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Chicago Now

Our main blog has been moved to chicagonow.com/getting-real
but we occasionally post articles here as well.

Articles for ‘Home Selling’

An Insider’s Guide To The Home Sale Process

Monday, January 27th, 2014 by Gary Lucido

tell you a secretIf you’ve visited our site before or read my blog on Chicago Now (Getting Real) you’ve probably picked up on the fact that I have a rather irreverent take on the real estate industry. In fact, the reason I decided to become a real estate broker is because the whole industry seemed broken (Nothing altruistic here. Broken industry = business opportunity). But not everyone reads my blog religiously and as I meet with prospective clients I realize that there are still a lot of misconceptions out there. No surprise there because the real estate industry has a vested interest in perpetuating those misconceptions.

So it occurred to me, maybe it’s time to educate the market – something faster than one client at a time. Therefore, on February 19th, I will be hosting my first Real Estate Seminar: “Secrets to smart home selling, demystifying the sale process.” Just in time for the beginning of the home selling season in Chicago.

This free event is open to everyone, but will focus on the sell side of the real estate market (not to worry, I intend to have a buyer’s seminar soon!). I will be drawing on my years of experience to give you all the tips and tricks I’ve learned along the way. But first things first, let me give you an overview of exactly what I’ll cover.

First, we’ll review the market to understand what’s happened since the great recession and review the current home seller trends. I’ll show you why now is the best time to sell in the last 5 years.  In addition, I’ll provide insight into what determines the value of your home and the key misconceptions traditional brokers perpetuate.  And speaking of traditional brokers, I will provide insider information on what you should expect, dare I say demand, from a realtor and how to be wary of the popular myths they propagate. We’ll then dive into topics such as:

  • Understanding how realtors make money and how to make that work for you
  • Understanding the home buyer and the buyer funnel
  • What really makes a house sell?
  • How to pick a realtor

I’ll have plenty of other information to share as well. So please join me by clicking here to save your seat. Feel free to bring a friend or two… I’m pretty sure they will benefit from this seminar. I’ll definitely give you plenty to talk about. See you soon!

Elmhurst Real Estate Market in 2012

Tuesday, January 15th, 2013 by Sari Levy

2012 was a good year for real estate in Elmhurst. Single family home sales volume was up by from $154mm to just over $158mm in 2012. While the average sales price decreased marginally from $404k to $402k the number of units sold increased over 15% from 382 units in 2011 to 446 in 2012.

In both 2011 and 2012 there were 68 homes sold under distressed conditions (short sale, foreclosure or court ordered) but because of the increase in units sold in 2012 the percentage of distressed sales decreased from 18% in 2011 to 15% in 2012.

Single Family Home Inventory in 2012 was at the lowest levels in the last several years with just around a 4 months supply of single family homes in Elmhurst on the market at the close of the year.

The condo and townhome market also showed improvement with volume going from just over $11mm to $13.5mm with the average price increasing from $225k to $228k. There were 50 units sold in 2011 and 58 in 2012. During both years, distressed sales comprised about 14% of the total sales.

2013 promises to be a busy market for both buyers and sellers. Buyers of well priced/condition properties should expect competition and be ready to pay near or at list price. This doesn’t mean that deals don’t exist however, but buyers will need to be well informed and decisive. There are currently 58 condos and townhomes on the market and 160 single family homes for sale in Elmhurst.

Elmhurst Real Estate Market Review: A Look Back into 2011 and 2010

Monday, January 9th, 2012 by Sari Levy

2011 Elmhurst Real Estate Market

Elmhurst Condominium Market

In 2011, Elmhurst Condo sales were down drastically over 2010 with nearly $25mm dollar in volume sold in 2010 reduced to just over $11mm in  condo sales in 2011. In 2011, just 50 condo and townhome units sold in Elmhurst, compared to 108 in 2010. In 2010, distressed condo sales (short sales or foreclosures) accounted for about 20% of the sales in Elmhurst which were at 15% in 2011.

On average a condo stays on the market for 240 days and as of January 1, 2012 there are about 18 months of inventory on the Elmhurst condo market.

Elmhurst Single Family Homes

The Elmhurst single family home market faired much better in  Elmhurst in 2011 than the condo market did. In 2011 there was $155mm of home sales up over the 2010 volume of $142 mm. A total of 383  homes were sold in 2011, with fewer than 15% of the sales being distressed, in 2010 there were 343 homes sold in Elmhurst with 20% of the sales being distressed, so an increase in  homes sold and a decrease in distressed sales, which is quite a bit different than Chicago as a whole.

2012

My expectation for the 2012  real estate market in Elmhurst is that there will be an increase in the sale of distressed properties along with an increase in total number of  homes sold. Already the phone is ringing with showing requests and buyers ready to get out and start looking. March is historically the month where the most  home inventory hits the market in Elmhurst.

What’s Going on in the Addison Illinois Real Estate Market?

