Harleysville-Lansdale Real Estate and More: With the Tax Credit Deadline Looming - A Game of Chicken is Erupting

Watching the countdown is getting more and more interesting!

I haven't personally experienced this game of chicken (yet), but I have heard stories from local agents.  You raise valid points, and sellers still need to do a reality check.  They may have a little more leverage, but not so much that they can afford to be so cavalier about a possible sale.  I wonder how many will come to regret their decisions?

The scrambling has begun

I agree, some sellers think they have an advantage now and it can backfire on them. It will be very interesting to see what happens, if anything, to the market after April 30. Personally, almost EVERY I've spoken to said they would have purchased or planned to purchase this year anyway whether or not there was a tax credit offered.

Great insights here. Hard to tell what will happen next, but it doesn't appear that the tax credit is being extended again.

Here in Austin, seller haven't been negotiating much, and interest rates seem to be driving the market more than the credits - I'm less worried about the tax credit ending and more worried about what happens if rates head back to 6.5% over the the next year. We'll see.

Good luck!

Great Analogy!

-Phil Graves-

utahbuyeragent.com

I think this analogy is dead on.  I have a buyer that has a good offer on an estate sale property and the heirs won't come down the $10k to get the deal done.  Unfortunately I think there are buyers who will settle for a house just to collect the $8k and in 6 months when they realize they may have made the wrong decision who are they going to blame.

I like your analogy. I've encountering more and more sellers who refuse to be reasonable and come down in price.  I think they may be experiencing a higher number of showings, and equate that to "let's hold out for a higher price". Maybe come May 1, when & if the buyers back away, they'll be left holding the bag (er:  house!).

I get the impression the seller you are dealing with is realistic about price but doesn't want to be "held over a barrel" on any potential inspection issues. Like you said, you certainly can't fault the sellers logic for wanting to reduce the inspection period, especially if there were multiple offers.

Well stated!

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PHD Realty LLC
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Here in Vegas we have around 11,000 short sales in contingent or pending status, with more and more being added every day.  I have been anxious to see what the first week in July will bring, as knowing how many of the buyers will lose interest if they can't get the tax credit is a complete mystery to all.  I'm not anxious to see 3- 5,000 housing going "back on the market", knowing what that will do to the market.  What a sustem! 

I just watched a seller attempt the game of chicken during inspection negotiations with my customers and they walked away, went out this weekend, had another offer excepted and the deal is better than what they had before. My guess is the seller will be kicking themselves for digging in. 

Anytime you provide an incentive to stimulate  activity it is an artificial market. Paying $15,000 more to receive $8,000 is a bit irrational. FHA qualifing scores in the mid 500's..?  Haven't we learned anything?

Nice post Scott

Steve W

www.soldbysteve.net

RE/MAX Allegiance, Arlington, VA

Interesting point of view. I too have many buyers rushing to get into escrow, I'm telling them that they still need to find the RIGHT house and not just ANY house or they will be sorry for years.

Lisa - Here in CA, come May 1st, we have a whole new countdown with our state tax credit for first time buyers.  Fortunately though, that money is expected to go very fast and it is rumored that it will probably be gone in 30 days.  Personally, I can't wait until all this tax credit business is over and done with.

I'm seeing more sellers in panic mode than buyers.  They feel that they have to sell by 4/30 or the supply of buyers will be exhausted, and they may already be too late.  It seems to me that most remaining buyers in this market are the move ups who have just sold their homes. 

IMHO - If you've got a reasonable offer on the table from a qualified buyer it would be foolish to be inflexible or expect to be in a stronger position due to the tax credit. Just reinforce with the seller the true nature of your local marketplace. And ask the seller this one question "Do you want to sell your home or not?"

It may not be a case of chicken at all. I have 2 sellers and we are hoping to get a full price offer to avoid the dreaded SHORT SALE. Will a buyer pay 5k more and get the credit a sure thing. or wait several more months to save maybe 10k minus 6 months rent -6 and the 8k tax credit. Using these numbers it buyer loses. And what about raising interest?

Hi Scott & Lisa,

I wrote about the coming expiration of the tax credit last month in my "Poker Face" blog and wondered what effect it would have on the negotiation process.

