Buyer Information Category
Home Buyer Successes in a Seller’s Market
Home buyer success in a seller’s market? Yes! It’s a little ironic that I helped three different families close escrow on homes in our area last month when you consider that inventory is so painfully low. All three families feel very fortunate to have purchased wonderful homes at fair prices and with very low mortgage interest rates. Congratulations to all three!
The first of the buyers to close escrow purchased a fantastic property in Hollister on 5 acres. This property will be perfect for this family and their two horses. This family had been looking for a home since last September and wrote a few offers that didn’t get accepted. But after the new year, they found this wonderful piece of land in an area north of Hollister where they had hoped to end up. I can’t wait to visit them and see their horses settled in their new barn!
View from the property of the eastern foothills. There are gorgeous views from all angles.
The second set of buyers had been looking since the end of summer for a home for their growing family. We spent the first 4 months of their search looking in south San Jose and especially we had been targeting a particular school district where they wanted their son to attend school. Unfortunately, prices kept rising as we were looking and the condition and quality of the homes coming on the market kept deteriorating.
Finally, the buyers decided to look in Gilroy in the Luigi Aprea Elementary School area in the northwest quadrant of the city. When a property came on the market just after the new year, the buyers decided it would make a wonderful home for their family. We wrote the best offer we could and the buyers decided to offer more than the list price because they knew they were competing with other buyers. Eight offers were made on this property, but fortunately my buyers prevailed! They had a good-sized down payment and offered the sellers about 6 weeks occupancy after the close of escrow. They are anxious to make their move during March when the sellers vacate.
And finally the third set of buyers who purchased their very first home. Believe it or not, I have been helping these buyers look for the right home since 2009! And they had been looking previously to that time for several years. (These are very patient people.) They were mostly targeting San Jose, wanted a newer home and hoped for a single story.
After writing several offers on resale homes over the years and not having them accepted, the buyers started considering purchasing new construction. Last August, we hurried to the opening sale date for the single family homes at Maravilla Court in Campbell. All homes released on that day sold before noon, and my clients were one of the fortunate buyers. Over the next months they worked with the builder’s design office to choose their finishes and the home turned out beautifully. I am invited to their housewarming party this weekend and I can’t wait to see their new, wonderful home with them in it!
So I guess there can be home buyer success in a seller’s market and sometimes the key is patience and perseverance. And I like to think that working with a good Realtor helps too!
The Best Price for a Home
Buyers often ask, “What do you think the best price would be for this home?” The answer is:
- The lowest price that the seller is willing to accept.
- The price that a buyer can negotiate the seller down to.
- The price a buyer is willing to pay to get what they want.
When buyer clients have found a home that they are considering placing an offer on, I provide a Comparative Market Analysis for my clients which lists all of the homes in the area that sold in the past six months and have comparable attributes to the home they are interested in such as home size, lot size, number of bedroom and bathrooms, age and amenities. Using this data to discuss an offer price starting point, I tell my buyers, “We will negotiate with the sellers until we arrive at the price they are willing to accept. We will then know what the best price is for the home you want. At that point you’ll know what no one else knows - the amount the seller is willing to accept for their home.” At that point the buyer then needs to decide if the price is also acceptable to them.
The key is to remain as calm and objective as possible (sometimes no mean feat!) during the back and forth of negotiation. Because this is fraught with emotion, having an experienced Realtor who has handled many negotiations is the best possible move a buyer can make.
More Buyer Opportunities
For the first time since June of 2009, the number of active residential listings in Santa Clara County has topped the number of pending residential listings. Currently in the county there are 3139 active and 2896 pending single family homes and there are 1260 active and 1217 pending condo/townhouses. Considering the currently amazing low interest rates available for mortgages, and you’ve got a bright outlook for buyers!
In our south county area, Morgan Hill has 182 active and 124 pending single family homes and 17 active and 42 pending condo/townhouses. San Martin has 28 active and 10 pending single family homes. And Gilroy has 144 active and 195 pending single family homes along with 5 active and 15 pending condo/townhouses.
