Inventory column highlight current markets that favor buyers.
5. West Hartford continues to kick butt and is the strongest seller’s market in the area. It was one of the towns where I was involved in a multiple offer situation last week.
The next two weeks will be busy with new listings coming on the market. Many sellers held off listing in the last weeks of August, as there is always little buyer activity during this time as the summer winds down. Next we can begin to wonder how the election will affect our local real estate market in Greater Hartford.
First Time Homebuyer Tax Credit- Part 1
As part of its major housing legislation, H.R. 3221, Congress created a tax credit to provide an incentive for first-time homebuyers. The $7,500 credit will be available for the purchase of a principal residence on or after April 9, 2008 and before July 1, 2009.
This first blog post will address common questions. A second post will follow with my thoughts on the tax credit…
The Basics
Who qualifies for the new tax credit?
Only first-time homebuyers are eligible for the credit. A first-time homebuyer is defined as an individual who has not had an ownership interest in a principal residence in the previous three years. The 3-year period is measured as of the date of the purchase of the eligible principal residence.
Is there an income restriction?
Yes. The income restriction is based on the tax filing status of the tax return the purchaser files. Individuals whose Form 1040 filing status is Single are eligible for the credit if their adjusted gross income is no more than $75,000. Individuals who file a Joint return may have income of no more than $150,000.
Do individuals with incomes greater than the $75,000 or $150,000 limits lose all the benefit of the credit?
No. The credit has a phase-out. A formula is provided so that the credit is gradually reduced as an individual’s income reaches $95,000 (single return) or $170,000 (joint return). Individuals with adjusted gross income above $95,000 ($170,000 joint) will receive no tax credit.
Is the amount of the credit tied to the price of the home?
Yes. The credit is for 10 percent of the cost of the home, up to a limit of $7,500.
What’s the definition of “principal residence?â€
Generally, a principal residence is the home where an individual spends most of his/her time. The term includes single-family detached housing, condos or co-ops, townhouses or any similar type of dwelling.
Are there restrictions on the location of the property?
Yes. Eligible property must be located in the United States. Property outside the US is not eligible for the credit.
Are there restrictions related to the financing for the mortgage on the property?
Yes. If the financing is obtained by means of mortgage revenue bonds (i.e., through a tax-exempt bond-related financing program offered by a state housing agency), then the purchaser is not eligible for the tax credit.
Why is the credit sometimes referred to as an interest-free loan?
Unlike most other tax credits, this tax incentive must be paid back. All eligible purchasers who claim the credit will be required to repay it over 15 years. The statute specifies that the repayment amount will be 6.67% of the credit amount each year. Thus, a buyer who qualifies for the full $7,500 credit will repay $502.50 each year. There will be no interest charge on outstanding balances.
Some Practical Questions
How do I apply for the credit?
There is no application or approval process. Eligible purchasers will claim the credit on the appropriate IRS Form 1040 tax return and/or on any special forms the IRS might devise.
So I can’t use the credit amount as part of my downpayment?
Presently, there is no mechanism available for claiming the credit any earlier than the 2008 tax return that will be filed in 2009. Congress tried to devise a mechanism that would allow pre-funding of the credit, but found that pre-funding would require cumbersome processes that would, in effect, bring the IRS into the purchase and settlement phase of the transaction.
So there’s no way to get any cash flow benefits before I file my 2008 tax return?
Any first-time homebuyers who believe they would be eligible for all or part of the credit would be allowed to make adjustments to their income tax withholding (through their employers) or to their quarterly estimated tax payments. Individuals subject to income tax withholding would get an IRS Form W-4 from their employer, follow the instructions on the schedules provided and give the completed Form W-4 back to the employer. In many cases their withholding would decrease and their take-home pay would increase.
I made an offer on a home that was accepted before April 9, 2008, but I didn’t go to closing until after April 9. Am I eligible for the credit?
Yes. A home is considered as “purchased†when all events have occurred that transfer the title from the seller to the new purchaser. If a property goes to settlement on or after April 9, 2008, then an otherwise qualified buyer would be eligible for the credit. Similarly, closings must occur before July 1, 2009 for purchases to be eligible for the credit.
If I don’t make an eligible purchase until 2009, do I claim the credit when I file my 2009 tax return in 2010?
Qualified first-time homebuyers who make their purchase between January 1, 2009 and July 1, 2009 are permitted to make an election to treat the purchase as if it had occurred on December 31, 2008. This election allows them (depending on the timing of the sale) to claim the credit on their 2008 tax return that is due on April 15, 2009. They may also elect to file their 2008 tax return after April 15 by filing for an automatic extension. If they file their 2008 return before they have purchased the home, they may utilize this election and file an amended 2008 tax return.
Repaying the Credit
What is the repayment feature of the credit?
The repayment feature of the credit is similar to a recapture provision: the tax system takes back all or part of a tax benefit. In this case, there is no precedent for repayment of an individual tax credit, so not much is known about how the repayment will occur, how it will be reflected at settlement or on the sales forms or how the IRS will collect and enforce the payments. The repayment is the equivalent of converting the tax credit into an interest-free loan.
