It looks like the federal government probably should have taken a little more time to think through its first-time homebuyer tax credit program before putting it into operation, since it seems that the rush to make it available to eligible first-time buyers has left it a bit vulnerable to fraud.  

On October 22, J. Russell George, Treasury Inspector General for Tax Administration– along with an Internal Revenue Service official–testified before a House Ways and Means subcommittee that some 100, of the 1.5 million claims for the $8,000 tax credit might be bogus. He said some applicants could possibly be illegal immigrants and that 580 people who claimed the credit were under the age of 18 (the youngest was 4 years old!) 

George also said that more than 19,000 people filed 2008 tax returns or changed returns to claim the credit for homes they hadn’t bought yet. Those claims added up to $139 million, and the IRS hadn’t decided whether they would verify that those purchases had actually occurred. 

He also said his office had found another $500 million in claims, by nearly 74,000 taxpayers, that had signs that pointed to prior home ownership. 

George stressed that after a closer look, many of these questionable cases may end up being genuine, but the hearing called the program into question at a time when Congress is considering whether to extend it–or even expand it–before it runs out at the end of November. 

Georgia Rep. John Lewis (D), chairman of the oversight subcommittee, said he had gotten the ball rolling on legislation that would beef up the IRS’ administration of the program. This would include giving it the ability to inspect prior tax returns to confirm eligibility, as well as requiring taxpayers to submit proof that they’ve actually bought a home. As of right now, applicants must submit a separate IRS form, but they do not have to provide proof of purchase. 

George said the IRS has started to use computer software to reject claims from people who have yet to buy a new home. He also pointed out that the agency has installed filters to catch applicants who entered information on their tax returns that hints that they may have owned a home at some point in the last three years, such as deductions for home mortgage interest or property taxes. 

Although Congress’ view of the program has been favorable overall, some members are starting to get concerned about how much it’s costing the taxpayers. Some people have also criticized the program as unnecessary, saying that the drop in home prices alone would have been enough to motivate first-time buyers. The National Association of Realtors disagrees with this claim, though, saying that according to its estimates, about 350,000 purchasers–one-fourth of those who have claimed the credit–would not have bought homes without it.

This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

Congress Is Taking a Close Look at Problems with the $8,000 Homebuyer Tax Credit Program

In an article in the Tuesday, October 6, edition of the San Francisco Chronicle entitled “Layer of credit checks surprises home buyers,” a woman named Kimberly Hayes explains that when she and her husband decided to bid on a bank-owned property, they were shocked to discover that the only way the bank would allow them to do it is if they could do their own credit check beforehand.

“This unnecessary credit pulling can potentially lower my credit score and widens the exposure of my sensitive financial information,” the article quotes her as saying. “I’m concerned about another set of eyes looking at my private information in a time of so much identity theft.”

And, apparently, they are not the first potential buyers to find themselves in this situation. Though not all lenders have this policy when it comes to their REOs, (Wells Fargo, JPMorgan Chase and OneWest Bank are all quoted as saying they do not require their own credit checks of potential bidders) it appears that some of the banks who do also insist that the bidder apply for a mortgage with them.

“…It was strongly implied that if we did not [apply with the lender who owned the property], we shouldn’t even bother making an offer,” Hayes explains in the article.

But, it’s not just the lenders who are asking for credit checks. The story goes on to say that it’s more often the listing agents of the REOs who are doing so. And, in the process, they are doing little to endear themselves to potential buyers.

However, some agents are going out of their way to do the best they can to help their clients avoid these extra credit checks–and the harm to their credit report that can come with them.

The article explains that an agent contacted IndyMac Bank on her client’s behalf in February, saving the client what could have been an enormous pain in the behind (Apparently, before it failed, IndyMac was requiring potential bidders to submit an entire loan application–including tax records, pay stubs, bank statements, application form, and credit check.) But, the agent was able to get IndyMac’s permission to submit all the paperwork they’d already given to the bank who had pre-qualified the client, including copies of the credit reports the bank had obtained.

The article concludes with a quote from the client, Carol Jones, which provides us with the moral of our story: “My lesson from all of this is that a good Realtor…can spare you any problems or inconvenience in accommodating this…practice by the banks.”

In these tough times, I think this is a moral that all of us should keep in mind–don’t you?

This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

A Good Agent Can Spare Buyers Interested in REO Homes Extra Hassles and Gain a Loyal Client in the Process!

For many real estate investors, these past several months have brought a welcome sigh of relief as homeowners have come into the market in truly satisfying numbers. In many parts of the country the steady downward slide in prices has tapered off and we have been seeing what may be the bottom in terms of further price declines… or NOT!

Are Some Hyping Up the Real Estate Market Too Soon?

The numbers throughout the Summer have been promoted with great fanfare… the Schiller-Case Index and National Board of Realtors proclaiming that prices may have bottomed out and the worst is over. Great news if you can believe it!

