New Home-Buyer Credits Aim to Replace Expired Federal Program

The federal government's $8,000 home-buyer tax-credit program may now be over, but at least two real estate brokerage firms and the state of California are aiming to fill the void.

Coldwell Banker Real Estate LLC launched its national Buyer Bonus program this week, whereby home buyers will be offered a 3% credit on a home's purchase price — up to a maximum of $8,000 — at the time of closing. "It's a private-sector solution" that should keep the momentum going following the expiration of the federal tax-credit program, says Jim Gillespie, the realty firm's chief executive. (See pictures of Americans in their homes.)

Under the program, which will run through July 31, sellers will be responsible for providing the credit. Persuading homeowners to do this shouldn't be a problem, says Gillespie. He noted that many will likely have to cut prices anyway as rising foreclosures and tight credit continue to pressure home prices, and sellers will likely be chasing after a smaller number of buyers now that the federal tax credit has expired. "This will make their properties stand out from the crowd," says Gillespie.

To date, about 70% of Coldwell Banker's franchises have signed up for the program and are actively talking to sellers about it. More than 4,500 homeowners have agreed to offer the credit.

The state of California has launched its own $200 million tax-credit program, through which buyers will be eligible for credits of up to $10,000 against state taxes. Under the California program, directed at new-home purchases and first-time home buyers, qualifying buyers must spread the tax credit over three years. The California program will last only as long as the dedicated funding.

Another real estate firm, Prudential Florida Realty, an affiliate of Wells Fargo Home Mortgage, is offering a buyer-credit program, but with a twist. Its initiative, which will last six months, offers a credit of up to 3% of the purchase price at closing, but with no cap. This means a person buying a home for $500,000, for example, could get an even bigger credit — $15,000. (See "Stimulus Report Card: Home-Buyer Tax Credit.")

In addition, Prudential will pay down a buyer's mortgage rate by 1 percentage point for one year. Prudential chief executive Rei Mesa emphasizes that buyers must first qualify for the full mortgage rate to ensure they don't run into trouble making payments when the one-year rate reduction ends. For this perk, Prudential — not the home's seller — is footing the bill. The firm is offering this rate-cut program for the next month only.

Housing data indicates that the federal home-buyer tax-credit program breathed new life into the comatose housing market. The original program, which targeted first-time home buyers, was so successful when it was launched in 2009 that the government extended it into 2010 and expanded it to all home buyers. About 2 million families used the credit in 2009, and an additional 2.4 million will have taken advantage of it this year, according to Lawrence Yun, chief economist with the National Association of Realtors. Yun estimates about a million of the sales involved purchases that wouldn't have been made without the credit.

Though some in Congress have called for another extension of the federal credit, it is not considered a near-term possibility, given its considerable cost. The U.S. Treasury reports that through March 27, the program's price tag was nearly $16 billion. With the surge of home buying that likely happened in April as the deadline approached, the final tab could be considerably higher. (See a one-year evaluation of the White House stimulus.)

Industry experts expect to see many home shoppers exit the market now that the credit is history. But Gillespie is hoping his firm's new housing-credit program will slow the exodus. However, at least one industry expert is skeptical of the program, questioning whether many sellers will be ready to give up thousands of dollars, especially on lower-priced homes, unless they inflate the original home price. "You're asking a seller too much," says Alex Barron, founder and senior research analyst at Housing Research Center LLC, who wonders why brokers don't share part of the pain by lowering their commissions to help cover the credit. "It's always easy to be generous with somebody else's money."

Even so, for potential home buyers who missed the April 30 deadline for the federal credit, these latest moves by real estate firms and the state of California are nothing but good news.

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