What are the terms for repayment?
The credit amount is repaid in increments of 6.67% of the credit amount over 15 years. For individuals who take the full $7,500 credit, the repayment will be $502.50 a year. Individuals who claim a credit of less than $7,500 will also have a 15-year repayment period and will pay 6.67% of their credit each year. For example, an individual who claims a credit of $6,000 will repay $400.20 a year ($6,000 x .0667). There is no interest charge applied to outstanding balances.
When do I make the payment?
The mechanics are not specified. Repayments for credits claimed on 2008 tax returns will go into effect for the 2010 tax year. Repayments for credits claimed on 2009 returns will go into effect for the 2011 tax year.
Will the IRS put a lien on my property for the amount of the credit repayment?
The statute does not grant the IRS that authority. The rules for tax liens are quite specific. It is not yet known how the IRS will identify and stake its claim to the repayment.
What if I sell my house before the 15-year repayment period is complete?
When the person who utilized the credit sells the home, any amount of tax credit that has not been repaid will be due in the year of sale. For example, if an individual still “owed†$4,000 in repayments and realized $25,000 of proceeds from the sale, the $25,000 of seller proceeds would be reduced to $21,000 and $4,000 will be remitted to the IRS. Again, the mechanics are unknown.
What if there’s very little (or no) gain on the sale and the proceeds won’t cover the repayment amount?
If the proceeds of the sale don’t cover the amount that must be repaid, part of the liability is forgiven. For example, if the individual still “owed†$4,000 but the gain on the sale was only $3,500, then the seller would not be required to repay the IRS the $500 shortfall.
Are there any other exceptions to the repayment rules?
Yes. If the person who utilized the credit dies before the full credit amount has been repaid, then any balance that remains unpaid is disregarded. Special rules make adjustments for people who sell homes as part of a divorce before the credit has been fully repaid. Similarly, adjustments are made in the case of a home that is part of an involuntary conversion (property is destroyed in a natural disaster or subject to condemnation by eminent domain by an authorized agency).
If I received a refund of a portion of the tax credit because my total tax liability was less than the amount of my tax credit, do I have to repay the amount of the refund?
Yes. You would have received the maximum economic benefit of the any credit amount when you reduced your tax to zero and also received a refund of the balance. Thus, you would repay the full amount of the credit for which you were eligible. Again, there are no details that specify the mechanics for tracking those amounts.
A Glimpse at a Tough Real Estate Market
Last week I reported on real estate market statistics for the spring in a number towns in the Greater Hartford area. Most towns had seen a significant decline in the number of closed sales when comparing April through June of 2008 to 2007.
While those statistics are troubling for sellers, they are also troubling for those who earn their living in the real estate industry; your local real estate agent, closing attorney, mortgage broker, home inspector, appraiser, and insurance broker.
I was curious to understand how bad things really are on a transaction-per-agent basis, and I have access to the data, so I did a little digging. The results are startling.
Let me explain this little chart to you.
The CTMLS is a big database that agents pay to join and it tracks most of the closed real estate transactions in most of the state. Commercial agents tend to use other methods of tracking their deals and Fairfield County has their own MLS to track their transactions, so they won’t be included in this analysis.
Anyway, there are 20,000+ agents that pay to have access to the CTMLS. Some of those people are brokers that manage offices and appraisers, so I estimated those groups to be 5% of the members and took them out of the analysis, as they aren’t actively trying to sell real estate. That leaves us with approximately 19,250 agents actively trying to sell real estate in a significant portion of Connecticut.
Then I looked at the number of closings this year for single family homes, condos, multi families, land, and commercial. Each deal has a buyer and seller represented, so the number of “sides” that agents share is actually double the number of closings. Remember, this doesn’t include Fairfield County and most commercial deals.
And now the results, getting to how much the average agent has earned this year PRE-TAX.
For each sale, the total commission is split between the buyer and seller brokers. The agent then takes their check back to the broker and it’s split again, this time between the broker and the agent. I estimated the split between the brokers to be 2.75%, as we typically see 2.5% or 3% offered in the MLS. I also estimated the split between the agent and their broker to be 70%. This split between the agent and the broker is a little bit more of a guess, as each broker has different split plans which are closely guarded. So the 70% is a rough estimate and may actually be a tad high.
On average, for my analysis with my assumptions, a real estate agent in the CTMLS has taken home a little less than $7,800 for the entire year. And that is PRE-TAX. Oh, and that doesn’t take into account the expenses for getting to a closing (advertising, membership dues, gas, etc.).
There are many agents that have done well more than the 1.4 closings this year that averaged in my chart. Which means there are many agents that have done no closings this year. 
Last year, the National Association of Realtors saw a decline in membership for the first time in 8 years. I wonder what will happen locally to many of my real estate colleagues? It truly seems to be survival of the fittest right now.
