The people of Libertyville have spoken!

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Hello all! If you're reading this, you must have some tie to me and/or Libertyville, and I wanted to fill you in on the progress of the proposed development at 901 Butterfield Rd. Libertyville, IL 60048. As a resident of Libertyville, I chose to be involved in this as much as I could. Below is a recap of what’s being proposed, some visuals, and my views on the entire thing. Just some facts about the proposed development. The property is located south of Winchester Rd. and Lake Ave. and it’s west of Butterfield Rd. Butterfield elementary school is directly across the street (Butterfield rd.) from the property. The proposed development is going to be 148 homes on 15.2 acres of land, however, including the streets, parks, retention pond, etc. the property being purchased for this development is a total of 40 acres. This puts each home on 2000-2200 square foot lots. There’s 2 dog-legs (if you will) in the center of the development that will be an alley-type set up. The total cost will be near $100M (ish) to purchase/build. The homes were originally projected to sell for $400k-$600k, but now they’re anticipating selling the homes for $600-$800k. See the pics below for the floor plans and birds-eye-view.

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The public hearing on 1/9/17 had an outpouring of people. At least 200 people there, but it may have been closer to 300 people. We heard from about 30-40 people expressing their point of view. Not one person who spoke was in favor of the development. The developers had chances to speak and answer questions, but they were not well received.

Here is a link to the agenda: http://www.libertyville.com/ArchiveCenter/ViewFile/Item/1504

The minutes haven’t been posted yet

Peoples’ main concerns seemed to fall under, but are not limited to, the following reasons:

  • Increased traffic congestion and back up at major nearby intersections which already experience a significant level of traffic; furthermore, increased commute times and more cut through traffic in nearby neighborhoods.
  • Increased school population
  • Safety for children—proximity to the road and the inevitability of crossing the road if they choose to leave the subdivision
  • The high density of homes not matching Libertyville’s character/structure and lot size requirement
  • Pollution of Butler Lake – the retention ponds feed into St. Mary Lake, which feeds into Bull Creek, which feeds into Butler Lake
  • De-annexation of the property

There were definitely more than these reasons stated. Some disliked the plans to have 6 foot tall white vinyl fences around every single yard, some people mentioned that the development may not age well, and that should the expensive homes be too burdensome with the combination of property taxes and an HOA fee, it could turn into a rental community and not be as well taken care of; another concern was that there would be costs associated with handling the increased population in schools and the increased pollution into Butler Lake, therefore causing reason for an increase in property taxes; others felt that surrounding home values in the area could drop due to proximity to the unwanted development.

The developers had these statistics and solutions to share:

  • In regards to Traffic
    • Install (and pay for) a traffic light to be installed at Lake Ave and Butterfield.
      • This would “help traffic flow” in and out of the golf course and Lake St.
      • They looked into having a traffic light installed at the entrance of the subdivision, but didn’t qualify for the signal warrant
      • They also checked into having the entrance of the subdivision be through the golf course – to no avail, the golf course, although owned by the same owner as the 40 acre lot in question, is leased. The owner nor the lessor would agree to pursuing that option
    • They also will be required to limit left turns out of the subdivision entrance during rush hours
    • They will not allow left turns into Ridgewood Ln. either in an attempt to avoid cut through traffic
  • In regards to school population
    • They claimed through Kane McKenna studies, that school population would increase 106 students k-12th
    • 68 from k-5th
    • 38 from Jr High
  • In regards to the safety, they proposed building a path (not on the drawing) for kids to walk from the north most park to the entrance of the golf course
    • This would be the same location the traffic light would be installed allowing kids to walk across Butterfield to school
  • In regards to character and structure
    • They insisted that the town needs diversity and different types of housing
  • In regards to pollution
    • They claimed that the retention ponds were sufficient and that the sewage lines were tested and could withstand the increased volume.
    • They also mentioned, through answering questions, that the HOA for the development would be responsible for checking and testing the ongoing water conditions of the run off.
  • As far as money in concerned, they predicted, again through Kane McKenna studies, the following revenue over the next 20 years
    • $3.9M to Butterfield School District and Highland Jr. High
    • $6.7M to Libertyville Township High School
    • $4.4M to the Village of Libertyville

This public hearing was in front of the Planning Commission, Zoning Board of Appeals, and their staff. They are a recommending bodies, not approving bodies; they make recommendations to the Board of Trustees, and the Board of Trustees approves or denies.

Here are my thoughts on the whole thing.

Let me start by stating I’m not for this plan in its current form. However, there is a larger concern than any of the above issues mentioned, which is a possible annexation of the land. It was confirmed at the hearing that the property could be annexed by Mundelein since they are the neighboring town and this property is on the border. The archdiocese owns the property, along with Pine Meadow Golf Course (the neighboring land north); Pine Meadow Golf Course is technically part of Mundelein currently – you can look at some of the images below. A member of the Planning Commission mentioned that Libertyville always considers annexation for property along the borders. It was also made very clear that the developers would pursue that option should Libertyville deny their proposition. This is exactly what happened with Greg’s Landing and the Cuneo property; not only are there large property tax revenues going to Vernon Hills (not Libertyville) from the Greg’s Landing development, but now the land sports a Marianos, Lowes, Staples, Starbucks, Jersey Mike’s, and others.