I like your analogy of a game of chicken.

Jason

Very interesting point--but I agree, sellers will "pay" for this in the end.  I'm very fortunate to have not run across this scenario locally....

 

I am dealing with that right now, the only problem is that my buyer isn't eligible for the credits, so he doesn't care. We will probably wait 2 weeks and then see who is serious.

I believe that if the price is attractive and the home is in good condtion, some sellers do have an advantage. First time home buyers in my area have wasted their advantage and lost out on the best homes already, so the longer they wait, the more likely they will get stuck with an inferior home.

Yes, it is a game of chicken. I can't wait until it is over.

Tax credit going byebye, interest rates inching up... May is going to be interesting for a lot of sellers.

When agents begin focusing on fair market values istead of recommending that buyers make deeply discounted offers perhaps the markets will begin to stabilize. Buyers "waiting in the wings" for even lower and lower prices are not helping themselves as much as they think. The true cost of a home is the cost of the borrowed money, not the selling price. In months to come when interest rates turn up a little more, buyers will come to understand this.

Yes, it's almost closing time and the sale is almost over. I agree the tax credit did what it was supposed to do for sellers. Buyers will be under less pressure now so the market will be able to "get back to normal".  

I've been seeing a bit of this too.  BUT - seller's do this at their peril.... First of all what about the mortgage contingency???  Unless your buyer has more than 20% down - the bank and appraiser also have their say.  Second, a lot of first time buyers will be back on the fence.  If your home is ideal for a first time buyer - remember that those people won't be around so much after the deadline.  Also, while you are negotiating away - the deadline can easily be missed.  In NY if someone put in an offer today - it would be a real nail biter to get the contracts done under the deadline...which could kill the deal you are trying to make.  Not so bright if you ask me.  It's still a buyer's market.

I have had a buyer who was advised by his mortgage broker to wait until after the credit expires to buy. That way, sellers will be more desperate to sell, and thus he gets a better deal. I'm amazed at the logic these people come up with, and his mortgage broker not thinking properly. Granted, he doesn't qualify for either credit, since he just bought a bank owned home last year, and is only buying an investment home. Rates are inching up gradually now, and if you buy when rates are up .5% and save $10K on the home, is that a wise decision in the long run?

I have another buyer who signed an addendum with the new construction seller, that if the house doesn't close by June 30, through no fault of his, then the purchase price is reduced $8000. Its clear that buyers may get an $8000 price negotiation from the seller after the credit expires, but many are just wishful thinking that the price of the house will be down $20K. I do not understand where people get these crazy notions....

Good post - seems like the sellers in your situation are getting some bad advice. Any buyer is this market willing to make an offer should be held onto like grim death. 

Excellent post.  I know a lot of people are asking me what is going to happen after April 30th.  I tell them, I have no idea.  Will the market come to a screaching halt?  I'd like to think no, but I've given up being a prophet in this business! 

Just had a game of chicken for my client concerning a home she is buying in Columbus, but she has a great agent there who laid it on the line for the seller - meet our terms or we are moving on.

Buyers still have the upper hand in most markets!

Great post!  I have had several offers come in on a few listings and can't seem to even change my seller's frame of mind that the buyers will just go on to the next home (which has happened) if the seller isn't willing to negotiate.  It is still a buyers market and buyers know that.  I can't wait until it balances out again.. hopefully the tax credits won't slow the market even more...

Last time I checked most buyers purchase based on Monthly Payment.

With interst rates inching upwards it should be interesting to see how this will affect new buyers especially after April 30th.

 

I think this entire thing has been artificial. Let's get things moving so we can report a 'growing economy' is most likely the way this is being played by the government. If we aren't careful, we will be right where we started in the first place that this 'credit' is supposed to fix.

There will be a base of buyers regardless of credits or not. And then again, maybe it is better just to sit on a property for a time until the economy shows actual improvement, not just number or paper improvement.

I don't think Buyers nor Sellers are thinking very clearly!  Everyone appears to be a little off the wall!!!

Sellers only have leverage in their heads. There are sooooooo many choices for buyers!

