Closing Chicago Real Estate

Well, hopefully as we enter year 3 of the real estate malaise no one is signing up for 1-3 year ARMS or some of the interest-only products that devastated many home-buyers. But I’m still seeing plenty of folks buying homes who shouldn’t be.

Here’s a sad example that I’ve been dealing with lately…

Clients purchase a modest home earlier this year…just barely. Meaning, they barely have adequate funds to bring to closing. Well, several months post-closing I get a call about some flooding that they’re experiencing in the home’s basement (they did do an inspection). Sadly upon review it seems like the property Sellers were fraudulent and that a claim under the Residential Real Property Disclosure Act seems likely. Yet enforcement of legal rights usually requires a little upfront investment….RETAINER!

Perhaps more importantly, if you don’t have $5,000-$10,000 in an emergency fund to deal with something like flooding/plumbing, etc. you likely can’t afford to own that home.

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Comments (3) Jan 14 2010

I have started to have more than a few clients who have worked with or are working with Redfin real estate agents. Redfin is the online real estate company that I think began in the Seattle market whose selling point is the refunding of 50% of a buyer’s agent’s commission back to the individual buyer. I’ve been reading about them in the general business media for some time now but I believe they’ve only been in the Chicago market for some 2ish years so I had not had direct dealings with them until this fall. Here’s what I’ve found both first-hand and sort of a report of what I’ve heard from my clientele:

Read the fine print on Redfin’s Agency Agreement. Although their marketing is that a buyer gets 50% of the agent’s typical 2.5% commission back the Agency Agreement’s that I’ve seen include a $5,500 minimum commission on Redfin’s part. So lets do the math…on a $250,000 purchase (isn’t the median Chicago sales price around $225,000 or so), 2.5% is $6,250. So Buyer’s “refund” on that purchase would be $750 and far from 50% of the buyer’s commission. Better than the $0 you’d get from most agents but just be aware that until you get a little over a $400,000 purchase price you aren’t getting a “50% refund.”

It’s a Team Approach. The feedback I’ve received on this part of the Redfin model has been overwhelmingly positive both for general customer service and by reducing overall sales pressure. On the customer service front simply more than one agent is involved so there are more people to help you look at properties so a buyer isn’t tied to just one persons schedule. Then once you’re ready to put in an offer you’re handed off to an individual who handles things more personally at the offer/negotiation/closing stage. On the lawyer side of things I thought the customer service was good. And the reviews I heard from clients was that with Redfin there was less “sales pressure” on the part of agents. I don’t know how their agents are compensated but since it is more of a team approach I’d guess it’s not purely on the sales commission like most agents.

Finally, I like the Forums feature that they have on their Website specific to the Chicago market. If nothing else, maybe you can use the threat of Redfin to negotiate your non-Redfin agent’s commission downward or get yourself a refund!

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Comments (3) Dec 30 2009

Ok, first the rant and then some instruction…

I’m bothered a tad when someone asks me to represent them at their real estate closing but particularly when I hear attorney colleagues use that as an expression of residential real estate representation. It diminishes the practice and if that’s all you are doing then you’re not representing your clients very well. I view my representation of people buying and selling residential real estate as a 4-part process:

1.  Initial contract review, attorney modification and inspection negotiation.
2.  Mortgage/title clearance monitoring.
3.  Closing.
4.  Deed recording & title insurance follow-up, post-closing escrow releases, and final client correspondence.

And I think I’m particularly annoyed by the expression because it de-emphasizes the importance of what an attorney is doing pre-closing and to ASSUME that a contract will close and everyone will live happily ever after is stupid! Here’s the recent war story, short and sweet…

A long-term client recently asked me to look at her son’s file regarding a problem getting his earnest money back after a failed real estate deal (he was the prospective buyer). And the lawyer he used seemed to have been writing the proper letters and the client appeared to not be at fault. He wanted to get out of the contract based on various legitimate inspection and mortgage contingency reasons.

Yet I saw 2 BIG things I didn’t like:

1.  Buyer’s attorney letters are never “accepted” by Seller’s attorney. Have an assistant follow-up on these after a day or two if you’re asking for a mortgage contingency extension or whatever. This file I was reviewing contained at least 5 extension requests but none are accepted by the Sellers attorney…that’s at a minimum a serious communication problem.

2.  You must keep proof of service/notice of your letters. This was the true shocker when reviewing this file. This law firm only kept its fax confirmation pages for two months. So now this client is considering options to get his earnest money back, including litigation, and yet he’s going to have a serious problem proving proof of proper notice. Send your letter, printout and staple your fax confirmation page to the letter, and file. Simple.