Libertyville is in between a rock and a hard place

Libertyville is, therefore, in between a rock and a hard place. Either they work with this developer, or risk it falling into someone else’s hands and end up with something that could be worse. It was also confirmed by Dr. Schumacher, District 70’s Superintendent that it is possible for Mundelein to annex, build a development, and residents’ children still attend Libertyville schools (at least Butterfield). It would seem that flat-out denial of this development may lead to the same issues to which everyone is opposed.

I don’t want to discount the voice of the people, because it DOES matter, however, I feel as if the Planning Commission/Zoning Board of Appeals and the Board of Trustees aren’t as swayed by the emotional and personal reasons i.e. “Not in my back yard” and “I don’t like it” type of reasons. Furthermore, I don’t know if the environmental reasons of Butler Lake, cutting down trees (they’re already gone) and preserving the land are important either; it wouldn’t be the first time a decision has been made for financial interests at the expense of the environment and despite the voice of the people. Also, sometimes these type of reasons for not wanting a development can be remedied—you don’t like the white vinyl fences? Okay, no fences… now what?

Instead, I feel that the most persuasive arguments are going to be the ones that prove impracticality and lack of reasoning to grant a variance. The biggest impracticality would be the following traffic pattern. Below is a map showing the route that parents would need to take during rush hours to get their kids to school. 3.2 Miles and 8 minutes without any traffic… However, with the traffic on 176 going east, especially with the High School on that route as well, this trip will definitely take at least 15 minutes – all of this, to get to a school that’s across the street. This inconvenient traffic pattern creates incentive to disobey the traffic rules and encourages walking/riding to school, hence increasing safety risk.

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There are also two items that go against existing rules and zoning, and the board would have to approve the changes and provide a variance in order for this development to work.

One is changing the maps. There are 7 acres that are designated commercial on the planning map and the zoning map alike. Both maps would need to be changed to R6 (a form of residential) in order for the development to be completed.

The second is the lot size, which has to do with the zoning designation of R6. R1-R6 are residential zoning designations. R1 is the largest restriction requiring 2 acres per house on the land. R6 is the least restrictive requiring 7500 sqft per house on the land. The proposed developments largest lot in the current plan is 2200 sqft, and they are asking Libertyville to provide a variance (an exception) to this rule. In my opinion, this is simply too far of a stretch or bending of this rule. For clarification, 7500 sqft is about .17 acres.

As a recap, I’m not sure what the answer is. I’m a bit torn, because I believe having Libertyville stay in control of this land is important – whether it’s to be developed or not. However, I don’t agree with stretching the rule of lot size per home so far to 2000 sqft and setting a precedent as such; in addition, the traffic patterns simply don’t make sense with the current plan; this will pose an issue no matter who is in control of the approval process because the traffic pattern requirements and warrants for traffic signals are coming from the Lake County Department of Transportation. But I am still wary of what may happen in the near future should Libertyville flat-out deny the development.

Stay tuned for more! The Planning Commission and Zoning Board of Appeals decided on a continuance and the next hearing is scheduled for February 27th, 2017.

Below are some more pictures providing further explanation.

Thank you for reading! Comments and Questions Welcomed.

 

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Your Price is Not a Good Reason for.... Your Price

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There aren't as many reasons to use a local real estate agent in 2016 as there were in 1990. One of the biggest reasons advertised is negotiation. Despite the other garbage reasons most commonly mentioned (like in This Article, even their explanation for "negotiation" doesn't make a strong case) I believe it to be true that negotiation can be one of the biggest advantages of using an agent, which is why it's so frustrating when an agent doesn't seem to know how to negotiate. Being a real estate agent does not magically make you a good negotiator. On the other side of the coin, you don't have to be an expert negotiator to recognize poor negotiation skills. Forgive my sarcastic humor on this one... transforming into Lewis Black while I write helps me get through it. I hope you'll be shaking your head, face-palming, and maybe even shaking your fist with me along the way. I'd like to share with you some of the all too common arguments that I've heard during negotiations, why these arguments are some of the most thoughtless and poor attempts at negotiation, and why it upsets me so much. Then, let's give the perpetrators a small benefit of the doubt. The best way to illustrate this is through an example--stick with me here.

Example. A buyer would like to put in an offer of $200,000 on a home that's listed at $250,000, a difference of $50,000. Without any other information, the only observation anyone can make is that the offer is a lot lower than the list price. Of course, you and I would not put in an offer arbitrarily, we're better than that. Even if I suggested putting in an offer at that price, my buyer would want to know why. Of course they would! They should want as much information as possible prior to deciding on the terms that go into their offer. What is incredibly frustrating to me in a negotiation is when the other agent attempts to use these 2 anchor points, offer price and list price, with no other info, as reason for my buyer to pay more. They act as if these 2 variables are the only pieces of information attainable to make a thoughtful deduction. They will call me and inform me that my buyer's offer is $50,000 below their list price and the sellers were offended, not happy, etc. I already knew this going in. Your sellers were offended? What about my feelings?

