Sue Fox, @Properties. Direct 773.816.1788
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Archive for the 'Short sales' Category
Andersonville, home to the tony Lakewood-Balmoral district of beautiful turn-of-the century homes, is now seeing a variety of historic homes selling at bargain prices. Even some of the gorgeous rambling Victorians — the kind that used to routinely go for more than $1 million — have been selling at sharply reduced prices.
Take 1450 W Summerdale, a 4-bedroom, 3-bath, elegantly restored Queen Anne Victorian that sold in December for $837,000. It was originally priced at $939,000 when it hit the market in May 2010. Or 5418 N Magnolia, a historic 1911 house in Lakewood-Balmoral that was offered “pre-foreclosure” for $975,000 in June. It sold in October for $825,000.
New homes — a relative rarity in Andersonville — could also be found in the bargain bin. 1619 W Winona, a newly constructed 5-bedroom home featuring a media room with a wet bar, a chef’s kitchen, and a roof deck was priced at $925,000 when it hit the market last January. It sold for $867,000 in July.
I’ve lived and owned property in Andersonville for six years, and a few years ago it was nearly impossible to find a single-family house here for less than $500,000. But several Andersonville houses have recently sold in the $400,000 range, including a short sale at 1701 W Farragut that went for $400,000 in September. This one was a lovely 3-bedroom house, built in 1904 but still in good condition, with an updated kitchen. (It lacked a garage, however.)
Another short sale, a 3-bedroom brick Victorian at 1657 W Carmen, sold for $435,000 in August. With an updated kitchen and baths and a lofted third bedroom, the house was originally priced at $575,000 in October 2009. And 1520 W Hollywood in north Andersonville, a cute and compact 3-bedroom in updated condition, sold for $397,000 in August. I remember showing this little blue house to buyers over the summer, when it was priced at $450,000.
So if you love Andersonville’s friendly vibe, the restaurants and shops along Clark Street, the leafy streets and proximity to the lake and Red Line, now is the time to put down roots in a great community where houses used to be out of reach for everyone but the wealthy.
Chicago’s real estate market continues to gasp and wheeze this autumn, with the Illinois Association of Realtors reporting that homes sales fell 27% in September compared to the previous year. The city’s median price dropped like a stone as well, falling 20% — from $225,000 a year ago to $180,000 this September.
However, if you look at the entire year, things are a bit brighter. Thanks largely to the now-expired federal tax credit for home buyers, Chicago’s year-to-date sales jumped 11% during January through September 2010, compared to the same period in 2009. The year-to-date median home price fell 8%.
Looking ahead to the always-slow winter season, I would say that qualified buyers have a great opportunity to buy a home at both a stellar price and interest rate … but everyone else (sellers and existing homeowners) is in for a long, chilly slog towards spring.
The number of foreclosed homes, meanwhile, is soaring in Chicago. In fact, the Chicago metro region recently ranked third in the nation for foreclosures, with more than 12,000 foreclosed homes in the third quarter of 2010, behind only Phoenix and Miami. The Chicago area’s foreclosure activity jumped 35% in the third quarter, according to RealtyTrac, a company that tracks distressed properties.
Some of Chicago’s more affluent neighborhoods — like the Loop, West Loop, South Loop and Lincoln Park — have also seen large increases in foreclosures. In the Loop, for instance, there have been 205 foreclosure filings during the first nine months of the year, a 77% increase over the same period in 2009, according to data compiled by the Woodstock Institute, a non-profit research group based in Chicago.
The troubled buildings in the Loop include River City at 800 S. Wells, where there were 16 new foreclosure filings in the last three months; Century Tower at 182 W. Lake St. (nine foreclosure filings); Park Millennium at 222 N. Columbus Drive (six), according to the Woodstock Institute. In the South Loop, where many of the newer condo buildings have ended up filled with renters, a handful of buildings had two-thirds of the recent foreclosure filings: 1620 South Michigan Ave. (twelve); Vision on State at 1255 S. State St. (eleven); and 1720 South Michigan Ave. (eight).