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Comments (0) Dec 24 2009

Just a quick follow-up on our recent post about the chances for the first time homebuyer tax credit extension. NYTimes reports that the extension was discussed in the President’s meeting with Senate Majority Leader Reid and Speaker Pelosi yesterday…

Extending and possibly expanding the popular home-buyers credit, which is due to expire after November, is high among options for further stimulating the economy and creating jobs, Congressional aides said, though a White House official said it was only briefly mentioned on Wednesday in an Oval Office meeting between President Obama, Speaker Nancy Pelosi of California and Senator Harry Reid of Nevada, the Senate majority leader.

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Comments (0) Oct 08 2009

And that’s just the average folks. Good overview piece on short sales recently from the Tribune describing the often frustrating process. Personally, the last few months I’ve been involved with 5 short sales, 1 of which has actually closed. I’d like to think my clients know what they’re getting into since I’ve told them what they’re getting into, but even for the well-informed person the waiting and unknowing and lack of communication becomes problematic after a while. Ideally a potential short sale buyer will have no time crunch to move and up front the buyer should be prepared to wait 12-16 weeks to hear something. If you’re not prepared to wait stay away from the short sale properties.

And look at that an informative quote from one of our favorite real estate bloggers, Eric Rojas, in the article:

“Most people really aren’t in a situation where they can deal with the uncertainty,” said Zhao’s real estate agent, Eric Rojas at Prudential Rubloff. “Even when you explain that it’s not accepted until the bank accepts it and you build these safeguards into the contract, people are dropping out, left and right. These sales would get done, but people just can’t wait.”

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Comments (2) Oct 01 2009

Communication likely is job one for the different players in any real estate transation from lender to lawyer to agent. But it’s particularly important with short sales as they drag on and on and on and on…

Case-in-point, we’ve been working with some buyers over the last several months who had entered into a contract regarding a transaction that they knew up front was a short sale and I surely counseled them up front that this deal may take several months to close or it may not close. Fast forward 2-3 months and clients are getting a bit nervous that the deal may not close prior to Uncle Sam’s November 30, 2009 bewitching hour and they start considering other properties.

Well, Buyer’s find another property, want to kill the ‘short sale’ deal, and put in an offer on the “new” property. We send letter over to Seller’s lawyer on the short sale to null/void the contract and suddenly are told that first mortgage has approved the short sale and are given written proof of said approval and they’re just waiting for approval by the second mortgage-holder (what was worse was that my office had followed-up within the last couple weeks and we were told specifically Seller was still negotiating). So we may have just been getting the run around.

But the moral of the story is that particularly on the Seller’s side, you need to communicate the status of the lender negotiations to the Buyer or the Buyer’s eyes may start to wander. A quick e-mail or fax every 3ish weeks doesn’t take too much time. And it might keep that Buyer interested and save a Seller the ramifications of foreclosure.

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Comments (1) Sep 24 2009

I was recently part of an interesting negotiation during the attorney review period of a residential real estate contract regarding a buyer’s potential repairs that came up on an inspection report and other possible buyer credits. As the attorney for the buyer primarily it was eye-opening that the Seller is this particular transaction was taking such a hardline amidst the worst real estate market in recent memory. The Seller was adament about the fact that the Buyer’s prorated real estate tax credit should be 100% of the previous year’s tax bill and Seller would do no repairs nor provide any credit despite probably $2,000-$3,000 of substantial repairs that were raised in the inspection report.

What’s the sweet spot in terms of $$ when negotiating fairly straight forward deals like the above?

Generally I think Seller should be willing to compromise up to the amount of his total monthly expenses that she pays each month for the property that she’s selling. In other words, add up mortgage liability, condo assessment, property taxes, utilities, insurance, ect. Say that total is $2,000. I’d suggest that Seller should be willing to deal up to that amount in order to get a deal closed with the current buyer. Probably even more in a soft market, but I think that’s a good, easy guide for finding the “sweet spot” needed to get a deal closed.

My reasoning is that even if there is a backup buyer ready to step in, by the time you play with the first buyer’s attorney review period for 10-14 days, kill the deal, then second buyer has 10-14 days in attorney review…a month is eaten up and closing is delayed approximately a month. Thus the one month’s expenses as a simple barometer. And this likely even leans optimistic for Seller.

Are you really ever certain that there’s another offer out there?

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Comments (1) Sep 23 2009

Some good, substantive real estate news and then some “fluff”…

Real estate auctions:  Top bid no guarantee of sale.  Real nice overview piece on the different types of real estate auctions that exist these days. In a soft market, I’ve definitely found that having at least some conversant knowledge about the auction options out there is important. In a tough selling market just signing up for the generic 6% listing agent commission might not be good enough.

Seven New Rules for the First-Time Home Buyer. Sort of a back to basics list of how to approach home buying post-bubble. I like the “Stretch the House” rule…your first house can be your last. Too much house is one of these things like obesity…it wears on you in so many ways beyond just the mortgage payment.

And the fluff…House next to Obama’s Kenwood mansion for sale. Here’s some additional coverage and the listing. I see my good buddies over at the Matt Garrison Group have the listing.

