Saturday, December 1, 2012

Welcome to "We Want A Great Deal"

Yes, it's true. I write this blog to attract real estate clients. Using a professional to buy or sell property can really make a difference. Can you buy or sell real estate yourself using the internet? Yes, but with incomplete information you will be at a disadvantage. Please explore these blog topics to decide if an "analysis-first" approach makes sense to you. My value in helping people is measured in tens of thousands of dollars...much more than you could hope to save by working on your own!

What Is "We Want A Great Deal"?
You've thought it. Maybe you've done it, or know someone who has. Yes, it's possible to buy or sell a home yourself. Like the Geico insurance commercial, "it's so easy a caveman can do it". Right? Maybe. Keep in mind that since the time of cavemen and mastodons, life became more complicated with attorneys, dual agents, mortgages, home inspections, distressed properties, and more. Topics in this blog explore what it takes to find and obtain a Great Deal in the modern times we live in.

Instinct vs. Information
The couple on a BuyOwner commercial said "I had a number in my head and that's what we got".  Really? That may have been true in 2005. But finding a great home takes time that is precious, plus careful study. You can search online sites and still miss the best opportunity. The real action is in studying markets at the neighborhood level to find the different conditions that enable deals, or prevent deals from happening. That's where we can help with discovery of opportunities, of actual sales prices, and help you avoid leaving money on the table.

In today's economic climate there is an advantage in knowing if the seller needs a short sale, if they have enough equity to close without bringing cash to the closing, or if the seller's lender may take a long time to approve an offer.  IL Real Estate Specialists has the required experience needed to manage either the buy or sell side of short sale and foreclosure transactions.

Getting Started
While it sounds cliche, at IL Real Estate Specialists we perform custom research for each client to yield a competitive advantage. You may find that being well-informed alleviates the emotional roller coaster. Doesn't the time seem right for consumers to choose business consultants over salespersons for their real estate needs? After all, your housing investment or sale deserves a Great Deal of professional attention.

Feel free to request my "Buying Process" step-by-step flowchart, or a free Market Analysis. If your questions involve short sales or foreclosures, please ask for resources on those topics as well.

Saturday, June 2, 2012

Economic Conditions

You hear it often, but why is this a buyer's market? Is that likely to change in the near future? Although, the housing market is very much a local thing, several national indicators are useful for monitoring if turning points in business cycle drivers such as Non-Farm Employment, Consumer Confidence, and Interest Rates will affect your buying or selling plans.
The graph above shows the Employment level (in thousands of workers) for both the U.S. and Illinois during recessions and recoveries. U.S. employment has recovered to year 2000-01 levels but is still 4.5 million jobs shy of the 2007 peak. Illinois employment is a different story, with employment sagging to the equivalent of 1996 levels. The horizontal lines are a reference for comparing the disparity with previous peaks and troughs. National and state job growth rates have turned positive, but the pace of recovery is slower than is necessary to absorb new entrants to the job market. I think you can see that Illinois has quite a bit of ground to make up.
As a driver of home purchases, employment is important. 2010 was the year in which job losses abated, which is the first step toward recovery. But, analysts universally expect a drawn-out "U-shaped" recovery, not a "V-shaped" one. That translates to continued drag on worker confidence and weaker demand for housing. While this can mean less competition and lower home prices, buyers do tend to pursue the best quality for the money - and there still can be a limited supply of what buyers consider acceptable.  One caution is that certain neighborhoods or communities can still be HOT.  My role is to analyze enough data to help you find the best value that fits your needs.
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The Conference Board's Consumer Confidence Index is shown above, after applying a data transformation that, in my experience reveals turning points. Confidence on conditions today still lags Expectations of conditions 6 months forward, yielding a "confidence gap" whenever the line falls below the '0' axis. This gap implies that households will remain hesitant to make large purchases compared to the exuberant 2005-08 period, even though the media is claiming an improvement in confidence. Buyers with a stable outlook or strong personal finances may have different goals than first-time buyers, or sellers who are in a "short sale" situation.

