The $8,000 First-Time Home Buyer Tax Credit will end April 30th. By “end”, I mean Friday April 30 is the last day to write a contract that qualifies. The transaction must also close by June 30th, which should be plenty of time.
But an interesting thing will start happening May 1st, 2010. Buyers who miss the April 30th deadline to be under contract might wonder if the purchase contract can just be back-dated for April 30th, 2010, thus allowing them to still claim the $8,000 tax credit. In Texas, the “Effective Date” of the contract is written in by the agent after that last signature or initial has been placed on the contract. That’s the official contract date, and the date from which all time related matters are counted. It reflects the date the transaction becomes a “done deal”.
So, here is a potential scenario, just for discussion purposes.
Let’s say on Saturday May 1, 2010, we receive an offer for one of our listings. It’s a full price offer, clean, ready for the seller to sign, and is accompanied by a pre-approval letter. And let’s say this hypothetical offer includes a note from the Buyer Agent stating, “Meant to get this to you last night. I assume the seller will sign as-is so I went ahead and filled in the Effective Date April 30th, 2010 so the buyer won’t miss out on his tax credit”.
Can we do this?
No. We would not allow our seller to back-date the contract. It would be improper. To do so would be assisting the buyer with tax fraud. The IRS tax rebate rule states that the buyer must enter into a “binding contract before May 1st”. A contract does not become binding until signed and initialed by all parties, therefore an offer submitted After April 30th cannot have an April 30th Effective Date.
What if negotiations are complete by April 30th, the parties agree on terms, we have email confirmation from both parties, but the final signatures are not gathered until May 1st? Then May 1st would be the Effective Date, and the deal would not qualify for a tax rebate for the buyer.
Hopefully we won’t presented with this scenario, but I know it’s going to happen to someone somewhere. Human behavior is predictable and people procrastinate. First-time buyers should make an effort to write your offer before April 27th, to allow plenty of time for negotiation and signatures. Sellers should be prepared to respond quickly to offers at the end of April in order to accommodate your buyer. Good communication will go a long way.
As a seller, you’d hate to lose a good offer because the buyer changes her mind after not being able to get things wrapped up with you by April 30th. So be ready and available.
And as a first-time buyer seeking the tax rebate, you’d be dumb to write anything other than a clean offer after April 27th if you hope to be wrapped up by the 30th. Make it easy for your seller to sign off. Make sure your agent knows how to write a clean, error-free offer. You’d be surprised how many agents don’t know how to write a clean offer, so read it carefully and make sure you understand the implications of every fill-in blank, every checkbox and every date. Ask why the blanks are filled in the way they are and whether the seller would object to anything on face value, such as asking seller to pay for a new survey. Don’t write in goofy provisions, the wrong Title Company, or unreasonable provisions such as a 15 day option period for $50. Have your pre-approval letter ready and include it with the offer.
Again, good communication between the agents up front should make things go quicker.
Personally, I’ll be glad to see the tax credit go away so our market can start settling into wherever it’s suppose to be. I don’t like off-season, artificial motivations. We’ll still have artificially low interest rates, so buyers who miss the tax credit will still have the near term to take advantage of 5% mortgage interest rates before they start rising again this year.