As we know there is little chance of a stay of execution, buyers will blink.  They are new to the game.

From my perspective, the credit has become more of a net positive to sellers than to buyers.  That is just a function of availability in my area. . there is NOTHING out there.  Certain property classes and locations are selling for 5-10% over our 2005 peak.

 No buyer should take only seven days to do a home inspection. Sellers should not play this game with buyers. The seller can lose the buyer, maybe they don't care.  Its not good for the seller to play the game of chicken, the buyer will win.  We all know it is an artificial market.

Tough call for my area.  Most of the properties in the low end are condos with high condo fees, or distressed properties with multiple offers.  I think I buyer would also fair well waiting until after the credit and getting a closing cost credit (which is tax deductible anyway right?) from the seller.

I have a hard time figuring the math that has buyers in my area making offers well over the list price to get the tax credit.   Sellers are pushing back and saying wait a second you are going to get a credit from Uncle Sam next year AND you want me to cough up 3% of the sales price as well.  The long term cost of the tax credit to the buyers far outweighs the one time credit on their 2010 taxes. But I don't think to many agents are suggesting the wait till May 1 approach to getting a good deal.

Now will prices fall about $8000 to reflect the government stimulus?

Lisa, I just had lunch with an appraiser and we just discussed this.  We both (I do BPOs) saw a "blip up" in prices and nadda in the concession department last time this thing were to expire.  Buyers were able to get homes and concessions in December and now we are seeing the same "blip up".  I would say more like June-August for the correction back downwards to get the concessions since this one is in our prime selling season!

When I say "we" and "our" I mean our inventory strapped Las Vegas market.  Heck, even Freddie Mac gets it by holding a first time buyer's auction just a week before the expiration.  They know they will have people FIGHTING over their properties and probably receive well over top dollar.

Happy house hunting!

Thanks for all the great comments and points made.  Elizabeth commented that sellers have an advantage when the home is priced attractively and in good condition.  We absolutely have seen the same thing in our area.  A lot of really nice homes have been snapped up immediately (sometimes with mulitple offers).  ~Lisa

this was great to read.....................i havent had it happen yet

 

I just told a bunch of people i know to read this

 

def something to talk about over grub tonight

 

KUDOS AGAIN

 

great read!!!

this was great to read.....................i havent had it happen yet

 

I just told a bunch of people i know to read this

 

def something to talk about over grub tonight

 

KUDOS AGAIN

 

great read!!!

"Whose tax credit is it anyway?"

 

It is the banks' tax credit.

I can understand Sellers resisting low ball offers, but not doing the math always amazes me.  There are some out there who just seemed determined to think themselves out of a deal!

I have one client in on time and she will be able to double dip the state and ferderal tax credit.

And the Winner is........

Well my seller looked at it differently. we had a cash offer on the home and went back and forth finally she gave in some but her final statement to me was boy he got a deal hes already getting 6500 from the government. lol. I told her if she was buying a house she would do the same. the 6500 is just bonus money and hAS NO PLAY ON THE VALUE OR SALES PRICE OF THE HOUSE that its a buyer perk not a seller perk. She laughed.

Very well said Lisa
Here in Calif. we have different situation, the buyers are getting another $10,000 state credit (will last for a very short period) on top of federal credit. This credit has created a bidding war in a smaller price range, say under $500,000, and we have multiple offers situation.

One of my clients is buying a retirement home. We are making all cash offer and at or above asking price. We have already made several offers and have been out bid by other offers. This weekend we made an offer and while we are waiting for an answer from the seller this client asked me if we should raise our offer. I said it all depends on how much you like the home. Can you see yourself in this home being happy after few years down the road. And if you are thinking to raise the offer just for the reason of the tax credit then don't raise the offer. Its all about how much you like the home, not about how much it costs or how much you will save (on Tax/Tax credit). We have raised our offer and we will see what happens.

As an agent, I don't think we should advise if your buyer/seller should offer/ask higher or lower or an exact amount. If you do... and appraisal comes in lower, before it closes market changes, interest rates changes, then what happens?  If you give a particular advise and if you are right... everything is fine but say your opinion turned out to be wrong... guess who is going to be blamed.

