Unless an extension becomes official, time is running out for qualified first-time homebuyers to take advantage of the tax credit being offered through the American Recovery and Reinvestment Act of 2009. Even if the credit expires, having the know-how and patience to lead these eager first-time buyers through the homebuying process can still result in a rewarding experience for everyone.
The tax credit of up to $8,000 for the purchase of a principal residence is only available for those first-time buyers who close by November 30, though rumors of an extension are rampant and experts in the industry say they will be surprised if an extension isn’t granted. Many feel that offering a cash incentive is a great way to get potential buyers into their new home, and thus give the market a slight spark.
For 25 years, Jeff Pivaronas, CRB, with Coldwell Banker in Orland Park, has helped first-time homebuyers through the sometimes overwhelming tasks that make up the process of purchasing a home. A seven-year stint in the mortgage industry armed him with financing knowledge that proves invaluable time and again, especially to first-time buyers. A self-proclaimed FHA expert, Pivaronas says he knows more about home financing “than about 90 percent of all loan officers out there.” For those agents not so well versed, he suggests they get a HUD 4155 Lender’s Guide and study it. “That’s pretty much what the first-time buyers market is today – FHA,” says Pivaronas.
With a high percentage of his clientele being first-time buyers, Pivaronas developed a user-friendly first-time homebuyer system to provide comprehensive services to his new clients. His top priority with all buyers is establishing what payment amount will be comfortable to them. “Most people can afford more than what’s comfortable, but I want to ensure buyers don’t wind up living for their house and can still have a savings plan,” he says. “It’s important in today’s market to re-educate buyers. They’ve been told they can get houses for nothing.” Following the pre-qualification session in his office, Pivaronas discusses short sales and foreclosures, though he believes the latter are risky transactions for first-time buyers. “They don’t know what’s wrong with the house and many have been allowed to deteriorate,” he adds. To keep from losing clients to other agents, he e-mails listings to them on a daily basis, gives them a lot of material, gets involved with the financing and just generally stays in close touch throughout the entire transaction. Pivaronas arms his first-time buyers with a three-ring binder for compiling information throughout the viewing and buying process. Along the way, they can look to the binder for information on financing, neighborhoods and checklists of features and amenities of each house they view. “After they’ve seen 10 or 12 properties they don’t remember what they’ve looked at,” says Pivaronas, who is considering conducting first-time buyer seminars in the future.
Also provided to clients is his list titled: “88 Things That Can Go Wrong in a Real Estate Transaction,” that helps prepare them for a successful closing. Pivaronas’ first-time homebuyer system also includes a “community book” he created from the MLS, with photos of homes categorized by various price ranges to give new buyers an idea of how much house, on average, they can get for their money in a particular community or neighborhood. The comprehensive book also contains information on transportation, restaurants, resources and other specifics about the area.
Among the challenges first-time homebuyers often present is one that just can’t be overlooked: parents. Parents frequently have a lot of input when their child is looking to purchase their first home, but unfortunately offer a lot of bad, outdated advice, says Pivaronas. It isn’t unusual for parents to want to view every home their child sees or to advise them to offer tens of thousands below asking price, a very unrealistic proposal, he adds. Lyn Sims, a broker associate with RE/MAX Schaumburg, has also seen the results of parents being very involved with the purchase of an adult child’s first home. “Having parents interject a lot of advice is good and bad,” says the 25-year industry veteran. “But if you purchased a home 20 years ago on a handshake deal, it’s a little bit of a different situation today.” First-time buyers are a major part of her business right now, as move-up buyers are slim in today’s market. Because of information available on the Internet, even first-timers come to her much more educated about the process than buyers in the past. “I just fill in the blurry parts with some common explanations like tax credit and mortgage questions,” Sims says, noting that financing brings the most questions from buyers.
One of the first orders of business after clients are qualified is to help them understand how much house their money can buy. “In our area, we offer a variety of different types of homes and I have to show them each type. Their mind’s eye picture is somewhere around $300,000 and their pocketbook is somewhere around $100,000 less than that.” Sims is finding that today’s first-time homebuyer – currently making up 60 percent of her clientele – wants a house requiring absolutely no work. But they do want all the upgrades in their price, including granite countertops, stainless appliances and hardwood floors.
Making concessions with regard to their wish list is a tough proposal, but buyers soon learn that it’s hard to find a home they can afford with everything they want and move-in ready, she says. While first-timers typically come to her aware of the available tax credit, most view it as a minor influence on their choice to buy a house at this particular time. “I think they get more excited about granite,” says Sims, who shows clients an average of 15 to 20 houses before they choose one to purchase. Both Pivaronas and Sims know the value of keeping in touch with first-timers, hoping that when it’s time for them to move up, they’ll return to the agent who helped put them into their first home. Frequent communication, including direct mail and e-mail, keeps everyone in the loop, and referrals are a huge part of their businesses. “First-time homebuyers are fun and enthusiastic,” adds Sims. “I have to chuckle when a buyer plays their cards so close to their vest, but when they walk into a place they really like, they’re practically turning cartwheels. They try to act like they’re not too excited, but then they talk 100 miles a minute in the car.”
If you build it, they will come. That has been the experience of agent Paulette Rodriguez of Jameson Real Estate and developer Chip Cornelius, of Catalpa Partners, LLC. They positioned their Catalpa Gardens Condominiums in Edgewater with a price point to attract the first-time homebuyer, ranging from $120,000 one-bedroom units to $300,000 for two bedrooms, with many options in between. The two are friends and have worked together on many projects in the past. Knowing the special care that first-timers require has benefited both parties. “In this business, it’s all about relationships,” says Rodriguez. “Chip looks out for the developers, but also does care about the people who purchase in their properties.” New buyers need a lot of “tender loving care,” says Sims, noting that she is involved with her buyers every step of the way. She not only joins in their overall excitement on the front end, but makes sure they know what to expect throughout the whole process. On occasion, buyers will be disappointed after falling in love with a building that falls through at the last minute. All agents can do is be there for them and move forward. “Comfort them and move on. This is part of life, things happen. It’s the nature of the market.” Both attribute a high number of their sales to the tax credit, and Cornelius says some flexibility with financing has been a factor as well. While there are some gray areas regarding FHA and financing, buyers are finding it fairly easy to get approved, even with credit scores in the low 700s. As this article went to press, only 25 of 126 units at Catalpa remained available.
Sims recognizes that many agents won’t even consider working with first-time buyers because of the price bracket in which they are looking to buy. But that is a real mistake, she believes. “Agents should look at the current market and realize these are the people actually buying right now. Get out there and help them!” It is estimated that as many as 40 percent of all homebuyers this year will qualify for the tax credit at a cost to the government of $15 billion – more than twice the amount projected in February when Congress passed the stimulus bill. As this article went to press, there were serious talks about not only extending the tax credit program, but also the possibility of expanding the credit to as high as $15,000. C.A.
Chip Cornelius Partner Catalpa Partners, LLC 773.293.3100 firstname.lastname@example.org
Jeff Pivaronas Sales Associate Coldwell Banker, Orland Park 815.922.8223 email@example.com
Paulette Rodriguez Broker Associate Jameson Real Estate, Chicago 312.420.8648 firstname.lastname@example.org
Lyn Sims Broker Associate RE/MAX, Schaumburg 847.985.7050 email@example.com