Robert Darrow, @properties

Posts Tagged ‘Buyers’

Your guide is helping an overseas investor pick out a nice studio or one bedroom to purchase from far away, and hopefully move into in a few years when they come to Chicago.  They are inspired to act at this time, rather than waiting until they arrive by the temptation of some very good prices for condos in some very swanky neighborhoods. 

These buyers have been scouring the websites and sent me a list of some seemingly good deals.  Including a list of buildings that all seem to have one common characteristic.  I’ll refrain from publishing my laundry list here on the blog as I don’t want to alienate a whole bunch of other clients, other happy homeowners, or tarnish any reputations.  But I’m happy to share the same advice with my readers.

What all of these buildings have in common: they were all converted to condos around the year 2005 – give or take a couple years. Though these buildings are all different ages (some old, some middle age, some relatively new), all were apartment buildings first, then a developer decided to convert to condominium.

What happened to these buildings was a two-fold WHACK:

1. They sold a LOT of units to INVESTORS. During the late 1990′s and early 2000′s, it became normal for nearly anyone, and their grandmother, to put money down on a condo. And nearly as soon as the condo was ready, or a year or 2 later, you could "FLIP" it for a profit. And most of the time, you could rent the unit out and make money on it while you owned it.

2. Everyone who bought around that time is upside down. Starting in 2008, continuing through 2009, and up to today, real estate values dropped like a rock. This doesn’t matter much if you bought your home, condo, or other real estate a LONG TIME ago. Like 2002 or earlier. If you did, you probably still have some equity. For example, I bought my home in 2001. My price was $434,000. Prices in my townhouse complex went UP, UP, UP and at the high point it was worth $625,000. Then in late 2007, prices started falling. And now my next door neighbor has his unit for sale – exactly the same as mine – for $499,000. But I’m okay because I didn’t LOSE $125,000, I just won’t MAKE as much if I had to sell right now.

The problem: buildings like the ones these delightful overseas shoppers asked me about are filled with two types of people: (A) Investors and (B) young home buyers. Both categories of owner are currently upside down.

(A) Investors – they are having a hard time making payments because RENT doesn’t cover EXPENSES anymore. Because they can’t afford these units anymore, they are walking away from their units in great numbers. Hence the high number of foreclosures and short sales.

An interesting twist in this story: One big developer had a "Special Program" for investors to generate more sales. They would GUARANTEE the payments for investors. What they would do – sell to investors, and guarantee that the rent payments would cover the mortgage, assessments and taxes. So if a person bought a 1 bedroom at The Sterling, and the payment of mortgage + tax + assessment was $1,700, but a renter was only paying $1,500, the developer would make up the $200 per month shortfall. And the guarantee went for two years. Of course, everyone believed that rents would continue to rise at 10% per year, just like it always had. Instead, rents plummeted. And ALL those investors got stuck with condos that cost $300, $400, $500 and more, every month, than the rent paid for. That one big developer offered that same program at several buildings. This resulted in THOUSANDS of units being sold to investors who couldn’t make payments on them in the last 5 years.

(B) Young Owners – they bought a condo thinking they would make a ton of money from appreciation. But instead have seen their down-payments vanish, and their payments skyrocket as their adjustable mortgages rise.The double-whammy for Young Owners is the economy. Unemployment in Illinois is still close to 12%. Lots of these poor young buyers have lost jobs, or been forced to take pay cuts. Hence the high number of foreclosures and short sales.

What to do for my buyers?

I’m going to try a three-prong approach. 

1.  Choose carefully for some better examples from their suggestions.  A couple of the buildings they asked about really are quite lovely.  And some of my research shows that the buildings are slowly recovering from the glut of foreclosed units in the building.

2.  Recommend some alternatives.  For a building that they loved, I might suggest another more established building around the corner.  The Gold Coast and River North are filled with mature buildings whose financial outlook is rosy, yet values are down because values are down throughout the rest of the neighborhood.