Note that overall confidence takes a long time to rebuild (2004-2008) compared to the sudden collapses in 2001 and 2008. What national averages do not show is that your personal outlook or area of employment could be stronger than this index! If so, you have less competition for homes right now! One advantage of having a Realtor represent you is that your personal confidence or enthusiasm would not be revealed in a way that can compromise your negotiating position. 
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Buying Power (Rates)
The interest rate chart shows two things.  The 30-year Fixed Mortgage Rate has been dropping, and is still favorable to the historical average.  The adjustable mortgage rate index (LIBOR) is even lower - but potentially more volatile.  It is wise to be wary of loan products that contain an adjustable component, since history shows large swings that can cause a monthly payment to explode.  Loans that were fully or partially tied to an adjustable rate during the housing boom became unaffordable for some homebuyers (see the rise from 2005-2008).  However, it may have been possible for some ARM borrowers to "ride the rate down" from 2000 to 2004, and from 2007 to the present. Every borrower's situation is different, so keeping an eye on interest rate movements is very important for personal budgeting of cash flows.  I strongly recommend working with a mortgage advisor who will keep you informed, as new loan disclosure rules are affecting how and when interest rates can be "locked in", and what your buying power is.
It's safe to say that economic indicators have yet to fully recover.  Once a jobs recovery has more steam, overall demand for homes will invariably rebound. Please remember that once economic recovery takes hold, interest rates are likely to rise and shoppers then lose buying power. To assist you with planning, I would be happy to estimate your purchasing power at various interest rates, confidentially of course.
Please feel free to contact me with any questions you may have about buying or selling property.
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Saturday, November 12, 2011

The Power Of Referrals

The power of referrals = from Listing to Contract in just 26 days! Instead of taking the listing for a friend's home in DuPage County (outside my Chicago + northern suburbs market area), I referred the business away. Here's how this approach could help you as well.

Step 1 was to counsel my friends about the process. Next, I researched Multiple Listing Service (MLS) data to find agents who were most successful within the client's suburb and the unique property type they owned. The end result was a custom report that included details about each property sold in the last year. The client interviewed three recommended agents and selected the winner based on the most sensible marketing plan and a comfort level they would work well together. This approach allowed us to eliminate agents who specialized in foreclosures, builder's agents, out-of-area agents, McMansions and so on.

By putting the client first, the sellers were thrilled with the results, and I was still able to able them with the initial market assessment that revealed "the story" and transaction trends in their community. It also removed the guesswork of "does this agent understand how to sell my property?"

The other benefit of a referral is that I could address the client's questions and explain the process up front, apart from them choosing an agent. Once we were past those steps, hiring the designated Listing Agent became less stressful, and they could focus on marketing the property right away.

Referrals are commonplace between real estate offices and I enjoy them.  Approximately 15% to 20% of my business involves a referral to an agent, or from an agent. I do not see it as a hand-off to someone else, but rather an opportunity to contribute my strengths in market analysis, strategy, and counseling early on when someone is first thinking about buying or selling. Please give me a call to see what your options are, before choosing an agent.

Friday, October 28, 2011

Perspective On Value Creation

Why should real estate investors, buyers, or sellers think about “creating value” or “destroying value”? Because every asset has a value that is unique to its location, condition, the care with which it is marketed or purchased, the audience to which it appeals, and how quickly someone needs to act. Also, some assets are not priced right. Therefore, value needs to be discovered and claimed (if you are a buyer) and defended (if you are a seller).

Real estate used to be a stable investment that generally increased in value over time. And, people tended to stay in homes for longer periods of time before moving. However, housing cycles have been exaggerated within the last 10 years. Exuberance and overbuilding (the hope of making money fast) shifted abruptly to a slow market with excess supply and diminished access to credit (falling prices). There is also less uniformity in prices today due to financial distress, misinformation, and quality gaps in properties themselves. There are still market opportunities to be found, but it comes down to your perspective when defining what a Great Deal means to you.

You Are Not Alone
This slow market has caused Realtors® to do their own soul-searching. The best Realtors® are ones who are responding with a commitment to assess each client’s needs. I think you can see why this would be a good time to avoid salespersons who are in a hurry to make up for lower selling prices by doing more volume.

