Sue Fox, @Properties. Direct 773.816.1788
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When it came to real estate, for many years the more relevant question was: Can you afford to buy? These days, however, that question has been abruptly turned on its head, and unfortunately I’m seeing more and more Chicago residents asking themselves whether they can truly afford the thousands of dollars it will take to sell their homes.
This is especially true of Chicago condo owners, many of whom bought their condos within the last five years and now want to move on. I’ve talked to several condo owners in the last month who really want to sell, but upon closer inspection of the numbers, realize they may be facing insurmountable costs to do so.
Here’s the problem: Prices have fallen so sharply in recent years that even if they can sell their condo at a price that will pay off the mortgage, they often can’t afford the closing costs and commissions involved. Closing costs can be 1-2% of the sale price, and real estate commissions are generally 5-6%. Even people who try to wing it without a realtor and do everything themselves are facing at least 4-5% in expenses, because they still have to pay the buyer’s realtor and the closing costs.
Prospective sellers need to take a hard look at the math, paying close attention to what they still owe on the loan and what the property is currently worth (an estimate best left to a seasoned realtor or appraiser.) If they bought a $300,000 condo four years ago and now it’s worth about $270,000, and they owe $270,000 — well, at least they can cover the loan. But can they also afford the roughly $14,000 to $19,000 in closing costs and commissions that they’ll need to bring to the table to close the deal?
Not many people want to (or are able to) bring thousands of dollars to a closing just to get out of their home. And so they are stuck. The only alternatives are to wait, to try to rent out their home at a price that will cover most of the expenses, or to attempt a short sale that probably will not work and will destroy their credit in the meantime.
It’s a terrible situation. And with housing prices continuing to wilt throughout Chicago, more and more would-be sellers are realizing they can’t afford to leave their current homes.
If you are thinking about selling your condo this year, please contact me for a free CMA (comprehensive market analysis). This will give you a solid estimate of your home’s current value, and I’m always happy to sit down with you and review all the numbers, so you will have a clear idea of your financial picture before you decide whether to put your home on the market.
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.
It’s already March 17 — Happy St. Patrick’s Day! — which means Chicago’s spring home-buying season is well underway. And the market is truly bustling right now, with buyers out in droves, making offers and getting ready to close on their new homes.
The government’s first-time home buyer’s tax credit has done wonders for the Chicago housing market, but it expires in six weeks. And that’s exactly why anyone hoping to sell a home in 2010 ought to be hustling that property onto the market as soon as humanly possible.
It’s not just to take advantage of the wave of first-time buyers, who make up half of all buyers nationwide, by some estimates. Many buyers seeking the $8,000 tax credit (or earlier versions of the credit) have already found homes, and hundreds of thousands of them have already closed. But that means that hundreds of thousands of home sellers are now free to go buy something else.
This what I call the move-up theory: When someone sells her $300,000 condo, for example, she is now free to go buy that $450,000 house. Which then frees up the next seller to go buy something else, and so on.
Of course, not every seller has the equity, or perhaps the desire, to buy a more expensive property. But once some people are able to sell, the market loosens up again, breaking the massive real estate logjam that has been strangling our market since 2007. Properties start changing hands again. Sales volume increases. We are already seeing this happening on a broad scale in Chicago.
So if you are considering selling this year, the time is NOW! Many of those move-up buyers are already out and about hunting for their next home, which could mean a healthy late spring/summer for mid-range home sales in the Chicago area.
In the last few weeks, several of my buyers have made offers on well-priced Chicago houses and condos. But rather than focusing solely on the prices, let’s look at the market time. This often-neglected indicator shows just how quickly a well-priced home can move — something all sellers should consider when pricing their property.
In one case, my buyers made an offer on a Jefferson Park house that had only been on the market six days. In another case, a different buyer made offers on two Rogers Park condos — both of which were foreclosures that had been listed a few weeks ago. (One of them already had three offers on it.) This week another couple I represent made an offer on a nearly-new Andersonville condo that had been on the market for 28 days.
The sellers of these properties did not have to wait and wait to sell their homes. They didn’t put their place on the market in the spring, only to lose hope bit by bit all summer and finally take it off the market in the fall so that it wouldn’t accrue more market time over the winter. They didn’t endure a slow death by a thousand price cuts.
Consider these recent market statistics, from December: There were 1,332 Chicago properties that sold with no price changes made to their asking price, and on average they fetched 96.8% of the asking price. But the 923 homes that sold after at least one price change (most likely a reduction) only commanded 80.6% of their original list price.
The well-priced homes also sold much faster. The properties with no price changes spent 100 days on the market, on average, while the ones whose price had to be cut lingered for 241 days on the market.