Bottom line the decision to buy or sell now or wait for a better price should not be based on tax credit, unless you are an investor. If your decision is based on FEAR or GREED, chances are it will be wrong. Decisions made influenced by EMOTIONS or under PRESSURE hardly ever turned out to be right decisions.

Dead lines are dead lines, hope conquers dispair!

It is very interesting here in California as people are NOT wanting to close escrow right now and want to desperately hold out until May 1st so they can get the California credit as well.  $18,000 does seem to be getting the attention of many buyers right now....

Ah, you must be in Texas.  It's the only market I can see that has the kind of viability that allows sellers to play this game.  Actually, I see you're in PA.  Another oil state. Never thought I'd see the day when agents join in such a game.  Good luck to you all.  And watch your ethics out there.  Your E&O might be at risk.

Great Post - I'm seeing it in our area as well.  Sellers do need to remember that it does need to appraise.  I'm sure there will be some sellers lose out.  Buyers have a list of homes and if one doesn't work, they just go to the next one.  Now that we're so close to the deadline, they're concerned about getting a house with inspection problems and the seller not willing to make repairs or an appraisal coming in low and a seller not willing to meet the value.  That means both seller & buyer lose because the buyer may not have the opportunity or time to find a back-up home if they have to walk because the seller refuses to make repairs or meet appraised value.

 

We have been in competitive bidding situations on most deals for the last nine months, but many times it is numerous people bidding below list price. Most of my buyer clients understand that the FTHB credit would be nice, but not a decision maker. And many of my buyers would benefit from the first-time home buyer credit, but can't win a home at a reasonable price that will appraise.

Good luck everyone!

They better be careful, cuz things are already slowing down, I think. Of course, if a buyer can get the inspection done in seven days, why drag it out?

I.ll drink a glass of wine when it is over.

I have seen it where the buyer was willing to pay a little more with the knowledge that the tax credit will be applicable.  It has helped speed up the process and reduce nit picking.

My buyers even against my advice are being very picky and have a list to "move on to" if an offer does not work out. It is a scary time. Blessings for a great week!

Will be glad when this is all over. I do not see how an artificial market helps the economy in the long run.

I'm working with a builder right now who has the same mentality.  Won't take an offer that has a 3rd party financing contingency because he's afraid to take his house off the market!  He will only accept an offer that has non-refundable earnest money.  It's very frustrating.  Any other April and he would have been thrilled to get our offer. 

Excellent analogy. Presently, I'm in this game of chicken (I represent the buyer), and it's our turn to 'cluck' next after our full price offer (with Seller's Assist) was rejected. Yes, REJECTED! Not even a counter offer. If this home doesn't sell before the credit expires they'll be singing the blues come May 1st and lamenting over 'what might have been'.  Oh well....

Thanks again for all the great comments and feedback.  We really appreciate everyone's perspective on this.  Only 10 more days!  Our best to all of you.  ~Lisa

Has the IRS given confirmation that contracts  subject to third party approval but only signed by seller
are deemed ratified and approved for the tax credit? If not then I think some of the advice being given is questionable. Another tidbit.... heard that tax returns claiming the tax credit$ cannot be filed electronicaly so the refund will be delayed up to 8 weeks and 25% of the those
will be audited

Steve W
www.soldbysteve.net

 

I see it as the buyers have the negotiating power around here.  I think buyers are stringing things along til the end of the month knowing that the seller wants to turn around and purchase before the tax credit expires as well.  I am also expecting an influx of backdating of contracts to flood the title companies up before the end of June.  Things are going to be interesting around here.

We see that here too.  Sellers are assuming that tax credit should be applied to the buy price in whole, or at least the majority of it.  I've heard it multiple times "well they can afford 8k more because of their credit, so i'm not reducing the price".

Who's tax credit is it anyway.  VERY good point.  A lot of these sellers are going to be stuck with their house on the market still on May 1st and all the offers are going to dry up and they will regret their earlier position.

 

 

Great post... The question is will prices drop on average of 6K to 8K if the government ends this for good? 