3.  Search out other great deals.  There are plenty of ways to search for units that have had massive price reductions.  And even some established buildings have an occasional short sale or foreclosure.  All these criteria can be searched for in our MLS.

One of the most regularly asked questions of Your Guide seems to be about the boundaries for some of Chicago’s more popular schools.  Most writers want to know the exact boundaries or streets for a Chicago Public School.  I’m surprised that the questions gets asked as often as it does, since the Chicago Public Schools offers a website that offers a great way to search for a school.

Head over to the Chicago Public Schools Locator Website at: http://schoollocator.cps.k12.il.us/ 

From there, you can pick a school by name, and view the street boundaries on a map.

Or you can input a property address and ask the system for the schools that serve that address.  This is a great tool to use if you – as a buyer – are thinking about a particular house, and are curious about the schools that serve the family that lives in that property.

As I said before, I’m amazed that this question gets answered as often as it does, as a simple Google Search with the words “chicago public school boundaries” returns the best result first in the list of results!

Your Guide has the most wonderful clients.  Adam and Nikko love their Chicago home so much they write about it regularly.  Expecting in Spring, new posts are all about preparing the Little Bungalow for the arrival of Junior.

Check out the latest post.

Congratulations Adam and Nikko!

Last week Congress approved an extension of the popular First Time Homebuyer tax credit which was set to expire at the end of November.

To recap – under the current program, first time home buyers could apply for $8,000 cash back on their next tax return.  Or could amend their 2008 tax returns to request the refund.  The $8,000 is not a “deduction", rather, it is a direct payment back to the taxpayer.  In other words, if the government owed you $500 on your tax return, you would get a check back for BOTH the $500 PLUS the $8,000 – or a total of $8,500.

If you owed money on your taxes, the rebate would offset your taxes.  If you owed $1,000, the $8,000 would offset the $1,000, and you would get a check back for $7,000.

The new First Time Homebuyer Credit is available for purchases between December 1, 2009 and contracts signed through April 30, 2010.  You must close on your new property by June 30, 2010. 

Income limits have ALSO been expanded.  Buyers now qualify for the First Time Homebuyer Credit if they earn UP TO $125,000 for each borrower.  The Homebuyer Credit phases out with higher incomes.  Since there’s math involved, I’m skipping the formulas for the purposes of this post.  (It’s a great opportunity to call your REAL ESATE PRO for further info. Hint?)

Repeat Buyers Not Left Out

Congress also added a shopping opportunity for existing home owners who buy a new (different, not necessarily brand new) home.  Repeat buyers qualify for $6,500 credit towards their next home purchase if they have lived in their current home for at least five years. 

First Time Buyer Down-payment Assistance from State of Illinois

Additional resources for buyers in Illinois can assist first time buyers with a gift towards down-payment.  On October 30, Governor Quinn launched an affordable home ownership program designed to help qualified buyers by providing a second, forgivable loan for 3% of the purchase price.  The max gift is $6,000 which is applied towards the down-payment on the property.  Buyers are required to put down at least 1% (or a minimum of $1,000) of their own money towards the purchase price. 

Counseling through a HUD-certified counselor is a requirement of this assistance program.  IHDA expects to help approximately 2,000 home buyers in Illinois with their home purchases in the coming year.  Home buyers that want to participate, visit Illinois Housing & Development Authority on the web to find a participating lender.  www.ihda.org.

Your Guide went on a walking tour of the Boystown Neighborhood with YoChicago’s Joe Askins last week.  We started out at Halsted and Roscoe (no, we did NOT stop in for a slushie at Roscoe’s.)  Learn a little bit of Boystown history, and check out some retail along Halsted.

Your guide received condominium documents over the weekend for a buyer who just went under contract for a very cool loft in Chicago’s South Loop neighborhood. 

When you buy a condo, you are entitled to a giant stack of documents that you get to look through as part of the discovery process – learning everything there is to know about the association, the building, the finances – pretty much everything about the building.