If you want to sell your Chicago home, the time to get it on the market is now. There are lots of buyers out looking already, even in this snow, and they are truly ready to buy. But don’t try to outsmart the market. If you price your home fairly, in line with current market conditions and recent sales in your neighborhood, you will sell it much faster for more money than you otherwise will.
For the second month in a row, Chicago home prices have dipped a bit. In November 2009, prices slipped 0.8% from the previous month, according to the Standard & Poor’s/Case-Shiller home price index released yesterday.
Chicago’s performance was worse than other major cities, as the index showed a small increase of 0.2% in home prices nationally. Year over year, Chicago’s prices fell 8.5% — which was also worse than the 5.3% decline seen nationally since November 2008.
So, overall we now have Chicago buyers getting an 8.5% better deal than they would have scored a year ago. That’s part of the reason that sales have rocketed in recent months. Other factors include the $8,000 tax credit for first-time buyers and $6,500 credit for move-up buyers, which are still in effect, and the super-low mortgage interest rates we’ve seen recently. Buyers know a good deal when they see one.
Sales are booming this winter throughout the Chicago area, according to monthly data compiled by the Illinois Association of Realtors. In December 2009, home sales were up 33% in our nine-county metro region, with 5,752 homes sold compared to just 4,320 in December 2008.
“In 2009, we saw demand primarily for lower-priced homes from first-time buyers in addition to short sales and sales of foreclosed homes,” said Mike Onorato, the association’s president. “There is opportunity now for the move-up buyer to take advantage of the tax credit that ends April 30 and lower mortgage interest rates, which many analysts expect to rise by mid-year.”
If you look at all of 2009, home sales have basically remained flat throughout the Chicago region. And in the city of Chicago alone, home sales fell 7.4%, to 19,401 sales in 2009 compared with 20,946 in 2008.
So there you have it. Overall in 2009, Chicago’s housing market wilted a good deal, with both sales and prices down 7 to 9%. Better times could be ahead, but with Illinois unemployment still quite high (11.1%), I would advise buyers to be selective and sellers to be realistic. We aren’t going back to 2005 anytime soon.
It’s hard enough to sell a condo in Chicago lately, but some sellers seem to be making it more painful than necessary. I visit dozens of Chicago condos (as well as houses) every month, and I’ve grown accustomed to seeing them though my buyers’ eyes… and sometimes it’s not a pretty picture. In fact, I see the same mistakes so often I sometimes wonder what the heck realtors are advising their sellers, because it sure doesn’t seem to be to price the place well and clean it up!
So, in the spirit of bringing a few more deals together, here’s a list of the Top 5 Mistakes to avoid when selling your Chicago condo:
1) It’s overpriced. This should be #1, 2, 3, 4 and 5! Nothing guarantees that hardly anyone will come see your condo, and no one will make an offer on it, like sticking an inflated price tag on it. I cannot emphasize this enough: Everyone has access to up-to-date market data these days, and it’s quite obvious to buyers when a property is priced too high. Many of them will not even bother wasting time on a place that seems unrealistically pricey; they will just keep going on to the next one. With so many similar condos on the market these days — often in the same building — your best bet is to price your home competitively to attract a buyer quickly.
2) It’s cluttered. Many Chicago condos are not exactly overflowing with space. They may have compact living/eating areas and maybe there isn’t quite enough closet space or storage for a growing family. But when it’s time to sell, you need to clear out all the excess clothes, toys, books, piles of paper, boxes and whatever else you have jammed into your closets or stacked atop counters. The home should basically look like you ripped a page out of a Pottery Barn catalog: clean, spare, inviting. If it’s stuffed to the brim, it distracts buyers from the actual space and suggests to them that they may not fit here, either.
3) It needs a paint job. This is one of the easiest, cheapest ways to freshen up your home. Dirty, scuffed walls — or even walls in eye-popping colors — should be given a coat of fresh paint in a neutral color. Restoration Hardware offers a great line of calm sage, cream, stone, wheat and other natural, neutral hues.
4) It smells weird. This happens more than you might think. Dogs and cats are generally the main culprits, but lingering food or smoky smells, as well as mildew or moldy odors are also major turn-offs. If you have a pet, please be sure to clean up carefully after him/her. Other odors should not be masked with a scented candle or incense, but simply dealt with at the source. Just clean it up.
5) The condo building has problems. If you know the roof is leaking or the back porches need to be replaced, do yourself a favor and just offer a credit up front. No buyer likes to find out about these surprises as they peruse the minutes from your last condo meeting. Even if there’s no special assessment yet, buyers can see one coming, and it’s best to just negotiate a reasonable credit rather than let them walk away.
The 2009 Chicago market data is out, and @properties has pushed past Coldwell Banker to become the #1 real estate brokerage in Chicago in terms of sales volume! This is an exciting moment for us, and I’m thrilled (and grateful) to be part of such a progressive, forward-thinking, tech-savvy company. It’s all the more remarkable when you consider that @properties is less than 10 years old (compared to Coldwell Banker, which is 104 years old)!