Shopping for South Santa Clara County Real Estate?
In between rainstorms, you may want to do a little house shopping today. How is the current residential real estate market doing in the towns of Morgan Hill, San Martin and Gilroy? Let’s look at single family residence listings and condo/townhouse listings as of today and compare it to one year ago.
Morgan Hill: January 2010: Active listings – 128, Pending listings – 118, versus January 2009: Active listings – 275, Pending listings – 68
Gilroy: January 2010: Active listings – 113, Pending listings – 196, versus January 2009: Active listings – 385, Pending listings – 152
San Martin: January 2010: Active listings – 23, Pending listings – 18, versus January 2009: Active listings – 44, Pending listings – 11
In the cases of Morgan Hill and Gilroy, inventory is far below half the amount of what it was one year ago. San Martin is right about at half.
An overall graph showing the current inventory of all of the three south county communities over a two-year time frame is shown below. The listing numbers include both single family residences and condominium/townhouses. South Santa Clara County inventory peaked during May of 2008 at 901 total active listings as compared to today with a total of 264 active listings. Wow.
Also in the graph below you can also see the nose-dive of the median price of listings. The graph only depicts single family residence median prices which were $702,450 in January of 2009 and currently are $445,000. Days on Market has remained steady ranging between 98 to 150 days during this two-year period.
As I have mentioned in many of my previous blog posts, the high Pending listings number is indicative of the large number of pending short sale listings in our area. These listings remain at pending status for many months while the short sale lenders determine whether they’ll give short sale approval.
Buyers Tax Credit Extended!
President Obama is expected to sign the congress-passed bill extending and expanding the Federal Tax Credit for First-time Home Buyers. The tax credit will be extended through April 30, 2010, with a 60-day extension if a binding contract is in place prior to the deadline. First-time home buyers will continue to receive a tax credit of up to $8,000, while existing homeowners who are purchasing a new primary residence will receive a reduced credit of up to $6,500. Existing homeowners will be eligible for the $6,500 if they have lived in their current residences for at least five years. The bill also will increase the qualifying income limits from $75,000 for single tax filers and $150,000 for joint filers, to $125,000 and $225,000, respectively. The purchase price of the home is capped at $800,000.
The changes, among other things, are aimed at encouraging so-called “move-up buyers” to sell their first homes and buy a larger or more expensive place. Under additional provisions in the bill, taxpayers can claim the credit on purchases completed in 2010 on their 2009 income tax returns. The bill maintains the provision that home buyers do not have to repay the credit provided the home remains their primary residence for 36 months after purchase, and waives this requirement for active duty military personnel who move due to a military order.
$10,000 Credit for Purchasing New Construction
I am working with a first-time buyer family who is considering purchasing new construction as their primary residence. I advised them to look into the $10,000 tax credit offered by the State of California Franchise Tax Board. For all the info and requirements click on this Franchise Tax Board webpage. There is no income limitation on this tax credit.
One of the most important aspects of this credit to keep in mind is that it must be applied for within one week of close of escrow. This credit is limited to the first 10,000 new construction homes sold in California between March 1, 2009 and March 1, 2010. It is given on a first-come first-served basis. As of this morning when I checked the Franchise Tax Board link given above, there were 4,880 applications received by the Board, and it’s only May 2nd. Better hurry if you want to take advantage of this!
1. The $10,000 tax credit is not a loan and if the home remains your primary residence for 2-years, you do not have to pay any portion of the tax credit back.
2. The tax credit is for new homes only.
3. The tax credit is good for 5% of the home’s price or $10,000, whichever is less.
4. Home buyers will receive the tax credit, in equal amounts, over 3-years.
5. Unlike the $8,000 federal tax credit, the California state tax credit is not limited to first-time home buyers.
6. There are no maximum income limitations so any buyer purchasing a previously unoccupied home can qualify for the tax credit.
7. The tax credit only applies if the purchased home is your primary residence.
8. There is no down payment requirement to receive the $10,000 tax credit.
9. The $10,000 state tax credit can be used along with the $8,000 federal tax credit for home buyers. If you’re a first-time home buyer, and you purchase a new home in California that costs more than $200,000, you’ll get $18,000 in tax credits.