While I am delighted that prices have stabilized and even increased in some markets and that home sales over these past several months have been solid and even matching sales volumes from 2005…I have been troubled and what I haven’t been able to put my finger on is this…

With all of the homes going into foreclosure, when will this inventory start to pull this “current” housing recovery down? This Bloomberg article is not good news… and suggests that we have a long way to go before all of the current and projected foreclosed inventory can be absorbed.

So the million dollar question is this… How long can lenders continue to hold their REO inventory?

What do things Really look like?

Many of us have heard that the 3rd quarter would be the time when lenders would start to get more aggressive with selling their REOs. I haven’t seen much of a change in the Baltimore market, and from what I am hearing REO sales have not increased significantly in other markets either. Even though the number of foreclosures is high and will only go higher as the above article suggests, how long can the banks hang on?

The honest truth… I don’t know!

But here is what I sense…

1. Lenders will have to start to sell off their inventory at some time in the future. They cannot hang onto these foreclosed properties forever. I predict that we start to see real movement leading up to April 2010 as the end of the year 2009 financial results are completed and reported.
2. For now lenders are primarily dumping properties in lower valued areas… where there is less impact on property values.
3. Lenders are trying desperately to hang onto mid and higher-end properties because they know that when they start to sell this inventory their balances sheets and the balance sheets of all other lenders are going to take huge hits. In addition, these high end (lower price) REO sales are going to tank the values of complete developments. Much like waht happened in California and Vegas.
4. Cash is king. And if you don’t have cash, you better have an otherwise clean offer. No contingencies… no weasel clauses!
5. Continued vigilance on your part is paramount because mid and higher-priced homes will more then likely start another slow decline in value that will continue through 2010.

While neither myself or anyone else for matter can predict what will happen with certainty, this is the direction I believe we are headed in. It would be extremely helpful for each of us to continue to ascertain what is happening in our markets and report it as we see it happening. We will all benefit greatly as a result.

Until next week…

This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

The Flood Gates Have To Open Soon…

Worried about government run health insurance? Maybe you should be more concerned about the government run housing market!

For those of you who have lost track of where all our taxpayer dollars have gone as we bailout banks, brokerage houses, car companies, insurance companies…etc—-this sobering statistic courtesy of the New York Times may be a needed splash of chilled water on the face: “The government is financing 9 out of 10 new mortgages in the United States.”

That bears repeating……”The government (as in U.S.) is financing 9 out of 10 new mortgages in the United States.”

According to the Times account, ” Fannie (Mae) and Freddie (Mac) now buy or guarantee almost two-thirds of all new mortgages. The Federal Housing Administration guarantees another 25 percent.”

The importance of these figures should be obvious.

To what ever degree we read about a slight “recovery” in the real estate market, it is worth keeping in mind that it is an artificial recovery. Without the federal government, there would likely be not even the sliver of a recovery!

And, that means, when one wants to make real estate investments, it would be a smart idea to factor in to the equation what I will call the “F” factor—”F” for feds, though some of you more lewd types may want to substitute a different word here?

You must always ask yourself—is this particular neighborhood really turning the corner and, therefore, is it a good area to invest in, or is it an illusion–smoke and mirrors provided by Uncle Sam?

This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

The U.S. Run Housing Market: The Nation’s New Landlord

For the past several years it seems that every time you ran into a real estate agent he would proclaim that the market was at the bottom and it was time to buy. Of course, that was nothing more than the agent’s vested interest speaking. The market continued to slide in just about every city. Some fared worse than others, but few areas of the country were spared.

Recent Data

There is good news. The latest report from the Case-Shiller U.S National Home price Index shows that real estate prices have shown their first quarterly increase in three years. Does that mean that the bear market in real estate prices is over? Not by a long shot. There are many foreclosures on the horizon and the national economy is still hurting. However, it’s a start.

At this point we’ll take any good news we can get. The index tracks twenty major cities in the United States. There were only two that showed declines, Detroit and Las Vegas. Detroit has suffered major declines in jobs, especially in the auto industry. The most recent figures show that the unemployment rate is a staggering 28.9%. The real rate is even higher due to the way those figures are calculated. With so many people leaving the area in search of better opportunities, there is a tremendous oversupply of housing creating serious downward pressure on home prices

Las Vegas is a horse of a different color. Massive speculation during the boom led to overbuilding and runaway prices. Consistently at or near the top of the nation in foreclosures, there is a huge oversupply in Las Vegas as well. The loss of construction related jobs coupled with a decline in tourism have resulted in an unemployment rate of 13.1%, well above the national average. The good news for Las Vegas is that investors have come back in search of bargains. The warm weather, entertainment options and Nevada’s lack of a state income tax make this a desirable location for many.

Better Days Ahead

It certainly isn’t smooth sailing from here, we will have many ups and downs as we move along. The real estate market will never be the same as before but people have a way of adapting. Investors have already adapted to the evolving market by looking for different opportunities or changing strategies. Those who are unwilling to change have left in search of greener pastures or will do so soon. Markets are always evolving, it is up to us to evolve right along with them.