Monday, November 22nd, 2010 by Sari Levy

The answer to that question isn’t exactly pretty. Like many other communities the Addison Real Estate Market has been brutal for sellers in 2010 and the picture isn’t getting brighter any time soon.  Of course, the picture is pretty bright for those folks who are looking for a bargain.  But for sellers or responsible mortgage payers who would like to refinance and take advantage of the incredibly low interest rates, the future remains pretty bleak.  That’s because the volume of distressed sales doesn’t appear to be dwindling.

According to the recent stats published by the Mainstreet Organization of Realtors, Addison has seen a 7% decline in average price in the year over year between October 2009 and October 2010 and another 11% decline in average price in the year prior. Of course, we know those figures don’t mean a whole lot since it’s simply an average which is meaningless because the components that make up the average aren’t defined narrowly enough- e.g. older homes, large homes, small homes, ugly homes and new construction homes all get lumped into the same bucket.  On another post, I’ll look at which segment of the market in Addison is hardest hit.

Since I’m a resident of Addison, the reality of the recession and abysmal market hits home. As someone who has been a responsible homeowner for thirteen years, never once being late on my mortgage, and never extending my LTV above 80%, I’m having trouble refinancing because of the value of my home, which has depreciated by AT LEAST 24% since I last refinanced in February 2009.  That’s factual.  There is a small part of me wishing I hadn’t been so responsible.  Anyways, back to the market stuff.

There have been 162 single family home sales ranging in price from $50k to $595k.  68 of those sales or 42% of those sales were short sales or foreclosures.  Talk about being hard hit.  The short sales and foreclosures sales are typically for homes under $200k in Addison although the highest price home sale was no exception.  The seller sold the home for $595k.  The home would have easily fetched upwards of $800k had it been located in Elmhurst.  Interestingly enough the new owners paid $595k for the home but have taken two separate mortgages in total amount of $646k.  Does that mean the buyer bought himself an extra 10% equity on the place to start with? Not bad.

If you are lucky enough to be a buyer who desires to live in Addison  the news is good.  There are plenty of deals on homes here.  In fact, with all the distressed sales, there are pre-2000 prices on re sale homes.  There are also some pretty cool opportunities in Addison new construction with prices under $500k.

Lease With Option To Buy/ Rent To Own

Monday, September 13th, 2010 by Randy Whiting and Gary Lucido

A Tutorial

Lease with option to buy (aka rent-to-own) is a viable solution for many sellers and buyers, yet it is largely under used. Browsing through the various real estate blogs there are many people asking questions that often go unanswered or receive the same type of safe/fluff answers every time. As we have navigated this process from start to finish and seen it work, We’d like to dissect this topic in hopes of shedding some light on a very viable method of transacting real estate.

A lease with option to buy is an agreement to lease a home with the option to buy it before a certain future date at an agreed upon price. This type of agreement is ideal for someone who is either not ready to buy because of a lack of assets or credit or a lack of desire to risk their assets or credit. Even though this is not a new concept it is largely under-developed and there are many things to consider for both sides of the transaction. We cannot stress enough that having an agent that is experienced in this type of transaction is something that should be strongly considered by both sides.

How much should the rent be?

The rent should reflect current market prices for comparable rental units plus additional amounts that may go towards purchase of the home or payment for the option. However, all three of these rent components are negotiable so this is a great reason to have an agent working with you who is experienced in this type of transaction. The key is for the seller to be appropriately compensated for taking the risk of future price depreciation while forfeiting all price appreciation to the buyer.

How much should the rent be increased to fund the future purchase?

As mentioned above, this is negotiable. Again, because this process is rarely used there is no standard or often used guideline to consult.  However, incorporating an extra amount into the rent to fund a future purchase amounts to nothing more than the seller operating a savings account for the benefit of the buyer. Does the seller really want to be in the banking business? And from the buyer’s perspective, how is this any different than the buyer starting a savings account and putting that extra money in there for an eventual purchase that doesn’t tie them to a particular unit? The only difference is that under this arrangement the buyer is “forced” to save money for their purchase. Interestingly, the Chicago Association of Realtors has a “Lease With Option To Purchase” rider that doesn’t even provide for such an accumulation fund.

How should the accumulation fund be managed until it’s time to buy?

There are a couple ways to go about this and it is largely affected by the profile of the seller. Is it huge profitable developer or a struggling couple that is trying to sell? First of all, if it was agreed that the monthly rent would be increased by a specific amount each month (above market price) and that amount would be put toward the eventual purchase, that money should be put into a separate escrow account by the landlord/seller until such a time as it will be used for the purchase or refunded to the buyer/renter. Another way this can be handled is for the landlord to keep a ledger to record the agreed upon amount so that when the time comes to purchase, the landlord will reduce the sale price on the home by the amount in the ledger. From experience this is the most common method, however a number of risks for the buyer present themselves. Namely when the time comes to sell will the landlord be able to sell the home at the reduced price? In addition, lack of funds for a down payment is a very common reason that buyers seek a lease with option and it is not necessarily the price of the home that is preventing them from buying. Often the amount of money accrued is a drop in the bucket when compared to the over all cost of the home and as such the highest impact of that money would be as down payment assistance for the buyer. If the landlord is not keeping the money in escrow, there is no guarantee that the landlord will be able to cough it up at the closing table.