In this building, the financial disclosure revealed a 13th month assessment that the association uses to build up its reserves. 

13th month assessments were devised as a rather clever way to build up a bunch of money in savings rather quickly and without too much pain on the part of the members.  Often times, 13th month assessments are enacted for only one year, or perhaps two.  Usually just for a few years at most.

The way they work is the association bills the home owners for one extra month worth of assessments at some point during the year.  Many times right at the beginning of the year.  Equally as often at the end of the year.  Since the first or the last month of the year usually coincide with the Holiday Shopping Season, I’ve seen a few associations bill the extra month in June.

In my example, we discovered that the 13th month assessment is due on November 1.  This cleverly is one day after we are scheduled to close.

Two problems:

Our contract has a paragraph where the seller of the condo swears that there are no special assessments.  And that if there ARE any special assessments, details who is supposed to pay for it.  In our contract, the seller indicated that there is NOT a special assessment, and the rest of the paragraph is scratched out.

So on the very first month of his ownership, my buyer (theoretically) gets whacked with a special assessment.  Of course, as a practical matter, we’re going to require the seller to pay the assessment since it has been planned for all year long, and the seller failed to disclose it.

My second problem is that this budget trick makes the assessments look better than they are.  In our example, the advertising and the MLS say our assessments are $270 per month.  But if the association uses a 13th month assessment year after year, the TRUE assessments are 10% higher – or a little more than $300.  When comparing this unit to others in the neighborhood, typically, the one bedrooms have assessments in the $250 per month range.

In fact, in THIS buyer’s instance, I searched out condos with assessments LOWER than $300 per month.  And the budget trick allowed the marketing to reflect the false (lower) figure.

It’s the duty of the manager as well as the board of an association to accurately show the true condition of the association, both physically and financially.  The 13th month assessment scheme does mask the true financial picture for the association, and in that regard, Your Guide is not a fan.

Labor Day Weekend is officially upon us.  Invariably there will be buyers that get a last minute  bug to do some Real Estate Shopping.  These tips hold true for all Holiday Weekends throughout the year.

Labor Day weekend is an un-official Realtor Holiday as well as the last hurrah for summer in Chicago (and all over the Mid-West.)  Knowing these key facts will help you develop a strategy to see what you need to see this weekend.

• I, and most of the other Top Producing agents in Chicago have already booked their weekend schedules.
• This might include a few showings.  Or might not.  And the rest of their social obligations for the weekend.
• The agents that are working “Floor Duty” this weekend are the rookies hungry to pick up clients.

The first thing to know about the weekend:  If you’re reading this now – it might be too late.

It’s not that I won’t meet a buyer, or accommodate a showing on the weekend.  But I firmed up plans with my buyers much earlier in the week.  It’s the same for showing my listings to other agents.  But last minute requests often indicate that the client you’re working with is more of a “tourist” than a “buyer.”

I love showing homes to buyers.  Not so much to the tourists.

A few clues to identifying the tourists:

• The phone call comes in after 3pm on the Friday of the Holiday Weekend.  Whether from the actual buyer or the agent.
• There are certain real estate companies out there that specialize in capturing leads from the internet.  I know which companies those are.  A phone call from one of those agents late on Friday, or over the weekend, usually indicates we have a “tourist.”
• An out-of-area area code on a return telephone number.  From either a potential buyer or a Realtor.

I love out-of-area buyers.  But I like the opportunity to meet them in a relaxed meeting in an office setting rather than a hastily arrange last minute showing.

So this weekend you won’t catch me in the office.  And if I’m already out with friends at Labor Day festivities, I probably won’t grab my cell phone.  It’s the same with the other seasoned pros, too.

So if you call the number on the sign, or the office from an ad somewhere, you’re going to reach the Low Man on the Totem Pole.  And there may not be much he can do for you.

Plan ahead for  the next Holiday with these tips:  line up your Real Estate tours by Monday or Tuesday before next holiday rolls around!