In the last week, I’ve fielded the following inquiries from potential buyers: Can you find me a 3-bedroom house, preferably a foreclosure or a short sale, for under $200,000 in Irving Park? Another buyer asked me about how to find distressed sellers of two-flats in Lincoln Park. And a third inquired about finding a foreclosed or short sale multi-unit building in Edgewater or Andersonville.
These are the kind of calls a lot of Chicago realtors are getting these days. Buyers are looking for deals, and they are extremely wary about over-paying for real estate, even in the nicest neighborhoods. They are concerned — and rightly so, given the economic data on local unemployment and foreclosure rates — that prices have further to fall.
Meanwhile, every day hundreds of new properties hit the market in the Chicago region. Just today, according to Midwest Real Estate Data, LLC, some 730 properties were listed for sale here (while just 127 closed).
What does this mean for people trying to sell ordinary, not distressed, homes in good condition? It means you need to be super realistic, stone-cold sober, clear-eyed and steely-spined — and you need to price your property at the same level or slightly below what similar homes have sold for recently. Otherwise you will just be chasing this frightful market down, watching the market time pile up and desperately cutting your price to keep up.
Unfortunately, I’ve seen a few recent examples of sellers who refused to face reality. On the Gold Coast, I had a buyer who offered a seller almost 93% of his listing price (this on a condo priced well over half a million dollars) and the seller, after waffling for days, ultimately declined. Another Gold Coast seller abruptly pulled his listing off the market rather than negotiate an offer that came in about 10% below asking price. A few months ago, I had some buyers make an offer on a renovated house in Wilmette. But the sellers refused to take $575,000, which was a reasonable offer … and today, that same house is still on the market for less than $530,000.
Look, this is not the time for sellers to be testing the waters, fishing about to see if they can get the price they want. Only serious sellers should be in this market. If you are not prepared to compete for buyers, by ruthlessly pricing your property in accordance with the current market, then don’t even bother. You are just wasting your own time.
Things have been super busy lately, with Chicago homes selling left and right as buyers submit offers in a rush to beat the April 30 deadline for the home buyer’s tax credit. I haven’t had a day off in more than two weeks, and yesterday I submitted three offers on behalf of different buyers.
But here’s the interesting part: Two of them were trying to buy foreclosures. Sales of distressed properties (such as foreclosures and short sales) are becoming a huge portion of the Chicago housing market, and this phenomenon is driving down prices across the board. About 40% of the condos and single-family houses sold last month were distressed properties, according to new data from the Illinois Association of Realtors.
And prices? The median home price in Chicago is now just $176,500, down nearly 22% from $225,000 in just the last six months. This is a huge drop, reflecting just how busy buyers have been at the lower end of the market, where many of the troubled properties tend to congregate. Chicago home sales, meanwhile, are up sharply, increasing almost 42% in February compared to the prior year.
The turbulent market spells tough times ahead for ordinary Chicago homeowners who hope to sell, because their home values are also being beaten down by the rash of foreclosures and short sales (particularly in neighborhoods with lots of distressed homes.) Even in affluent areas, many owners who bought their homes within the last five years are now facing the gloomy scenario of either owing more than their home is worth, or not being able to sell for enough money to cover their closing costs as well as their loan.
Buyers, too, face new hurdles involving these distressed properties — especially if they want to buy a condo. Lenders have strict requirements these days for condo loans, and many of the distressed condos that look like good deals may in fact be impossible to finance through a mortgage, because the condo building itself is financially unstable. Others may be short sales that will never close (most short sales don’t), sliding instead into foreclosure.
The pain is spreading. We’ve already seen developers resort to condo auctions downtown to finally rid themselves of unsold units, but now the fallout from Chicago’s condo implosion is spreading north to the Gold Coast.