I've counseled the buyer's that I've been working with as a Buyer's Broker not to jump at the wrong home at the wrong price.  Funny seems that their parents understand this more than they do. 

Charlie Greco

A Reality Based Realtor

Lic. Real Estate Salesperson

516.705.4448

www.BuyMerrickHomes.com

mailto:charlie@charliegreco.com

 

 

 

My clients/my experience in the last 30 days: 2 different buyers and 1 seller in these scenarios.

1- Buyer#1- placed offers for 103K, 110K and 113K on house priced @127K, good financing, close quickly: ALL OFFERS REJECTED. Seller only willing to budge 7K. House still for sale. House needs moderate work done. Buyer has since walked away from buying a home.

2- Seller#1- House listed for 4 montths at 280K with multiple showings. Priced reduced to 250K. Received full price offer with excellent terms, close quickly. SELLER REJECTED. Wants higher than asking. No further showings or offers. Seller has since stopped answering calls.

3- BUYER #2- Placed 315K offer on a 335K house (20K off asking). OFFER REJECTED. Seller countered at 5K off, firm. House still for sale. House has high taxes, no garage and non-typical layout for Colonial style. Seller should have taken offer and run like batt out of hell. Buyer pressed on.

4- BUYER #2- Placed 275K offer on 299K asking (25K off asking). OFFER REJECTED. List agent claimed multiple offers are in. Seller wanted full price. House now under "Contingent" status on MLS. Buyer pressed on.

5- BUYER #2- Placed 320K offer on 350K house (30K off asking). OFFER REJECTED. List agent claimed multiple offers coming in. House still for sale. House in mint condition, at top of it's class. Buyer pressed on, determined not to pay full price.

6- BUYER #2- Placed a 4th home offer.. the best property of all. Placed a 325K offer on a 360K house (35K off asking) that was on market for almost a year. Offer accepted immediately. House needs little work, but has buried oil tank that may have scared away other buyers. Buyers are celebrating and can't wait to close.

Now then, does anyone have any Tylenol?

Hey Jill,

 

I didn't know bat's could run(3)! Sounds like you need some liquid stronger than Tylenol. Congrats and best wishes with your sale.

 

Steve  W
www.soldbysteve.net

Jill,

Sounds like our April!  For every 3-4 contracts we write, 1 gets to a "meeting of the minds." And Steve is right, wine works better and faster.

~Lisa

It hit me last November when they announced the extended and improved tax credit that sellers assumed they were entitiled to the credit when certain listing suddenly jumped up in price by 5-10K.  What are people thinking and why weren't their Realtor's telling them that the incentive is to get people to buy not for seller's to sell.  Thanks for posting this.

I'd like to hear more of these fun stories!  Keep them coming!

I'd like to hear more of these fun stories!  Keep them coming!

Great post. I have been coaching my buyers and sellers about this game of chicken for the past 2 months. This is one of those rare times where the ability to negotiate makes a huge difference to your buyers and sellers. It is also a time where we as agents need to be careful about what we share with the agent on the other side.

Having said that, your use of the term comps is interesting. Comparable sales can be a benchmark for value in a stable market. In a market with rising or falling values, they are always behind the curve. The reality is that home values are always determined by supply and demand. If a seller is holding to a price that is too high, tell your buyers to choose another home. Another alternative is to look for another home and wait until April 28th to put in an offer. By that time the sellers who are still on the market may be desperate again...then where does the power of the negotiation go?

I've been working with a few first time buyers lately and have been frustrated time and again by being outbid. Several have gone above list price. My advice to these buyers is to not stress over the April 30th deadline. I expect an adjustment to market value to occur when the tax credit expires and the frenzy (competition) to die down. Of course, there will be an adjustment period for the sellers to realize that they can't get as much for their home after April 30th than they could have before.

Personally, I object to the federal government mucking with the economy by offering tax credits. The stimulation lasts only as long as the tax credits at the expense of the taxpayers. The federal government has far exceeded its constitutional authority. A return to a free market would provide all the stimulation we need. No more bailouts or handouts. Let the failures fail, learn a lesson, pick themselves up, and start again with the benefit of experience! That's how America became great.

Tom