It's insulting to me (us) because they act as if this information is news to my buyer and me; as if we weren't aware of what we were doing. They want me to respond with something like, "Oh, oh my gosh! I'm so sorry, I thought you were listed at $210,000, not $250,000. I will call my buyers and have them offer something much closer to your list price, because we wouldn't want to offend you, sorry again." What I'd like to say is, "umm... no, dimwit. When you opened your mouth to give me information I already knew, and tried to convince us to pay more because of it, how did you think that conversation would go? We are offering you 50k less because that's what the house is worth. It wouldn't be so far away from your precious list price if you had done any market research and/or knew how to properly assess a home’s value. Furthermore, if you had the wherewithal to have an honest conversation with your seller before listing their most expensive asset, you might have softened the blow they apparently received when reading our offer.” Agents that hold their list price so dear don't deserve any compensation, let alone to be an agent. Can we talk about relevant market analysis here? Your price itself doesn't justify your price itself which doesn't justify your price itself... …yes, it’s like a never-ending circle of cotton-headed-ninny-muggin-ness.

Even though it's perfectly okay to say these things to a hypothetical agent in my own blog post, it would be very rude and unprofessional to do it in real life. Not to mention, it would be pretty unproductive; I doubt they would want to accept my offer after a response like that. Despite not being able to truly express my deepest feelings, I don't let this folly slide under the rug, oh no. Usually when an agent is delicately trying to break the "news" that our offer is a lot lower than their list price, I usually say something like "good thing it wasn't listed any higher, huh?" or "yeah, my buyers were offended that your list price was a lot higher than their budget"... I usually get a chuckle, and then we can move on to discussing how their anchor point doesn't matter and why their home isn't worth what they're asking, cordially of course. Usually to no avail, because SURPRISE!!! These agents are also stubborn. ;)

Buyers/sellers are not going to feel good moving to your price point simply because you need it.

***Side note... this is a sale. A business transaction. Stop getting offended about offers that are too low. Just decline, or counter, or accept... those are your options. The 'get offended and decline' option isn't a choice but, spoiler alert! It is the same as the 'decline' option. Read my article posted about the market HERE. The market is fair, so if you're getting multiple "low-ball" offers, those offers are probably closer to fair price than your list price. If you're a buyer low-balling people and you keep losing out on the home, then you're too low... homes are worth more than what you think. Correct yourselves (and maybe your potentially terrible agent too)... wow--deep breath...

Agents don't always use a list price comparison. Other examples of terrible reasoning are "the sellers will have to bring money to closing" and "they have more money invested in the home." Sounds like a personal problem to me. Buyers/sellers are not going to feel good moving to your price point simply because you need it, that's bad negotiation.

This is a 2-fold annoyance for me. The first, is the caddy insult described above; the second, is that someone hired this person to negotiate for them instead of me. I hope that this infuriates you just as much as it does me, especially if you are the client—you might not even know that the agent you hired, paying them a least 5% of the sales price, is not properly negotiating. Now, although these are horrible justifications for price, it doesn't mean that they are untrue. I have had several conversations with agents that are much less insulting, because the other agent is simply informing me of the situation. They are not using their anchor point to play a pity card of persuasion, but rather an explanation of their position. There ARE times when the sellers need a certain price because they will have to either bring money to closing or because they want to make all their invested money back on the sale. Nonetheless, this is almost an admission of guilt to over-pricing a home, but it results in a much more cordial and realistic conversation between agents and their respective clients. The deal may not get done, which isn't great for anyone, but my blood pressure is much lower, and there's no burning bridge.

Something worth pointing out—which... now that I'm writing it out, might be a 3rd fold of frustration for me—Is that we, especially agents, have much more information than the 2 anchor points of offer price and list price. Why aren't they using it!? Many companies have several departments that all work together to get a product out to the public with the goal of maximizing profits. Pricing, marketing, cost structures, supply chain, R&D, etc. All these things have been carefully researched, planned out, forecasted, etc. And... Several employees and salaries are required to do so. In real estate, the market research, pricing, R&D, etc. has already been done for us! How much is my house worth? How long will it take to sell? These questions can be answered by looking at what ALREADY happened at the neighbors' houses. If you are not basing your list prices and offer prices on the comparable properties in the neighborhood, I’m not sure what you’re using, but the research has been done and you need not discount it—or else you may be in for a rude awakening. If you missed the link in the side note, click Here.

If you are not basing your pricing on comparable properties in the neighborhood […] you may be in for a rude awakening.

