Almost 3,200 Washington state home buyers are in danger of losing their tax credit. These are not folks trying to buy a home right now, but people who entered into a contract two months ago to buy a home and qualified for the tax credit. Congress has currently set the maximum closing time line at 2 months, which would have ended on June 30. Knowing the accurate real estate comps and the time given to modify a contract between the buyer and seller could have saved them all.
There’s an effort under way to have Congress extend this closing deadline, as it didn’t leave enough time with many sales today being distressed sales, short sales, and bank-owned REO transactions. Unfortunately the extension wouldn’t provide a tax credit to any new buyers, just those who signed their purchase contracts before the April 30 deadline.
Taking advantage of the support that InvestorCompsOnline offers, the Buyer, armed with proper comps information, may however, negotiate for a further reduction in price. The seller could grant a price reduction, or the borrower may just walk away. If the buyer’s potential loss of defaulting on their contract (losing their earnest money) is less than $8000, it may be an attractive option for some.
What will happen if it’s not extended? For most Seattle area transactions, the $8000 is significant, but not an automatic deal-breaker. Home buyers entered into these transactions knowing the time line that was available, and should have been aware that they may not close in time to receive the credit.
Each contract is different and there may be more penalties for a defaulting buyer than just losing their earnest money. Some contracts allow the seller to sue for damages or force the buyer to close the transaction (specific performance). That being said, It wouldn’t be surprising if quite a few lower-priced home purchases end up being cancelled transactions, as the loss of earnest money or $8000 could be too much of a financial hit for either buyer or seller to swallow.