At what point in the process should we agree on a purchase price?

In the Chicago Association of Realtors “Lease With Option Rider” there are two choices (this may differ for your local association’s forms, please consult your agent):

“Tenant shall have the one-time right to purchase the Property (“Purchase Option”) for a purchase price equal to (strike one) $_______________________________ / the fair market value (“FMV”) of the Property at the time such Purchase Option is exercised (“Purchase Price”). (Strike the following sentence if it does not apply) The FMV of the Property shall be determined by Landlord and Tenant, in good faith, taking into consideration the purchase price for properties similar to the Property, located in the same geographic area as the Property, which have been purchased in the preceding nine months. “

There is a lot to consider here. When does the renter plan on converting himself or herself into a buyer? Will it be six months or two years? What does the housing market look like at the time of purchase? Is it stable, falling or experiencing growth? Either way there is risk involved for both parties.  In a standard option there is an agreed upon purchase price, the “strike price”, established at the point at which the option contract is entered into. It is this set price that creates the value of the option for the buyer. If there is merely an agreement to negotiate a fair market value at some point in the future then the option has absolutely no value whatsoever.  If the buyer ends up purchasing the property at fair market value in the future then they have forfeited any right to appreciation of the property up to that point in time.  What if the buyer and seller can’t agree upon a fair market value in the future? This essentially provides an out for the seller. In other words, the seller is not really obligated to sell the property and the buyer doesn’t really own an option.  The existence of this second alternative in the contract is really rather pointless. It creates a situation where the seller can’t sell the property to anyone else, but the buyer is not guaranteed that they will be able to purchase it for a price they consider reasonable.

As a seller, when should I ask for a pre-approval?

This is a tricky one because in many cases the reason people are looking for a lease with option is because they cannot yet qualify for a loan for one reason or the other. Our advice is this: With the assistance of a lender you or your agent are comfortable with, get the renter/buyer pre-qualified for the purchase amount you’ve negotiated and find out what it would take for them to be able to qualify. It could be increased assets or it could be credit clean up. Whatever the case may be, this will give them a clear picture of what their goals need to be in order to eventually purchase the home. This is also very important because this will give them a glimpse of what their monthly cost to own would be. A lot of first time home buyers have no idea what their mortgage, insurance, taxes, and assessments (for condos) will add up to. It may be that once they see what their monthly cost to own will be that they realize there is no way they would be able to ever buy this in the near future. The last thing a seller wants is to waste time renting their place when their goal is to attract a buyer. Getting the pre-approval done up front is also a good way for the seller to assess the risk of a given buyer. At the beginning this will serve as a credit check, which most landlords require anyway. If you see that the potential buyer has a 300 credit score and has never paid a bill on time, it may not be a good idea to tie your home up with that candidate. If you see that they are 800+ credit, never missed a payment, and the only thing preventing them from buying is a lack of down payment or lack of income, you may consider this to be less of a risk than the former example. Obviously the buyer will need to get re-approved once the purchase is close at hand.

Will the security deposit be handled separately from the earnest money?

We recommend that these two be handled separately. Through the Landlord Tenant Ordinance (LTO) the City of Chicago requires a lot from the landlord with respected to the security deposit and noncompliance comes with some very heavy penalties. That said, we feel that the seller acting the part of the landlord should adhere to the LTO and ask for earnest money if and when a purchase comes to fruition. This will reduce the liability to the landlord who is at significantly more risk than the potential buyer.

Should I keep my home for sale during the agreement?

Only if someone will buy it with the option attached. You gave the buyer/renter the right to buy the place and you can’t just ignore that fact. Again, consider the comfort level of the buyer. Do you think a buyer would go through all of this trouble with the possibility that the rug can be pulled out from underneath them at a moment’s notice? Plus a renter who is planning on buying this home may be very put out by having “potential buyers” traipsing through the home.

What happens if the home is foreclosed during our agreement?

This situation is largely effected by the type of agreement you had. If you are paying above market rent and having that money put into an escrow account, obviously you should have claim to that excess money. We recommend that you have some verbiage in your agreement that covers this possibility no matter how remote you think it may be.

Can section 8 vouchers be used in a rent-to-own home purchase?

The answer according to the HUD website is yes, depending on your personal situation and the program that you are involved with. We advise you to consult the hud.gov website for details.

Do I have to sell my home at the end of the agreement?

Absolutely. That’s the whole idea behind an option and that’s what you are being paid for.

In Conclusion

With all of the different variables to consider it is clear why a lot of agents steer clear of this type of transaction. It is unfortunate that often the professionals that people turn to for advice are the ones that push them away from viable options due to lack of familiarity or out of sheer laziness (short sales are another example of this). In the end, rent-to-own has the potential to be a win-win situation for all parties involved. The buyer gets a chance to test out a home before buying it, continue to build credit, and an opportunity to put their money toward a home purchase prior to qualifying to do so. For sellers, they can have a renter in the short term to help alleviate some of the financial burden of their cost to own while cultivating this renter into a buyer. The situation can also be a very easy out for both parties. In a market where serious buyers are hard to come by, this has the potential to be an excellent compromise.



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