Your big opportunity may be right where you are now. – Napoleon Hill

This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

Has the Real Estate Supertanker Finally Turned?

1. Loopnet.com – Loopnet is probably the largest and most well-known commercial real estate listing site. They claim to have over 630,000 active commercial real estate listings on their website. It costs $24.95 a month for visitors to have access to all of the property listings. The free membership for visitors allows full search capability, however, only a limited number of results are shown.
2. Realup.com – Realup is brand new to the market and officially launched on May 17, 2009. It appears that all of the memberships for both buyers and sellers are free. The website says that “our property listings are charged based on a pay-per-results pricing model, setting us apart from our competitors and providing the greatest value to our partners and clients.” So, they are basically charging for the traffic or leads that your listing generates. This sounds good in principle but from my experience the technology for these “pay for the lead” type of systems is usually too weak to determine what a valuable lead is.
3. Costar.com – Costar offers the ability to search for all commercial property types. Basic listings are free for real estate professionals and property owners. It costs $24.95 a month for visitors to have access to all of the property listings. The free membership for visitors allows full search capability, however, only a limited number of results are shown. They offer information on “space available for lease, comparable sales information, tenant information, properties for sale, property information for clients’ web sites, industry professional directory, analytic information, data integration, property advertising and industry news–throughout the United States as well as in the United Kingdom and France.”
4. Lead-Trac.com – Lead Trac is designed to give investors and commercial real estate professionals access to following data about commercial real estate: property data, owner data, phone numbers. They also offer direct mailing and marketing tools within the website. Pricing starts at $69/user/county/month.  In addition to the monthly plans, they have an unlimited access plan that they sell on a per county basis.  This plan ranges from $1500 to $3000 per county per year.
5. CIMLS.com – What makes CIMLS different than many other similar sites is the fact that visitors can search listings for free while realtors and property owners can also post their listings for free. Realtors and property owners have the option to upgrade to a Gold account for added exposure. The Gold account costs $14.00 a month for the first month and $20.00 a month for every month thereafter.

Photo Credit: quinet

This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

Where to Search for Commercial Real Estate Online

Home sales in many markets are dominated by bank REOs, or Real Estate Owned as foreclosures are called after they have gone back to the bank. Generally these REOs will sell below market and can be a great deal for the buyer. However in areas that have an overabundance of REOs they do not sell below the market, they are the market.

Las Vegas

On the surface it may appear that the Las Vegas market is going to lead the housing market out of the doldrums. Looking strictly at the numbers you will see that April home sales were up 78.3% from April of 2008 (article). The median price has dropped to $141,720, a 39.9% reduction from a year ago. Figures for inventory, days on market, and days of supply have dropped as well. These are all good things, right?

Not so fast, it depends on which side of the transaction you are on. For buyers these numbers are awesome. Homes in Las Vegas are more affordable than they’ve been in a very long time. First-time homebuyers can take advantage of an $8,000 tax credit to make it even more affordable. For buyers it’s all good.

Which leaves the sellers. REOs absolutely dominate the Las Vegas market and there are a large number of short-sales as well. In a normal market these distress sales would be an aberration and not a major factor in real estate prices. However, distress sales in Las Vegas counted for a whopping 86% of all closings in April. In a normal market an appraiser can overlook distress transactions when compiling comparable sales. When 86% of closings (article) are distress sales, they become the comps and there isn’t much that you can do about it.

Hobson’s Choice

A seller is now left with the choice of pricing a property low enough to compete with the REOs or not selling it at all. Indeed, many homes have been pulled off the market as sellers wait for prices to improve. Many sellers can’t lower prices to compete because they owe too much on the house. A recent report shows that an astounding 67% of Las Vegas homeowners owe more than the house is worth (article). Their options are to sit tight, try for a short-sale, or lose the home to foreclosure. Ouch!

New homebuilders are facing the same pricing pressure. However, they have overhead and holding costs to deal with as well. They have reacted to this by limiting the number of new homes to a bare minimum and greatly reducing prices on homes that are at or near completion. Some Las Vegas builders have actually reduced prices to a point that is below their cost in an effort to finish projects even if it means taking a loss. The positive point here is that a reduction in the supply of new homes will lead to an increase in sales of existing homes.

In their attempt to alleviate the foreclosure problem the Government created programs to help struggling homeowners. Unfortunately these programs may only prolong the agony. One program, Fannie Mae’s Home Saver, has experienced a re-default rate of 70% (article). Not exactly a promising statistic and it shows that this mess is going to be with us for quite some time.

The bottom line is that this is a terrible time to be a retail seller. If you are an investor who is looking to buy for cash flow, it’s a great time. If you’re an investor who is looking to buy cheap rehab properties and flip them at low prices, it’s not such a bad time. If you are someone who absolutely must sell, good luck because you are going to need it.

What do you think a stimulus is? It’s spending – that’s the whole point! – Barack Obama

This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

Pity The Retail Seller