I mentioned that we would give these terrible negotiators the benefit of the doubt. The only thing potentially saving the reputation of these agents that think list price matters is their fiduciary duty to represent their client. A fiduciary duty legally obligates an agent to put their clients' interests ahead of their own. Sometimes, as agents, we may disagree with our clients' positions, but need to carry out their requests anyway. Despite this duty (haha... duty), carrying out their stance without anything to back them up is either laziness or stupidity. “My clients need you to pay more" is a foolish tactic. By forgiving them for this blunder is also accepting that they are an order-taking robot. It’s a catch-22 so this really isn't a benefit of the doubt; because they are either someone who lacks enough sense to come up with some ammo to back up a price that they themselves have put their name on, or they are instead diminished to an order-taking messenger. To these agents, I say... pick your poison: stupid or robot? Or both if you want.

Thank you for letting me share my frustrations up to this point. Instead of leaving you frustrated and angry that a lot of agents suck, I'd like to encourage you with how I get behind my clients during a negotiation. It all comes down to price. At every point of the process, whether it is listing, writing an offer, or negotiating, all variables and needs of the client need to be assessed to determine what kind of price is fair and possible. Finding out what has recently sold is the biggest factor. Sometimes this can be difficult because most homes are different.

Two general rules of thumb and safety nets to stand by are:

  1. Trust the Law of Averages
  2. Listen to the Market

What does this mean? Well, I don't know if I can put it all into words, but to give you an abridged version, here goes. As I mentioned above, we need to trust the R&D that the market has already done for us. Therefore, we need to look at comparable properties. Obtaining those can be tricky sometimes, but I digress, and move on to the data. I look at averages of everything for all the comps. Total market time, time to contract, time to close, price per square foot, high and low prices for the neighborhood, acreage, basement situation, beds, baths, etc. All of this data is where the law of averages comes in. I try to get on the same page as my seller in regards to whether their home is above, below, or average. Once we determine that, we can look at the averages for all of the data and price the home accordingly based on whether the home is above, below, or at the average. Of course there are many factors that go into determining whether a home is above, below, or average, and it’s important for an agent to know what buyers are looking for so they can help the seller determine this.

Now, listening to the market is a piece that comes in after the house is listed. As agents, we have access to a lot of info regarding who the property has been sent out to i.e. the number of hits on Zillow, Trulia, Realtor.com, Homes.com, my own website, etc. Along with those numbers I can see how many people have marked the property interestedmaybe, or not interested in the MLS. We not only look at who it's gone out to, but consider the level of interest by looking at the number of showings and how quickly they're coming to see the home since we listed it. All this data will tell us whether we need to be patient or drop the price; furthermore, whether the price drop needs to be minimal or drastic.

The law of averages is a great starting point to be sure we're in the appropriate range, but we still need to listen to the market to determine what to do while the home is listed. This information will also help in determining whether to accept, counter, or decline an offer. All this information should at least be at your agent's disposal and should give you something to back up your stance in regards to price… not the garbage excuses I hear all the time.

This is my process. And you can be damn sure I'm going to fight for the price we believe in; I'll find all the reasons to justify our price and do my best to convince the other agent and their client that our price is fair. You can also bet that I will never rely on our price as the sole reason of justification, because it is simply the most thoughtless version of negotiation possible. We're not selling t-shirts at Target people, we're selling houses for hundreds of thousands of dollars. If you're an agent, get some sales experience. If you're a seller/buyer, call me :)

Thank you for reading! Comments and questions welcome!

Joe

 

The Not-So-Shiny Important Stuff

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Often times when showing homes to buyers, they become fascinated by the cosmetic updates of a home. Most of the time it’s something that’s pretty nice and/or trendy. These days the 'go-to' seems to be white kitchen cabinets, granite countertops, and dark hardwood floors. But it could be anything... the way a seller has done their bathrooms, lighting, basement, etc. The reason that a fancy kitchen or other shiny cosmetic update may catch a buyer’s eye and persuade them to eventually buy that home is because it will do the same for their friends and family; as a new homeowner, you’re going to want to show off your home—most of your friends aren’t going to care that your roof is 20 years old, but they’ll love your kitchen. This sort of mentality may not just be that of family and friends but also the homeowner. Of course if you have the money to get everything you want, then by all means do so. However, if you’re looking at homes realizing that you may have to cut some items from the 'want-list' then be wary of buying a home that has a great cosmetic update despite a less noticeable feature in need of repair—roof, windows, HVAC system, septic tank, siding, etc.—you may be in for more than your realize in the near future. I’m here to tell you the potential cost/value of some of the things that don’t always catch your attention. Let’s talk a little… You’ve probably heard the phrase, “this house has great bones.” This phrase means the cosmetics of the home suck, but it’s laid out nicely and built well enough for you to remodel it. There are many homes out there with great bones, but they still don’t match all the beautifully upgraded homes that you see on HGTV and DIY Network. There's many different styles as well, so even if it's updated, it may not match what YOU like. In addition, we all seem to suffer from a little upgrade-snobbyness when it comes to homes. Older homes that haven’t been updated may not be  that way due to a lack of funds, but rather the current homeowner’s taste. We’re all so used to the remodeled homes on TV that we forget that it’s possible the current homeowner actually likes their outdated home. In either case, it seems that many buyers are looking for their perfectly updated home. There are many reasons for an outdated home and it really doesn't matter why. The only thing that matters is that you don't like it that way. Why is that? Everything works right?