As you can see from the stats, @properties is now the leader in representing both buyers and sellers in Chicago. We also added an Evanston office in 2009 and are now rapidly expanding our services to the North Shore. So whether you are a prospective buyer or seller, please give me a call if you have any questions about our local market trends. I love talking real estate… and now I work for Chicago’s #1 real estate company!
2009 Market Performance
#1 in Market Share (City): 12.4%
#3 in Market Share (Northern Illinois Region): 4.4%
#1 Increase in Market Share (City): 28.0%
#1 Increase in Market Share (Northern Illinois Region): 18.8%
#2 Increase in Market Share (North Shore): 68.6%
#1 New Construction Market Share (City): 16.5%
#1 Buyer’s Representative (City): 12.0%
#1 Seller’s Representative (City): 12.9%
#1 Average Market Time (Northern Illinois Region): 147 Days
#1 Selling Price to Original Listing Price (N. Illinois Region): 93.8%
Source: MRED, LLC, 1/1/09-12/31/09. Based on top 10 companies per category. Market share figures are based on sales volume.
One of the first realtors I met in Chicago was a big guy who showed me a condo wearing denim overalls, and in the course of conversation confided that he was really a fireman who just did real estate on the side.
During the real estate boom of the past decade, this story was pretty common. Thousands of the approximately 17,000 licensed Chicago realtors had other day jobs and just practiced real estate once in a while. In fact, about half of Chicago’s realtors do only one (or none) real estate transactions a year.
But the real estate market has dramatically changed — and this year, Illinois law is catching up, tightening the requirements for becoming and staying a realtor. In order to help people buy and sell homes, real estate brokers must now have 120 hours of real estate education, nearly triple the 45 hours previously required. Managing brokers, the folks who run real estate offices, will need even more hours.
I think this is a good change (even though it means I’m going to have to take a bunch of new classes!) The more professional this business gets, the better. It means buyers will get much better representation and sellers will price their properties more precisely, leading to quicker sales at a fair market price for both sides. People who aren’t really committed to being realtors will leave the business, and those of us who are left will be well-prepared professionals ready to help consumers make one of the most important decisions of their financial lives.
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!
If you are planning to sell your home in 2010, the best time to start will probably be the moment you ring in the New Year! That only gives you three weeks to prepare, I know, but there are at least five great reasons to get your condo or house all spruced up and ready to hit the market in January.
1) The Home Buyers Tax Credit: Now it’s not just the first-time buyers who can benefit from the government’s free cash. Homeowners who are trading up (or down) to another home are also eligible for thousands of dollars. With first-timers standing to make $8,000 and move-up buyers in line for $6,500 apiece, that’s an awful lot of buyers who must sign a purchase contract by April 30, 2010, in order to qualify for the tax credit. That means that January, February and March will be bustling as buyers brave the snow to hunt for their future home. As a seller, you need to put your best foot forward with a polished, well-priced home that will capture their attention.
2) Incredibly Low Interest Rates: Borrowing is very cheap right now, with mortgage interest rates hovering at record lows. According to interest.com, the average rate for a 30-year, fixed-rate mortgage — the most popular way to finance a home — was just 5.01% in the latest weekly survey of major lenders. It’s a great time to lock in an interest rate, and savvy buyers will be taking advantage of this easy money while they can.
3) Home Prices Are Bottoming Out: For the last five months, home prices in Chicago have stopped sinking and actually started climbing. They’ve only gone up a percentage point or so each month, but the overall trend is unmistakable: Prices are rising. We seem to have hit bottom. For the long-term buyer, who plans to hold onto his/her property for years to come, this is a giant green light.
4) Home Sales Are Skyrocketing: The proof of the pudding is in the tasting, and thousands of buyers are already gobbling up Chicago real estate. Buyers surged into the market this fall — sales were up 28.5% throughout the city of Chicago in October — and now others who were sitting on the sidelines feel reassured. Rising sales help put a floor under prices, allowing the market to stabilize and attracting more buyers who realize that this potent mix of low prices, low interest rates and a fat government tax credit will not last long.
5) Unemployment Is Falling: Real estate is sensitive to changes in the job market, and this month we’ve seen some signs that better days are ahead. Nationally, the unemployment rate fell in November from 10.2% to 10%. The drop surprised analysts, leading many to surmise that the downturn had ended. The economy certainly seems to be back on the rails after a very tough year, and housing will only benefit as the job picture brightens.
SO IF YOU ARE THINKING ABOUT SELLING YOUR HOME NEXT YEAR, please call me now! It’s time to clear out the clutter, make any necessary repairs, analyze your neighborhood’s prices and sign the paperwork, so that your home is absolutely ready to hit the market in January.
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