Greater Hartford Real Estate Market Statistics- 2nd Quarter 2008
With the end of June came just about the end of the spring real estate market. So how did we do in the Greater Hartford area when comparing single family home sales in the second quarter of 2008 to the same time period in 2007? Take a look for yourself…
All data came from the Multiple Listing Service for the time period of April through June (2007 and 2008) and is deemed reliable, but not guaranteed.
With agents complaining about the market being slow, we can see why. The number of closed sales is down in almost all towns researched, with several towns seeing declines in closed sales of 20% or more. The market was lethargic in many areas this spring.
We are also finally starting to see median sales price declines as well. There is a wide range in median sales price declines. A few towns saw small increases.
Days on market (DOM) is also increasing, but modestly. Most towns did not see more than a week or two added to selling time, if there was an increase.
Most surprising to me is the Months of Inventory. Many towns have moved back into Neutral Market territory (favoring neither Sellers nor Buyers), which is historically defined as 3-6 months of inventory. With declines in the number of closed sales, this could mean one of two things; fewer people decided to sell this year or people did try to sell and took their homes off the market if they were not successful after a specific time period.
Historically, sales in July and August are slow, as people are busy with summer vacations and other activities. It will be interesting to see how the market does over the next few months.
If you are looking for data for another town which I did not include, just ask and I’ll be happy to provide it.
Q&A: Planning for a Purchase
Today we’re starting a new segment here on the Greater Hartford Real Estate Blog, Q&A. Our first conversation is with our very own Kyle Bergquist, who is a financial advisor with Conifer Investments.
Greater Hartford Real Estate Blog (GHREB): With prices either stable or falling, there seems to be a fair number of young professionals looking to buy their first home. How would you recommend folks prepare for their purchase?
Kyle Bergquist: The single most important step is making sure you can actually afford the houses you look at, and will end up buying. I recommend going through a budgeting excercise to help you decide how much you are comfortable paying on a monthly basis for your mortgage and other home-related expenses. The monthly mortgage figure, combined with the mortgage type and rate, sets the price range as you begin your home search. Many people rely on their mortgage broker to tell them the maximum they are qualified for and then use that value in their search. I’m not sure how that would work out with today’s mortgage market, but until recently it would have resulted in you buying a house you couldn’t actually afford.
GHREB: What sorts of items do people need to consider in their budget?
Kyle: Start with your income and then begin subtracting out expenses. It’s easy to forget items, like auto insurance, that are paid infrequently. We use our fireplace in the winter so two expenses we have are firewood and annual chimney cleanings. They are once-a-year bills, and I’ve forgetten them before. Take a quick look through your checkbook and credit card statements to make sure all your current expenses are considered. Also think about expenses that only homeowners pay, for example water bills and garbage collection fees. Your agent should be able to rattle off the list of typical expenses for the towns in which you are looking. There are also some online budget worksheets (CNN Money, About.com) that can be used to structure your effort.
GHREB: We’ve talked about making sure the people can afford the homes they buy.  What about the initial purchase?
Kyle: During the purchase process, buyers need to have money available for not only the down payment at closing, but also a number of other expenses as well. Some, like the first and second deposits that accompany an offer to the seller are actually early contributions to the down payment They go towards the purchase price and become equity in the property. Others, like the expenses associated with home inspection, mortgage commitment and appraisal are costs of buying real estate and will never be recovered. Finally, buyers typically have to prepay some of their expenses at the closing table. Property taxes and homeowner’s insurance are usually held in escrow at the request of the mortgage company. Costs paid by the seller that will benefit the buyer are equitably divided, so for example, the buyer ends up paying for all the heating oil in the tank.
You’ll want to talk with your agent to get a sense of the initial deposits that accompany offers in your area and typical home inspection costs.  Your mortgage broker is the best person to ask about everything else.  They can walk you through the other expenses that you’ll probably see at closing, like a preview of the Good Faith Estimate that they will provide after your offer is accepted. Some people also like to set aside some money for repairs and other work they want have done immdiately after the closing, so keep that in mind also.
GHREB: Anything else that you would recommend?
Kyle: I guess the only other point I want to make is that when you move into a home, there are going to be expenses that you might not expect. A lawnmower. A bed and nightstand for the guest bedroom. And lots of stuff to hang on the walls. Leave a little extra room in the budget for the incidentals and don’t be afraid to get creative until you can afford what you really want.
GHREB: Are you available to help folks out with their budgets?
Kyle: I’d be happy to sit down and talk with your clients.
GHREB: Terrific! And thank you for your time, Kyle.
Kyle Bergquist is a financial advisor at Conifer Investments, a boutique investment firm that specializes in folks with complex financial situations like multigenerational families and entrepreneurs. Kyle is also a licensed REALTOR and supports Amy’s residential real estate practice. He is a regular contributor to the Greater Hartford Real Estate Blog and can be reached at KyleB@AmyB-RE.com.