Like I mentioned before, it's more fun to show off the updated kitchen—not as fun to show off the great school district you paid for, or the new siding and windows that were done right before you bought the home. The materialistic mentality that our society suffers from has been made even more evident with the ability to show it off through social media. I feel this may lead several younger generations (including my own and dare I say "millennial"?!) to poor home purchase decisions. They couldn't possibly take a selfie in front of their 1997 kitchen cabinets! So instead they may be tempted to stretch their budget, buy a home with the cosmetic upgrades good enough for facebook photos; all the while, the roof is about to blow away, the furnace and AC units are 25 years old, and the windows are painted shut... but they look great. When the furnace finally does go, they may be in finanical trouble trying to afford a new furnace. In order to avoid this, we're going to have to get over the perfect Pottery Barn home, so let me help you cope a little...

When buying a home, the odds are that you, a home buyer, will need to compromise on something. Instead of freaking out about the Coca-Cola wall paper in the master bedroom, try to look at the more important and costly items in the home.  Remember that even though your kitchen is from 1985, it still works, but a 25 year old water heater is bound to not work pretty soon, which results in potentially big problems and inconveniences—much more than an eyesore—and will cost money. I’m honing in on things like roof, windows, siding, soffits, sump pumps, and utility features.

***Sidenote (haven't done one of these in a while). Kitchen appliances can be big too. I could throw them in as part of my points, although, they are usually part of a cosmetic need as opposed to a repair need.

The counter still functions no matter how ugly it is, but a broken furnace is a safety issue...

The list of items I just mentioned are the type that must be replaced if they’re not functioning properly; when those features get old, they aren't just ugly, they will likely cause on-going damage if not fixed. Even waiting until they break can be too late. It’s about choice. Outdated and/or ugly still-functional features are invaluable when it affords you the ability to maintain the ware-able, tear-able, break-able important things. The choice is the key. Typically cosmetic updates are done out of choice not function or safety. I.e. the counter still functions no matter how ugly it is, but a broken furnace is a safety issue. You don't really have a choice when it comes to the furnace. Even worse, you don't have a choice of whether or not you can afford it.

Let’s look at some estimates (compliments of HomeAdvisor.com).

home-repair-cost

These items are often things that become worn and need to be repaired or replaced, but they may not catch your eye when walking through a home. Knowing the cost of these things is important when shopping for homes. When you walk into a home with new windows, roof, and siding… you need to understand how important that is. You shouldn’t have to incur those costs (listed above) for 20-30 years. Most of these items only need to be replaced once every 10-30 years; they are long-term purchases. When you buy a home that has already incurred the cost of these replacements, it can give you time to save up for your new kitchen and hard wood floors.

Searching for a house with “good bones” and/or Not-so-shiny upgrades [...] can be a great decision for you...

The other thing to think about is kids and pets. As you buy and have children, there is no debating that the kids and pets will destroy all of your nice things. Coloring, spilling, peeing, pooping, scratching, biting, etc. It might be a good idea if you are planning to have kids/pets, or if you have very young kids/pets, to save the cosmetic upgrades for later and let the old stuff take the beating. In this case, searching for a house with “good bones” and/or Not-So-Shiny (there's the title) upgrades like a new roof and windows can be a great decision for you.

AND! The cherry on top of this amazing home buying sundae, is that there is a large price gap is growing right now between updated homes and outdated homes. Read my post Is it a Buyers’ or Sellers’ Market??? Neither, Here’s Why… to learn more about this gap. You’ll be able to get a better deal on the outdated home with good bones, while the new shiny updated one will have a much higher sales price. The gap between the two is most likely more than what it would cost to upgrade the outdated home; upgrading the outdated home will afford you a bump in equity, along with your personal taste while you live in the home. Also, you should have peace of mind knowing that the not-so-shiny important stuff has already been taken care of. If you combine this idea with the fall/winter market you’ll be able to get a steal on a house! Read my post Is Fall really a good time to sell? Ummm… no, no it’s not. to see the data on this.

As you shop for a home, be careful not to discount the “ugly” home with a great personality. It might be the gem that saves you a few headaches and affords you a great profit in the future. But you'll have humble your Facebook profile, and settle for outdoor pics only... until you re-do the kitchen and the floors, then you can come out of hiding and let the world see your home ;)

Please contact me if you are interested in selling or buying. Comments and questions are welcomed!

Thank you for reading!

Joe

Is Fall really a good time to sell? Ummm... no, no it's not.