The developer who converted a 391-unit apartment building at 1400 N. Lake Shore Drive into condos in 2006 just announced an April 25 auction to sell off 30 of the 80 remaining units. “People are going to get a great deal,” Robert Mosky, president of RDM Development & Investment LLC, told Crain’s Chicago Business. “It’s going to help out the building.”
Help out the building? Mosky said that bidding for studios — that once sold for $140,000 to $160,000 — will now begin at $50,000. One-bedroom condos will start at $90,000, a devastating reduction from the original prices of $250,000 to $270,000. This may be an attractive deal for new buyers who value the location, but these fire sale prices will hardly help out the rest of the building’s owners, many of whom are likely now underwater on their mortgages.
With Chicago condo sales sluggish (particularly downtown), some developers are turning to auctions as a last resort to jumpstart sales. It’s so hard to get a condo loan these days in buildings with many unsold units that auctions — where the financing is already lined up for potential buyers — can help get people in the door. Then, the hope is that other buyers will be able to qualify for conventional loans to buy the remaining units.
But at 1400 N Lake Shore, trouble has been brewing for months for many existing owners (see my Dec.16 post). There are now at least four condos being offered as short sales in the building, and many more for sale with price tags well above the planned auction prices.
This week, I’ve invited Joe Burke, VP of Mortgage Lending at Guaranteed Rate, to share his thoughts on short sales. A short sale involves a homeowner who wants to sell but owes more on his/her mortgage than the property is now worth. In order to complete the sale, the homeowner must obtain approval from his lender to “short” the bank. As you can imagine, banks are less than thrilled at this prospect, and they generally take months to respond to a short sale offer — and they often say no.
Here’s Joe’s take on short sales:
So, do you want to make a Buyer’s Agent cringe? Wince? Run screaming for the hills? Just repeat the following to them at your first meeting: “I would like to start my search with Short Sales.”
Now, do you want to hear them laugh out loud? Follow up with “I also want to take advantage of the First Time Home Buyer Credit.”
I’m not kidding here. If you want to see a bunch of frustrated Realtors, just mention working with buyers interested in buying a Short Sale. It’s brutal out there and nobody seems to have the answers. It’s not that they aren’t trying. Every Realtor I know is actively trying to become an expert in working with Lenders and Servicing Agents so they can help potential buyers in the Short Sale and Foreclosure market. But, the obstacles are many and real.
You can search the web for an unlimited amount of information regarding how the Short Sale process is supposed to work, but truthfully, no two transactions are anywhere near the same. Every Lender has their own process for agreeing to a price and closing on a Short Sale. Even more frustrating is that each individual process does not always seem to work the same way twice.
So why all the fuss? Are you really getting a deal if you purchase a Short Sale? Are you really getting a property under market value? The answer varies from Yes to No and all points in between.
Let’s start with Yes. Yes, I have seen some buyers get a “deal” on a Short Sale. But, that’s a deal as defined by me, the lender. I have seen Buyers close on a property and the appraisal come in above the purchase price. I have also seen this take anywhere from six to ten months from offer to close. No kidding, no exaggeration.
Now, No. In most cases, the end Lender or Servicer is working with the same exact data that the Buyer and Listing agent are (and would be working with regardless of whether the Bank was being shorted.) The individual Lender or Servicer has a fixed process and percentage of the loan amount for which they will allow the loan to be shorted. When the Listing agent presents an offer to the Lender/Servicer, they are presenting that offer with a CMA (Comparable Market Analysis) to support the purchase price. If that fits into the percentage for which they will allow the loan to be shorted, in theory at least, the Short Sale is approved. Well, how is that any different from making an offer on a property where the bank isn’t involved? It isn’t any different. The fair market value of the property is still determined by the comparable properties presented, regardless of whether the decision maker is the property owner or the bank.
