Wednesday, April 21, 2010

Tax Credit/Written Contract

As almost everyone to whom it matters knows, parties desiring to take advantage of the tax credit (see prior entries for details) must have a written agreement in place prior to May 1, 2010 and must close prior to July 1, 2010. Seems simple, right?

Given my background and need to parse words, I started thinking about what constitutes a written agreement for purposes of the credit, particularly given the custom in Massachusetts. There is little doubt that a binding purchase and sale agreement will satisfy the criteria. However, any legal document is defined by its content and not its captions. The issue comes down to intent of the parties and/or intent to be bound.

In Massachusetts, the precursor to the purchase and sale agreement is generally a contract to purchase, commonly referred to as an "offer" which is misleading. Most "offer" forms are in fact contracts and are binding, hence satisfying the criteria for the tax credit timeline. However, many people representing buyers attempt to water down the binding nature of the contract to purchase through language stating that the contract to purchase is contingent upon the execution of a binding purchase and sale agreement. This language may make the contract to purchase insufficient for purposes of the tax credit.

In the event that you are counting on the tax credit, but will not have closed prior to May 1, proceed with caution. Although the above may seem to be semantics, this is uncharted territory, and slight variation in the drafting of documents could prove costly.

As always, contact me at 978-423-9309 or john@jw-realestate.com with any questions or comments.

Thursday, April 15, 2010

March Pending Homes Data

The number of single family homes in Massachusetts that were placed under agreement* in March increased 27% year over year while condominiums placed under agreement increased 38% over March 2009. This follows a trend of increases for both single family homes and condominiums which has held true for 9 consecutive months. (Source: MAR 4/6/10)

While this is encouraging news for sellers, the tax credit ($8K for first-time home buyers and $6.5K for those buying and selling a primary residence) requires that a property be under agreement by the end of April. Therefore, I expect the trend of pending* home sales to continue for the month of April and to then dip - perhaps significantly - at least until the end of July. This would be an aberration from historic cyclical trends, as May and June are typically strong months for real estate activity.

Bottom line: if you have a residential property for sale, use your best efforts to place that property under agreement prior to May 1. The one caveat is that there is the possibility that the tax credit could be extended in some form, which would allow the current trend to continue into at least the summer vacation season (usually the second or third week in June through July). However, I have heard no substantive discussion to that effect.

* The terms "under agreement" and "pending" are synonymous and simply mean that there is a contract signed with respect to the sale of a property, but ownership of that property has not yet transferred.