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Did someone tell you it was a good time to sell? Were they an agent? Surprise surprise, a real estate agent wants you to sell your house... right now. I keep seeing articles on my  news feeds about how selling in the Fall is a great idea,  like this one, and this one, and this one… I'm not sure if they're trying to convince homeowners or themselves, but my experience has not been the same. In fact, my buyer clients have gotten some great deals on homes in the fall/winter. The theories in any pro list-your-house-in-the-fall articles typically refer to an abundance of buyers and low inventory, which makes perfect supply and demand sense. However, the data points in a different direction so what's the basis for these articles? They seem to be nothing more than selfish ploys that seller-heavy agents can use to convince homeowners to sell during the fall months. In addition to the fall months, the winter months are even worse. Despite my motives, and at the risk of being a typical "buy buy buy" agent, I would argue that the Fall/Winter is a great time to buy. This post is my view regarding the upcoming fall/winter markets specifically, and may seem contradictory to my other post Is it a Buyers’ or Sellers’ Market??? Neither, Here’s Why…  I still believe the best homes (highly desirable and SuperFunction) would still outperform any general categorization of the market, while the worst homes (undesirable, impractical, dysfunctional) will underperform. I digress.

Let’s talk about the following in relation with the yearly cycles to see what really happens during the Fall/Winter and why there seems to be some confusion.

Supply and Demand

Inventory

Market Time

% of List Price

Average Sales Price

 

Supply and Demand

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Everyone has seen  the supply and demand graph. There are 2 pieces to this economic law (per say). If only one is moving, it’s very easy to predict a market. When both are moving, it’s still easy to predict the market… but the key is to know that both are moving. As I’m going to show with the graphs below, the articles and posts preaching “good time to sell” about the fall and/or winter markets are fallacious. They are solely looking at the supply piece of the “supply and demand” equation—did they forget about the “and”??? I believe that the demand changes as well as the supply during the fall/winter markets, which explains why a decrease in inventory does NOT result in an increase in home values.

...the number of consumers alone does not reflect the level of those consumers’ need to buy

Perhaps these pro-sell articles that pop-up in the fall/winter are not forgetting about the demand, but are misunderstanding it. There is data to support the increased number of buyers in the market (we’re not going to get that deep right now) but the number of consumers alone does not reflect the level of those consumers’ need to buy. As you look through the graphs below, I’ll give a brief synopsis and some interpretation because they may be hard to pinpoint the peaks the valleys. My theory combines both supply and demand—demand for sellers to sell and buyers to buy. This is a multifaceted theory so… read slowly and stick with me through my robotic writing below.

Sellers that don’t need to sell will begin to take their homes off of the market: these homes would have already sold if they were priced correctly and/or were more desirable. The sellers remaining in the market may also suffer from inflated pricing and undesirability; in addition, those remaining sellers and any new sellers in the market need to sell—they actually need to, otherwise they wouldn’t be in/have entered the market.

Buyers who were in the market during spring and/or summer months but haven’t bought yet do not have as strong of a need—this could be due to a lot of reasons: too picky, frugal, lack of ambition, etc. Buyers entering the market during the fall/winter are most likely preparing for spring: some may have a life-change situation and have a stronger need but not most.

Combining the seller and buyer situations result in low inventory AND low demand. The pudding, if you will…

Inventory

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This graph shows that inventory starts to decrease mid-late fall, around November, every year. Looking only at this piece of data would result in one assuming an increase in value. The following 4 graphs show the opposite.

Market Time

market-timeYou can see that starting July/August-ish every year, the average market time begins to increase. This would imply demand is decreasing and/or supply is increasing. But we know from the previous graph that supply is decreasing; therfore, proving that demand is lower regardless of how many buyers exist.

% of List Price

of-orig-listThis graph shows the % of original list price (prior to any price changes). Again, at it’s lowest during winter months. I will admit that this piece of data alone would be somewhat inaccurate due to the fact that many of the homes could have been priced to high earlier in the year, and after several significant price drops, they sold during the winter. But looking at the next graph negates that.

 

% of Last List Price

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This graph shows how much lower than the last list price the home sold for. Lowest in the winter months. These last 2 graphs show that sellers are having to come down from their original and/or current list prices the most during the fall/winter. I explain the last 2 graphs in my post Sellers are Panicked in Lake Forest, to You go the Spoils…

 

Sales Priceaverage-sales-priceMy last point, to put the nail in the coffin… this is the Value piece at the end of the Supply and Demand equation. If this showed higher average sales prices, then my previous graphs could still be true, and my point also ring false. But... average sales price is down at the turn of the new year as well.

...in order to sell above the line, the homes need to be desirable

Sellers in the fall/winter are generally in a need to sell situation which puts them in a weaker position of negotiation; and their counter-parts, the buyers, are generally not in a need to buy situation, putting them in a stronger position of negotiation. The buyer-seller relationship combined with the market conditions in the fall/winter time make for a buyer’s market.

If you’re thinking of buying, the fall/winter can be a great time to buy. Get your hat, gloves, and boots on and let’s go shopping. If we don’t find a home that works for you, there’s always spring.