Now, the Sort Of answer. This is the part that most people don’t understand when it comes to Real Estate. Real Estate is not a fixed or constant market; rather, pricing is fluid. Every time someone gets a “steal” on a property, it affects every other property in the surrounding area, even properties that are not necessarily comparables, by decreasing the price per square foot in a market. This is the same rationale that pushed prices ever higher during the bubble, working in reverse. So, you get a deal and set a new value for properties in your market. The next buyer, for better or worse, will likely do the same to you. The current market is fickle when it comes to value. I have seen the same property appraise out higher and lower than the purchase price in a 12-month period over the last year. That was unheard of until now. There are so few comparables and there is no baseline for pricing, so the fluctuations are exaggerated in a way that we have never seen before.
So, should you look at Short Sales? Foreclosures? Yes, absolutely. I just don’t think you should think of them as being any different as any other property on the market when it comes to pricing. I also think that as a buyer, you need to sit down and put together a very specific plan in terms of time line and expectations. For instance, if you are trying to close in time to qualify for the soon-to-expire tax credit, I think it’s basically out of the question to start looking at Short Sales right now.
If your desire is to play the market and look for that once-in-a-lifetime investment opportunity, then frankly, the tax credit shouldn’t even matter. You are looking for your savings on the purchase price or the opportunity to get into a property that you wouldn’t be able to get in any other market.
— Joe Burke, Guaranteed Rate
Joe can be reached at 773-742-6707 or [email protected]
As I’ve noted in past posts, we are now seeing more short sales and foreclosures in areas like Edgewater, Andersonville, Uptown, Lakeview and Lincon Park. While this has been the norm for more than a year in some distressed South side and West side neighborhoods, it’s a recent — and growing — problem in the more affluent neighborhoods up north.
WBEZ, the Chicago public radio station, interviewed me about the trend and broadcast the story this morning. As I tried to point out, buyers should be careful about buying in condo projects where prices have been deeply slashed. I used Catalpa Gardens in Edgewater as an example; there are already 14 short sales and 6 foreclosure filings underway at this nearly new 126-unit building.
Unfortunately, dramatic price cuts by a desperate developer often spell financial ruin for the existing owners. These folks who bought the first units in the building end up so deeply underwater — having paid perhaps 50-100% more than the units now cost — that most of them will be forced into short sales or foreclosures if they need to sell anytime soon. They simply won’t have any other way to repay their loan, with prices so decimated.
That’s not going to be pretty for the newer buyers either, the ones who thought they got a great deal when the developer cut prices. Short sales and foreclosures throughout the building can lead to even lower sales prices if too many units are distressed, and the condo association may also run into trouble if some cash-strapped owners stop paying their monthly assessments.
So be careful out there, all you hungry condo buyers! And call me before you make a move, so we can check out the health of the building first.
In what has become a seller’s nightmare — and a buyer’s dream — the median price of a Chicago two-flat has continued to plummet. And more buyers are taking notice, picking up these stalwart Chicago homes for a fraction of what they were worth a few years back.
I’ve written about this phenomenon before (see my Sept. 30, 2009 post, “The collapse of the Chicago two-flat”), but I keep seeing more sales data showing major price declines. Of the 47 multi-unit properties (mostly two-flats and three-flats) that closed last week in Chicago, the median price was just $80,100, according to Midwest Real Estate Data LLC. Two years ago that same week, 25 of these multi-unit buildings closed at a median price of $310,000.
That is a 75% price drop over just two years!!! Of course, the number of Chicago two-flats changing hands appears to have roughly doubled during that time, but that’s to be expected when prices have fallen so dramatically. What sane buyer wouldn’t want to own two units for $80,000?
Unfortunately for owners who bought their two-flats two to six years ago, they are now in very deep trouble. I’m seeing more and more of these buildings offered as short sales as they slide towards foreclosure, with owners who paid upwards of $500,000 now so far underwater that defaulting on their mortgage may be the only way out.
In Edgewater, 1672 W Edgewater Avenue is a fairly typical example. The owners bought it for $550,000 in June 2006. It looks like they intended to convert it to a single-family home (according to the MLS description) and they gutted the first floor and upgraded the heating and electric systems. A year ago, they put it on the market for $415,000 but it didn’t sell. It’s now listed as a short sale — which requires the lender’s approval — for $240,000.