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Comments (0) Sep 18 2009

Saw what I would consider the first two instances of the “major media” covering the upcoming expiration of the first-time homebuyer tax credit set for November 30, 2009, here (NY Times) and here (AP). Found the AP’s headline disturbing…White House may extend homebuyer tax credit; don’t we have a legislative branch in these United States? But I digress…

Some interesting views from the not self-interested crowd in the Times’ piece. In favor of an extension…essentially arguing that we’re not yet out of the woods on the economy and the housing market. Against the extension…it’s $$ our government doesn’t have and all it does is redistribute money from renters to home buyers.

Me? I’d say I lean towards opposing an extension. Not sure home buying by people who can’t always afford one is something to be encouraged (wasn’t this some part of the current recession), I’d bet 75% of people getting the credit would have bought a home anyway, and aren’t there better ways for the Feds to use $15 billion (like an across the board tax cut or health care).

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Comments (4) Sep 16 2009

Editor’s Note: Thanks to Mike Williams for sitting down with us here at CCRE to discuss what’s happening in mortgage-land these days. Mike’s been a friend and professional colleague for several years now and I’ve worked with him on several residential real estate transactions and a recent post-divorce cashout refinance or two (not always easy when dealing with bickering former spouses). You can reach Mike @ 773.671.5626…for all your mortgage needs, ELB Mortgage Brokers, Inc.

CCRE:
Considering the many lender alternatives (credit unions, local community banks, large, multi-national banks, mortgage brokers) that borrowers have when seeking a mortgage, how/where should a person start?

Mike Williams:
The best place a person can start is by talking to a trusted professional. A lot of the information that is posted online is designed to drive business to a certain company or website. Rates posted online typically would be unavailable if the customer wanted to get that rate today. Loans right now are typically taking 45 days to close, and a lot of rates that are posted on the internet are for 15 day locks. These rates exist, but if you started your mortgage process today, you couldn’t lock that rate, which is why they’s deceptive.

CCRE:
Since you’re a mortgage broker, describe what you do when a new potential client contacts you seeking a mortgage?

Mike Williams:
The first question I want an answer to is ‘what do you want to accomplish?’ Rate is not always the overriding issue, and if someone has income documentation problems, or poor credit, or just needs money, those can be bigger issues than ‘what’s the rate?’ Also, I want to know what sort of urgency the customer has to getting something done. There is no point in talking about rates if someone is not motivated to get the process started.

CCRE:
During the so-called ‘boom years’ mortgage brokers were criticized for steering clients to loan products that benefited the broker at the expenseof the borrower, does this still happen and how can a borrower be confident she’s getting the best deal?

Mike Williams:
Without mortgage brokers if someone who wanted a mortgage wasn’t a plain vanilla, slam dunk deal, their deal probably would not have been funded at the local bank. Brokers helped fill that gap and assist those people in their quest for home ownership which was invaluable to our economy. There is no way to judge a deal as a ‘good’ or ‘bad’ deal. It’s very subjective. Is the deal ‘right’ for you? Does it help you accomplish what you are trying to get accomplished? Are the payments something you can live with? What is your plan for this loan two to three years from now? Those are the questions a customer needs to ask themselves. There is no blanket standard for what makes a good deal as everyone’s situation is unique.

CCRE:
What’s your most popular loan product these days?

Mike Williams:
Plain vanilla 30 year fixed, or FHA 30 year fixed are today’s most popular programs. The days of stated income loans and Option ARM mortgages are gone and the market has little, if any, tolerance for unwanted additional risk.

CCRE:
What options exist for borrowers who can’t afford a 20% down payment?

Mike Williams:
FHA lets a customer put down 3.5%. That 3.5% can be from an immediate family member if the customer doesn’t have it. The days of 100% financing are over for the time being.

CCRE:
What is the maximum loan-to-value available on ‘cash-out’ mortgage refinances today?

Mike Williams:
For FHA the max you can get on a cashout refinance is 85%. I have one lender that will go up to 90% on a cashout refinance, that’s about as much as anyone is doing nowadays. Banks also aren’t into giving people ‘walking around’ money in this market. They want to see that your situation is improved with the refinance either by going from an adjustable rate to a fixed rate, or that your interest rate gets lowered, and your monthly payments go down.

CCRE:
Say I’m thinking of purchasing a home in six months to a year, what steps should I take to be ready for mortgage process?

Mike Williams:
Call a mortgage broker now, and see what your credit score is today. In this market, your score is everything, if it’s low, put yourself on a plan to raise your score in six months to a year. Secondly, pay down your debts, and lastly, start saving your money for a downpayment. 100% financing and easy credit is gone. It’s getting to be like the old days where you have to ‘earn’ the right to own a home, which isn’t such a bad thing, but it’s not easy like it was just three years ago.

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Comments (1) Sep 03 2009