10. The tax credit is limited to the first 10,000 new home purchases.
Investment Property Case Study 4: 17495 Carriage Lamp Wy, Morgan Hill
As we saw in my previous Investment Property Case Study 3, south Santa Clara County real estate can be purchased for investment purposes and have a positive cash flow from the income received from rent. Not only will there be a positive cash flow, but there is great potential for gains in equity appreciation. The home that will be analyzed here is a short sale home in a PUD in Morgan Hill.
The property chosen for this case study is 17495 Carriage Lamp Way, Morgan Hill, a 25 year old attached home in a Planned Unit Development with a large park, pool and clubhouse and monthly HOA dues of $300. This is a 4 bedroom, 2.5 bathroom 1797 sq. ft. home on a 3920 sq.ft. lot. The current list price of this home is $369,500. This property has been on the market for 92 days and the beginning list price was $454,500. I will make the assumption that the short sale lender will accept $350,000 for the purchase of this home.
Here are the assumptions that I made:
- Monthly rent amount = $2400
- Purchase price = $350,000, 25% down payment = $87,500
- Loan: 5.375% interest rate with 1 discount point, 30 year loan, monthly payment = $1470, total acquisition cost = $3825 (including closing costs and points)
- Utilities paid by tenant
- Self-managed (no property management costs)
- 5% vacancy allowance
- Annual property taxes = $4375
- Annual insurance = covered by HOA
- Annual maintenance costs = $3500
- Investor’s federal tax bracket = 25%, California state tax = 9.3%
- Holding period = 7 years
- Annual appreciation: 3%
- Projected sales costs = 7%
Using the above assumptions, the property can be analyzed as an investment, taking into account tax depreciation, cash flow before and after taxes. We will also look at the eventual sale of the property, looking at the total gain on the sale.
- Income – Vacancy Allowance = Gross Operating Income = $27,360
- GOI – Operating Expenses = Net Operating Income = $19,485
- Subtract Mortgage Payments = $17,640
- ANNUAL CASH FLOW BEFORE TAXES = $1846
- ANNUAL CASH FLOW AFTER TAXES = $3320 (takes cost recovery (depreciation) into account)
Looking at my assumption of selling the property in seven years with a conservative guess of 3% appreciation in value per year:
- Projected sale price in 2016 = $430,456
- Subtract cost of sale = $30,132
- Subtract remaining loan balance = $232,582
- Subtract tax due on sale = $24,794
- CASH OUT ON SALE = $142,948
- Subtract initial investment of $91,325
- Add 7 years of cash flow = $12,922
- TOTAL GAIN ON SALE = $64,545
Please consult your tax advisor for more information regarding the tax implications of buying, leasing and selling investment real estate.
Santa Clara County 1st-Time Real Estate Buyer Program
First-time buyers are being wooed from many different directions these days. As I discussed in a previous post, the IRS is offering a first-time buyer tax credit to real estate buyers who meet certain stipulations. In addition to this federal tax credit, Santa Clara County is offering a Mortgage Credit Certificate Program to first-time buyers. And, as I explain in the federal tax credit post, a first-time buyer is defined as real estate buyers who have not owned a principal residence during the past three years.
A few highlights of the Santa Clara County program:
- It is a dollar for dollar tax credit against the borrower’s federal income tax – currently 15% of the interest paid
- The remaining 85% remains as a standard tax deduction
- The home must be purchased in one of the participating cities in the county – all south county cities are participating
- The home purchased must be owner-occupied
- The buyer’s income cannot exceed $97,800 for 1-2 persons and $112,470 for 3 or more persons
- The MCC Program doesn’t allow co-signers
- Maximum purchase price is limited to $570,000 for resale homes and $630,000 for new construction
- There is a possible recapture tax if the property is sold within the next nine years after purchase
- The County maintains a public list of participating brokers and funding lenders
- Applications for MCC are processed on a first come, first serve basis and there is an application fee of $275
For those interested in taking advantage of the MCC Program, you will want to make sure you are working with a paricipating funding lender. For recommendations on lenders, call me at 408-892-9015 or email me at GMerrick(at)InteroRealEstate.com.