Value Disparity
I will argue that value in today’s market is uncertain. Why? Because parties on one or both sides of a transaction are not analyzing sales data with much rigor. Or, one party may have a great sense of urgency to buy or sell, while the other party may not. Or, properties can vary widely in condition and features. There is also a human element to finding a Great Deal: finding the right buyer or seller, at the right time. If all you are doing is looking at property listings on websites, or visiting open houses, real opportunities can be missed…because value is also a function of the people involved (buying power, motivations, etc.).

The recession and mortgage crisis brought down housing prices by as much as 10% to 30%, depending on the city. However, those are just averages. Specific neighborhoods can behave differently. Fortunately, individuals do still have some control over how they approach home ownership or home buying. My goal is to help you think this through.

Step 1 is to assess your comfort level. Homebuyers can create value by seeing potential in an area that will recover, or by upgrading a distressed property the old fashioned way – with “sweat equity”. Generally, people who pursue short sales or foreclosures can afford to wait months for bank approval of their offer, AND can afford to repair a property that may not be move-in ready. Those people are different from people who want a good deal but need something that does not require major repairs. Which type of buyer are you, honestly? I find that people answer this question after they start looking at homes and complete information with a buyer's agent.

Avoiding temptation to buy on impulse is also important. Some areas may not be coming back soon, or some property types may be obsolete when it’s time to resell. Engage a Realtor® who will thoroughly analyze neighborhoods and other factors so that you are well-informed, using actual sales data. Using just a handful of “comps” or online websites is no longer good enough in this market when distressed properties are mixed in with move-in-ready properties. Sometimes a picture (or lack of one) can hide a 1,000 defects.

Finding a motivated seller is another way to create value that may not be apparent from the Listing Price alone. Real estate agents have access to resources that can help with this research. Most importantly, finding a motivated seller also requires assessing if that seller has enough equity (or funds) to close the transaction.

How can waiting destroy value? Once interest rates begin rising due to inflation fears or a recovering job market, buyers lose real buying power. The mortgage a buyer qualifies for at 5.00% or 4.75% is significantly greater than if mortgage rates rise to 5.50% or 6.00%. Suddenly the dream home becomes less attainable. Also, with so many potential homebuyers on the sidelines, rents are rising, tilting the affordability index in the favor of homebuyers. Rising property taxes and rising assessments can also erode buying power. In other words, waiting can cost buyers money AND limit choices.

Lack of representation can destroy value. In Illinois, buyers have the right to use a licensed Realtor® to represent their interests and negotiate on their behalf (known as a Designated Agent). The term “dual agency” applies when a listing agent sells a property to buyers who waive their right to representation. In that case, negotiated value is compromised because the buyers will undoubtedly be less informed than the seller. Plus, the listing agent will often retain the full broker commission that would have been earned by a buyer’s designated agent – that one person who can often save the buyer tens of thousands of dollars.

The best way to unlock value is to entrust your property search to an agent who can analyze the available data, learn as much as possible about different sellers, will share that knowledge, and who can help avoid conflicts that may destroy value.

Fortunately, sellers do have some power to defend and preserve their property value, rather than surrender to casual low-ball offers amid the media’s constant reports of falling prices.

The Value of Good Data
Nothing compromises value more than not taking the time to understand the available data. An experienced agent will research your neighborhood thoroughly, separating the quality properties from foreclosures, short sales, and unimproved homes. Lowball offers are hard to defend against if agents and appraisers are just averaging everything that’s for sale on the block. A good listing agent should also be proactive in preparing a skilled, rational defense which can also help support an appraisal that’s in line with the offer you negotiate.

Crafting a strategy supported by data is the action step to preserve or create value. Sales data, combined with market knowledge can determine if you are best served by an agent who is an internet marketing expert, by someone who bakes pies before showings, by an agent who collects tangible evidence to defend your price, by an agent who specializes in certain types of property, by an agent who is buddies with other agent in the area, and so on. Know that some agents will attend every showing in person, while others will put a lockbox on your front door and monitor activity remotely. In other words, what you have to sell and who you are should help determine what kind of agent you want to work with.

Maximizing exposure in multiple channels adds value. Once your property is listed in the MLS, it may appear on numerous real estate websites that pull MLS data. That also means there can be a lot of clutter and stale listings for buyers to wade through. An agent experienced in internet marketing will be more effective in actively placing your listing on selected or targeted sites. Besides marketing, the task is to counteract some well-known websites that attempt to estimate property values. They set buyer expectations using less than perfect data.