If you’re a seller who needs to sell in the fall/winter, then we need to list with proper expectations and listen to the market. The graphs above represent averages, which means there are homes that sell above and below those lines. I'm not saying never to list in the fall/winter, but in order to sell above the line, the homes need to be desirable—stay tuned for my post on SuperFunction. We can also try to spruce up the house with fall and holiday decor, which can be very enchanting for buyers if done well. I’m working on singing Christmas carols during showings to see if that helps sell homes for more money, I’ll get back to you with my R&D ;-)

Thank you for reading! Comments and Questions are welcomed!

Best,

Joe

Down Payments... All or Nothing is the Way to Go

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This is my personal take on down payments, and some real examples with the numbers. I hope this helps make your decisions to buy and how much you put down a little easier. Many people I speak with have a certain amount of money saved for a down payment. They are planning to use that specified amount as their down payment, no matter the price of the house. They're figuring that they'll at least meet the minimum required by their lender if they find a more expensive home, and if they find a cheaper home, then they'll have a lot more equity in the home. This sounds great, and to each their own, but I look at things a little differently. If you're unable to put down 20%, then you shouldn't spend any more money than you have to for your down payment. Let's talk about PMI, monthly payments, and how the down payment effects both. Private Mortgage Insurance, or PMI is a % of the loan that your lender will charge you when you don't have 20% down. PMI is also called MIP, one for conventional the other for FHA. This is one of the biggest reasons that most people think they need 20% down to buy a home. Read You can probably buy a home, and you didn’t even know it! to learn more. PMI can range, but it's typically going to be somewhere between 0.5% and 2% of your loan, per year. Let's put this into dollars and cents, and also put some parameters in place so we can use the same example throughout.

Purchase Price: $200,000

Interest Rate: 4%

PMI Rate: 1%

We will keep the above numbers constant throughout this post. However, since the point of this post is to show you how the down payment affects your monthly costs, we will be playing with that number. If you purchased this home with 10% down ($20k), your loan will be $180,000. PMI would come out to $1800/year, which equates to $150/month. That can drastically change whether or not a home is affordable and/or whether it's possible for the lender to approve. Your payment on your mortgage, interest, and PMI for this home would be $1009/month--Remember this doesn't include homeowners insurance or property taxes.

I want to share an estimated rule of thumb that's fairly easy to remember: $10,000 is $50/month. This rule of thumb usually comes in handy when contemplating an offer. Sometimes people are very worried about their budget when deciding whether or not they want to buy a home a $250k or $260k, and although there are other things to consider when looking at the price of a home, the monthly budget will only change by about $50/month for every $10,000 difference in purchase price. This is also true for down payment.

There's 2 things to consider with down payment, the liquidity of your money and your risk. So, if you can't put 20% down (in our example $40,000) then my suggestion is to put down as little as possible. This increases your liquidity and decreases your risk. Hear me out...

It would probably be better to keep your savings in your savings, not in your home

Liquidity. FHA guidelines require a minimum of 3.5% down ($7000 in our example) and Conventional requires 5% down ($10,000). Some people are so hyped up on equity in the home, but this is not liquid money. Your money will be in your house, and the only way to pull it out is if you get an equity loan/line of credit, or sell the house. You'll pay interest on the equity loan, of course, and when you sell you'll have costs associated with closing. Obviously you want to avoid being forced into these situations, but that's where limiting your risk comes in.

Risk. God forbid you are in a situation where the costs of selling your home plus the mortgage payoff will put you in a hole, you'll lose the equity you have in the home; case and point, real estate bubble/collapse of 2008. When homeowners were being foreclosed on, the people who leveraged (borrowed) the most, and put down the least, were less affected. When you foreclose, you lose the home and any equity you had in the home; if you only put down 3.5%, it's a little easier to walk away than if you put down 20%.

Putting a lot of money into your home only for the sake of equity is a good idea if you have that kind of expendable income. I'm writing to most people who don't have gobs of money and are looking to spend the majority of their savings on their home. It would probably be better to keep your savings in your savings, not in your home. Let's look at a fancy chart to show the difference in monthly payment based on down payment scenarios of 15% and 5% (NOT 20%).

Purchase Price  $    200,000  $    200,000
Down Payment  $       30,000  $       10,000
Loan Amount  $     170,000  $     190,000
Principle & Interest Payment  $               811  $              907
PMI  $               141  $              158
Total Monthly Payment  $             952  $         1,065
Purchase Price  $    400,000  $    400,000
Down Payment  $       60,000  $       20,000
Loan Amount  $     340,000  $    380,000
Principle & Interest Payment  $           1,623  $           1,814
PMI Payment  $              283  $              316
Total Monthly Payment  $         1,906  $         2,130

The monthly payments don't change that much. Even at the $400,000 price point, the monthly payment only changed by $224. Now, everything is relative, so while $224 is a lot of money per month to spend on coffee, I don't think it's a big difference in mortgage payment... especially if you look at the cost that came with saving that $224/month--$40,000!!! That $40k is now tied into your home and you are now super cool with 15% equity... woah, now you can brag to... yourself? No one cares about your equity, and it doesn't benefit you at all. It's only a monthly payment difference. You might be thinking, "but Joe, I'm also paying interest on that $40,000 if I don't put it down." Yes, you're right. It's nice to try to save on interest. However, you're not going to be living in that house for 30 years right? You'll probably move within 10 years, maybe sooner if this is your first home. Interest is amortized over the entire 30 year mortgage, and you'll be paying majority interest for the first 15 years of your loan anyway, regardless of how much you put down. In contrast, let's look at what changes when you put down 20% and avoid the PMI payments.