This sad story has a flip side: It is now an excellent time to buy a Chicago two-flat. In Edgewater alone, I just counted 13 two-flats that are either foreclosures or short sales for $400,000 or less. In Andersonville, there are at least four that fit this description. Even in pricey Lakeview there are three, including a graystone two-flat in foreclosure, now priced at $284,000.
Even the Gold Coast is showing a little tarnish these days. Prices have fallen sharply at 1400 Lake Shore Drive, a 391-unit condo conversion project where many units remain unsold despite the sales team’s prediction back in February that they would “close it out” by the end of 2009.
Well, here we are in December 2009, and buyers still have plenty to choose from here. “Massive Price Reductions @ Prime Lake Shore Drive Location,” promises a recent 1-bedroom listing in the building. Massive, indeed. This second-floor unit was originally priced at $261,400 — in February 2006, when the market was much healthier. Now it’s listed at $159,900. Another 1-bedroom (touted on the MLS as a “highly upgraded ultra luxury unit” on the 20th floor) has gone from $299,900 in early 2008 to $189,900 today, a 37% price cut. A 2-bedroom on the 3rd floor is now priced at $299,900, down from $360,900 in March 2007.
Meanwhile, owners in the building also appear to be hurting. A 2-bedroom unit that sold for $417,900 in early 2006 is now for sale at $374,900. It’s been on the market since June. There are also two short sales in the building, including a 21st-floor unit now listed at $275,900. That one has been on and off the market for two years, starting at $398,800.
There have only been 6 sales in the building in the last 6 months, according to the MLS. This is a pretty poor track record for a building this large, especially considering that the $8,000 first-time buyer’s tax credit pushed up sales in Chicago during this period and most units at 1400 N Lake Shore are in a price range that appeals to first-timers.
Then again, this is a golden opportunity for buyers looking to spend under $150,000 for a Gold Coast location. There are now 9 units at 1400 N Lake Shore that meet that criteria.
It seems like just yesterday that we were watching that colorful new mid-rise development go up east of Broadway and Catalpa in Edgewater, promising modern kitchens and green rooftops, a cool urban oasis just a few blocks from the lake. Built in 2007, this 126-unit complex is already faltering, with some initial buyers clamoring to get out even as the developer struggles to sell the remaining units.
In the course of researching short sales in the neighborhood, I came across 13 units at 1122 W Catalpa (Catalpa Gardens) where the owner is attempting to sell for less than what he/she owes on the mortgage. There’s a 4th-floor, 1-bedroom condo, which that owner bought in January 2008 for $155,900, now being offered for $129,500. Or a 2-bedroom, 2-bath unit on the 7th floor that went for nearly $440,000 in July 2008 — and is now for sale for $192,000, according to the MLS.
This is a shocking, sad destruction of equity in a very short amount of time! No wonder the building’s developer, Catalpa Partners LLC, recently slashed prices by $50,000 to $150,000 to sell the remaining 14 units. But selling at such steep reductions badly hurts the value for existing owners, probably pushing more of them into short sales or foreclosures.
If you are a buyer, I would be extremely cautious about buying in a troubled building with so many short sales, even if the price seems sweet. Unfortunately, some buyers today are winging it themselves without realtors, negotiating directly with developers (or other sellers) without any information about what similar properties have sold for, how long they have been on the market, what the seller paid for the home, how many short sales or foreclosures there have been in the building, etc.
They may think they are getting a great deal, but they can easily wind up owning something that quickly loses value, making it nearly impossible to sell. Condos can be risky investments, because your fate is linked to that of your fellow residents. If too many of them start to sell short, or fall into foreclosure, it can rapidly wipe out the value of your investment as well.
Please visit Sue Fox’s other blog posts at www.hometochicago.com!
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