Not Owned Your Home for the Past 3 Years? You’re a 1st Time Buyer!
Most likely you’ve heard about the First-Time Buyer Credit offered through the 2009 Economic Stimulus Package passed by Congress. But what you may not realize is that even if you owned a home previously, if you haven’t owned your primary residence within the past three years, you are considered a first-time buyer and may apply for the tax credit of $8000.
This tax credit is for $8000 or 10% of the purchase price, which ever is smaller. In Santa Clara County, chances are that you are not purchasing a residence for less than $80,000 and so will receive the full $8000 credit on your taxes. The home must be purchased between January 1, 2009 and December 1, 2009, so time is of the essence. This credit is unlike the 2008 first-time buyer credit in that it does not have to be repaid to the IRS.
Single taxpayers with modified adjusted gross incomes (MAGI) up to $75,000 will receive the full credit. The credit is reduced proportionally with a MAGI up to $95,000. Any single taxpayer earning over that will not receive the credit. Married couples with MAGI up to $150,000 will receive the full credit. In this case the credit is reduced proportionally with a MAGI up to $170,000. Married couples earning over $170,000 will not receive the tax credit.
For more information, the National Association of Home Builders provides an informative site: http://www.federalhousingtaxcredit.com/2009/glance.php
Please consult your tax advisor for more information regarding the tax implications of buying real estate.
Investment Property Case Study 3: 125 Bennett St., Gilroy
As we saw in my previous Investment Property Case Study 2, south Santa Clara County real estate can now be purchased for investment purposes and have a positive cash flow from the income received from rent. Not only will there be a positive cash flow, but there is great potential for gains in equity appreciation. The home that will be analyzed here is an REO, i.e. bank-owned real estate.
The property chosen for this case study is 125 Bennett Street in Gilroy, a 12 year old home with easy access to Monterey Road. This is a 3 bedroom, 2.5 bathroom home on a 3600 sq.ft. lot. The current list price of this home is $289,900. This property has been on the market for 401 days and the beginning list price was $549,000. I will make the assumption that the bank will accept $280,000 for the purchase of this home.
Here are the assumptions that I made:
- Monthly rent amount = $1900
- Purchase price = $280,000, 25% down payment = $70,000
- Loan: 5.5% interest rate with 1 3/4 discount points, 30 year loan, monthly payment = $1192, total acquisition cost = $5000 (including closing costs and points)
- Utilities paid by tenant
- Self-managed (no property management costs)
- 5% vacancy allowance
- Annual property taxes = $3500
- Annual insurance = $900
- Annual maintenance costs = $2800
- Investor’s federal tax bracket = 25%, California state tax = 9.3%
- Holding period = 7 years
- Annual appreciation: 4%
- Projected sales costs = 7%
Using the above assumptions, the property can be analyzed as an investment, taking into account tax depreciation, cash flow before and after taxes. We will also look at the eventual sale of the property, looking at the total gain on the sale.
- Income – Vacancy Allowance = Gross Operating Income = $21,660
- GOI – Operating Expenses = Net Operating Income = $14,460
- Subtract Mortgage Payments = $14,304
- ANNUAL CASH FLOW BEFORE TAXES = $156
- ANNUAL CASH FLOW AFTER TAXES = $1,990 (takes cost recovery (depreciation) into account)
Looking at my assumption of selling the property in seven years with a guess of 4% appreciation in value per year:
- Projected sale price in 2016 = $368,461
- Subtract cost of sale = $25,792
- Add 7 years of cash flow = $1,092
- Subtract remaining loan balance = $186,513
- CASH OUT ON SALE = $157,248
- Subtract initial investment of $75,000
- TOTAL GAIN ON SALE = $82,248
Please consult your tax advisor for more information regarding the tax implications of buying, leasing and selling investment real estate.
Gretchen Merrick
cell (408) 892 9015