Crabs In A Barrel
Don’t be pulled down by the quicksand of a slow market and falling prices where everyone is supposed to share the misery. You’ve read how the backlog inventory of foreclosed properties is dragging down prices on everything. That’s true, but crabs in a barrel behave this way, pulling back any crabs who try to climb out of the barrel. Take comfort in knowing that not every buyer wants to pick their home from a barrel of look-alikes, or from the bottom of a barrel for that matter. A friend from England recently visited Chicago and decided to try lobster for the first time. When making his choice from the tank, he saw the lobsters climbing over each other and told the waiter, “Bring me the winner”. That’s the buyer you want!

Trading Up
Falling prices may help you trade up. If a $250,000 condo has lost 10% of its value ($25,000), then a $500,000 single family home may have lost 10% of its value ($50,000). Value can be created because the mortgage to purchase the single family home would be $25,000 less under the falling-prices scenario. The sticking points in today’s market tend to be lack of consumer confidence and the difficulty for all buyers to secure a mortgage. Of course, it’s important to understand closing costs and potential taxes before assuming it’s possible to trade up dollar-for-dollar, but trading up can be more expedient than waiting for all property values to recover.

Watching Your Assessed Value
Property taxes are supposed to be based on a 3-year rolling average.  However the process is imperfect. You can add value to your home by ensuring your taxes are not higher than your competition when it's time to sell.  High property taxes can be a barrier to buyers when they apply for a loan. A Realtor® or Appraiser can help you with the procedures to submit a protest to your county Assessor's office.

You Have Help
Value creation begins when you find an agent who will bring experience and resources to work for you.

Wednesday, September 7, 2011

Service Area

I work with people at every stage of homebuying: answering questions about the process, referring clients to mortgage advisors for the pre-approval step, setting up custom online searches, and analysis that supports negotiation to the client's advantage.  For customers outside Chicago and northern suburbs, I can provide a referral service that identifies the most effective agents who specialize in a suburb or property type.

Frequently, people will ask "How is business?", or "Has business picked up?".  Well, residential buyers were hibernating from 2008-2009 which caused market times to increase. At that time, credit markets were also disrupted. First-time buyer tax credits helped boost the market in 2010, but those credits have expired. Conditions are such that I try to understand each client's goals, and to formulate the best strategy that saves time and money.

Often, buyers want to begin their search with foreclosures or short sales to get a great deal. Some buyers are put off by the poor condition of distessed homes and change their search to move-in ready properties. Some clients cannot wait months for the lender(s) to approve a short sale.  That is part of the process of working with a Realtor - to explore what best fits your needs - and to adapt as your search changes.

A recent trend I see is investors, with repair crews "on retainer", snapping up distressed properties that need work. This trend is making it hard for individuals to find a good deal in the sub-$150K bracket.  Since every community or neighborhood has its own market dynamics, I can help you create a winning competitive strategy through a focus on preparedness.

A list of recent clients shows my background, and may remind you of someone who would benefit from my services. Referrals are greatly appreciated.
  • Northbrook office condo with medical special-use permit.
  • Chicago industrial space for a designer-fabricator of custom metalwork.
  • First time buyers in Niles, Grayslake, Wauconda, West Dundee, Chicago, etc.
  • Three-flat owner/investor in Chicago's historic Ukrainian Village.
  • Sale and purchase of condos in Andersonville and Rogers Park.
  • Downtown condo purchase with lake and skyline views.
  • Suburban professionals to a spacious 2BR Loop condo near Metra. 
  • Immaculate in-town Loop condo for a suburban professional.
  •  Business relocation from Chicago to new construction.
  • First-time homebuyers in the South Loop and West Loop.
  • Family relocation from north suburbs to Tennessee.
  • Listing for a Lake County home on 100' of lake frontage.
  • Referral of clients to top performing agents in suburbs outside my area.
Do you know of anyone looking to buy, sell, or lease any type of property? I would be happy to work directly with them. Or, if the client will be better served, I can analyze suburban MLS data to recommend trusted specialists in their area.

