Buying a house right now is painful. Very painful. Inventory is at a historic low, and prices are skyrocketing.
I have some thoughts — and while this is admittedly not within my direct “wheelhouse” … I think it will help as we move through the spring and summer real estate seasons.
But before I get there, a few tax things you need to keep in mind for THIS WEEK:
1) If you are subject to estimated tax payments (you should know who you are), that deadline was NOT extended. Your first quarter estimated taxes are due THIS Thursday April 15th.
Yep, this is just one of the multiplicity of things that has made this tax season … special.
The easiest option at this point, if you have not paid them, is to go to the IRS website and pay directly.
If you need help figuring out what to pay, feel free to get in touch:
Please do be patient with us in communication — we have been, and continue to be, flooded with inquiries because of the confusing nature of these shifting deadlines this year. But this is always the case (despite this year being a little “extra”) … and we have prepared for it, and are in your corner.
2) The filing deadline was extended to May 17th. Additionally, IRA and HSA accounts may receive 2020 contributions (that will directly affect your taxes) up until this point.
I’ll have more to say in the next few weeks about wrapping things before May 17th (including thoughts on extensions, etc.), but in the meantime … let’s talk real estate, shall we?
Buying a House During this Housing Shortage
“Do not let what you cannot do interfere with what you can do.” – John Wooden
Unless you’ve been living under a rock, you already know that it’s a hot housing market.
If you have been living under a rock, then you’re about to be shocked at how hot the housing market is.
Right now, there are so few homes available for sale that bidding wars are breaking out across the country. The best homes in every price range are receiving multiple offers. This means that many homes are selling for significantly above asking price. Aside from being frustrating, this also means that many people are simply being pushed out of the market entirely, because home prices have become unaffordable.
If you are still interested in buying a house, there are things you can do to help you get the home of your dreams.
I should hasten to add that because I’m primarily a tax accountant, I don’t typically get involved directly in these transactions.
But as we’ve been meeting with many clients this year, I’ve heard so many horror stories from real estate agents and prospective buyers, that I thought it to be worthwhile that I offer my insight.
So here goes…
Before you even begin looking at houses, meet with a lender and get pre-approved for a loan. Many lenders will offer to do a pre-qualification, which means they’ll crunch some numbers based on what you tell them verbally.
No, no, what you want is an actual pre-approval letter. To do this, they’ll want to look at actual paperwork, such as paystubs, bank statements, and tax returns. They will also pull your credit reports and scores to make sure there are no issues on that front. This pre-approval process ensures that you know exactly what you can afford when shopping for a home.
In this hot housing market, that pre-approval letter will often be requested by the real estate agent selling the home that you’re making an offer on. Without that letter, your offer probably won’t even be considered.
Make Strong Offers
In a normal market environment, you would want to take your time to get inspections done and negotiate around any repairs the home might need. These days, not so much. When multiple offers are coming in on a home, the sellers are going to bump certain offers to the front of the line. Offers that waive inspection requirements will be in that “A” pile.
In addition, don’t include contingencies in your offer. Common contingencies include needing to sell your prior house before you can purchase this one, or needing to find specific financing terms in order to make the purchase.
Lastly, consider putting an escalation clause into your offer. An escalation clause is extra contract language in your offer that will automatically increase your offer price in the event that somebody else outbids you. These clauses increase your offer in set increments, such as $5,000 at a time, and include an absolute maximum dollar amount. Some sellers are willing to consider these, and it becomes part of the game. Other sellers won’t consider them at all. Talk to your real estate agent about whether to do this or not.
Be Aware of Offer Deadlines
You will see many home listings that include an offer deadline. This is the date and time by which all offers need to be submitted. At that time, the seller will review all the offers, and choose the winning bid.
Be Prepared to Pay Above Asking Price
The bidding frenzy that is pushing up home prices may seem unfair. But, it’s simple supply and demand. Have a serious conversation with your real estate agent about how much over asking price homes are actually selling for in the specific neighborhoods you’re interested in. Sadly, you may need to be prepared to look in more affordable neighborhoods.
If you do place the winning offer on a home, you may still have a hurdle to jump over. Due to a weird quirk in how appraisals are done, you may end up in a situation where the price you’re paying is more than the appraised value of the home. Your mortgage lender is only going to let you borrow up to that appraised value – anything extra has to come out of your own pocket. This means that in addition to the normal down payment you’re making, you’ll also need to pay cash to cover the difference between appraised value and the purchase price.
Be Flexible on Closing & Possession Dates
Some sellers are going to need time to move. They may be selling their home now, and then turning right around and buying a new home. That means they are going to face the same difficult situation that you are facing in buying a house. If it takes them a few months to buy a new house and close on it, they still need a place to live in the meantime. If you can be flexible about your own move-in date, then that can help you seal the deal and get your dream home.
Tell Your Story
Believe it or not, sellers don’t always take the highest bid, or the pure cash offer. Sellers are people, too, and sometimes they can be swayed to accept a lower price or a less attractive financing type (such as VA and FHA financing, which require special inspections) simply because you tugged at their heartstrings.
If there is some special reason that you should get this house, write a letter and explain it. Perhaps you’re returning to the town you grew up and want to raise your own family there. Perhaps you just got your dream job, and getting your dream home would make the fairy tale complete. Perhaps you love certain architectural features of the home and have the skills to preserve or enhance those elements. Get those tears flowing and make the sellers love you, and you might just get the house.
Finding the right home is hard enough. Throw in this hot market and it can be downright exhausting, mentally. Try not to let that get you down. The insanity of bidding wars and appraisal gaps won’t last forever. Most economists and financial pundits expect that things will start cooling down within the next 6 to 12 months, but they also say we’re not in a housing bubble. Thus, you shouldn’t expect that home prices will come down, like they did back in the 2008 financial crisis.
It’s perfectly OK to not be a participant in the feeding frenzy. If it’s all just too much of a stretch for you financially, or you’re simply frustrated, just wait it out. There will always be people needing to sell their home, and new homes are constantly being built. Your future dream home may not even exist yet.
If you need help getting tax returns and other financial documents in order to get pre-approved with a lender, we’d be happy to help. Schedule a time to chat right away so that we can help get you on the path to homeownership.
We’re glad to be able to serve you in this insane season.
Emelia Mensa EA, CPA