Sunday, May 1, 2011

Change In Home Prices

The media often quotes the Standard & Poor's Case-Shiller Home Price Index when reporting on home price changes.  Below is a time series graph to put the Chicago metro in perspective with the Composite Index of 20 major cities, as well as Detroit (eroding) and Minneapolis (moderate change up and down). 
Case Shiller Home Price Index
In numeric terms, the Chicago housing price index increased from 100.0 (January 2000) to 168.6 in September 2006. Subsequent market corrections through May 2012 leave Chicago with an index value of 108.6 (parity with February 2001).  As you can see, the timing of a purchase will make a difference in one's equity position today, as will the rate at which a mortgage was paid down.

Much greater volatility occurred in southeastern and southwestern states that experienced frothy overbuilding and major corrections (e.g. Las Vegas). As a result, the national composite index exhibits a wider swing high and low than the Chicago market.

Please note that the trend for your own home value can differ from the general view captured by the Case-Shiller Index, depending on property type, neighborhood factors, and the number of distressed properties for sale. It's a good idea to contact a licensed Realtor and/or a licensed real estate appraiser when you need to establish a specific value for your own home, or when contemplating a sale, purchase, or refinancing.  Call me and I'll explain how "doing the math" has been a helpful negotiating aid with my clients (buyers AND sellers).
Note: The Resource Links section my blog will direct you to the Standard Poor's Case-Shiller Index source data.

Sunday, January 2, 2011

Outlook for 2011

There is a Market
As I manage listings and work with prospective buyers, I am seeing contracts and closings take hold. Some are rational and some appear to be irrational. At least this is a contrast to 2008-09 when buyers remained on the sidelines or were delayed by the changes in credit standards. One can still find lenders who are making loans, and interest rates are still very favorable (for now) - so this is a good time to speak with a mortgage advisor about your buying power.  Rising interest rates can erode buying power more than people realize.
There is a Fog, a Hangover
Foreclosures that are being purchased with cash are closing in 30 days or less. Short sales, a different animal, continue to be a frustration since they tempt buyers with "too good to be true" list prices that attract multiple offers that may or not be approved by the lender - and these lenders can take weeks or months to make a decision. Keep in mind, it's important to analyze price trends that are not distorted by the effect of distressed properties. It's also important to know whether a neighborhood (or condo building) sales history looks normal or toxic, since this can affect market value.
There is a Remedy
Working with a Realtor is more important now than ever. And you'll want to work with a Realtor who will ANALYZE the market properly to make the most sense of confusing data. Find someone who wants you to be well-informed. I'll also mention that Realtors are licensed agents who agree to practice according to the National Association of Realtors Code of Ethics.
The Buyer Has an Advantage Now
One casualty of the softer market has been "broker tours". Broker tours are when real estate agents visit each others' properties to provide feedback or preview homes for their clients. Many agents have lost their motivation to go on tour if they do not have a buyer client to scout for.

Less traffic from agents and clients affects prices, so the advantage to buyers is clear IF you make the time to get out and look with a pre-qualification letter in hand. Sellers should respond by selecting an agent who can position their property in front of buyers directly, through various internet techniques.

Meeting of the Minds
The $8,000 federal tax credit program expired on June 30, 2010. But some helpful benefits may carry forward. Buyer traffic increased, and offers were written. Because sellers were not going to adjust prices unless they had real offers to evaluate, I think buyers and sellers started to come closer together on price in 2010. 

2010 and 2011 is the time for buyers to submit reasonable offers for quality properties. We will see some sellers accept a lower price, while some sellers may decide to wait for distressed properties to clear the market and for prices to increase. At some point, there could even be a scarcity of quality properties (based on condition, location, features) that would help prices rebound somewhat.
The one exception to the buyer's market rule is that low priced properties are once again being acquired by investors or developers, sometimes at list price. An investor with access to remodeling crews may pay a bit more to win an "as-is" property, knowing it can be remodeled and flipped within a few months. An individual buyer can compete for a property by having a lender's pre-qualification letter in hand, having more than 5% down payment, and working with a Realtor to establish a sensible price range for the search.  Looking for the best quality you can afford is still a valid strategy!  But timing and persistence is becoming imporant again.

What Do YOU Think?
I'd like to hear your thoughts and observations. Let's talk soon about how the market looks in your specific situation...a warm January / February can restart the housing market sooner than expected!