Purchase Price  $ 200,000  $ 200,000
Down Payment  $    10,000  $    40,000
Loan Amount  $  190,000  $  160,000
P&I Payment  $          907  $           763
PMI  $           158  $              -
Total Monthly Payment  $      1,065  $          763
Purchase Price  $ 400,000  $ 400,000
Down Payment  $    20,000  $   80,000
Loan Amount  $ 380,000  $ 320,000
P&I Payment  $        1,814  $        1,527
PMI  $           316  $              -
Total Monthly Payment  $      2,130  $      1,527

That's savings of $302/Mo and $603/Mo at the $200k and $400k price point. It's costing you more money to do this, but instead of simply saving the $50/month for every $10k, you're also avoiding the PMI payments. Oh yeah, and you get to feel good about your equity, yay! But really, the benefit is much greater for the additional money you put in. I think that one could even make the argument that it's never worth it to put 20% down, but instead, pay your PMI payments and keep your savings in your very-liquid bank account; or even better, a growing investment; I don't like this as much, but it might make sense for some.

Equity is awesome when it's gained through the increase in value of your home, not if you simply bought it.

This theory is simply based on financial logic, not on situational circumstances. Financial logic says pay as little as possible to acquire an appreciating asset. However, there may be times when you'll need to put down a little more than the minimum, and it will still make sense, despite everything I just mentioned. Sometimes you might be toeing the line with your approved budget, and you may need to put more money down so that your payment goes down just enough to get approved. If you're in competition with another offer, putting down the minimum may imply lack of funding and/or financial sense. This may cause the seller to be concerned with your ability to actually get a loan approved, and they may choose another offer that is putting more money down. The last reason I'll mention to put as much money down as possible, even if you can't reach the 20% mark, and probably the most logical and likely, would be in the situation of a conventional loan. FHA loans require you to pay MIP for a certain number of years (I believe it's 15 years), however, a conventional loan has no minimum time frame for PMI payments. Therefore, if/when you reach the 80/20 loan to value (LTV) ratio, you can request your lender to get rid of your PMI payments. If you're using a conventional loan, and you can't quite put 20% down, you may want to consider putting as much down as possible; the closer you are to 20% equity, the closer you'll be to getting rid of your PMI payments. Some people don't like the idea of owing money--for anything; these people may be looking into options of a 15 year mortgage, or just trying to have as little of a loan as possible, and for them, 20% down or more may make the most sense. Also, my disclaimer on equity. Equity is awesome when it's gained through the increase in value of your home, not if you simply bought it.

You are free to do what you will, but my advice is to leverage as much as you can. This will keep money in your bank account, which increases the liquidity of your money; furthermore, you'll be limiting your risk in case of a real estate crisis/recession, and/or a financial bind. All (20%) or none (the minimum) in my humble opinion. :)

Thank you for reading! Comments and Questions welcomed!

Joe

Draft a Trustworthy Agent onto Your Team Regardless of Your Location!

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I've had several situations where people have reached out to me to help them find a home or sell their home, but they are looking or buy/sell out of my area, per say. Working in the north and northwest Chicago suburbs, I’ve talked to people looking to buy in Wisconsin or in the city of Chicago (or south of it). Unfortunately, I’m not licensed in Wisconsin, and I don’t live in the city; there are some legal and logistical deterrents respectively that prevent me from working with those people. In these situations I cannot truly be their agent—sometimes by choice, other times legal restrictions. Every state has their respective real estate licensing process and laws. An agent must be licensed in the state where the sale/purchase will occur in order to represent the client. Furthermore, the actual job responsibilities and common practices may differ from state to state. Sometimes agents don’t know enough about the area or cannot get to the area fast/often enough to truly provide the appropriate level of service, as in my case with the city of Chicago. There is a solution to these "out of area" situations, but little do most people know that an agent can refer clients to another agent. Let’s talk about how this can be an advantage to the clients and the agents involved. We'll go over why you choose an agent, how this looks from the agents’ point of view, and how it looks for the client. Why

You reached out to a particular agent for a reason. Maybe they’re “the family agent”, maybe your friend used them and recommended them, maybe it’s the stats you like… i.e. number of sales, years of experience, etc. Whatever the reason, it boils down to trust. People choose an agent because [insert reason here], and therefore, they trust them. Trust is a big factor. Even though it’s unethical and most likely goes against any state’s license laws, there are many opportunities for agents put their own interests above their client’s interests. I'm sure there's already a level of skepticism for any type of sales jobs, add a really expensive product and someone who you've never met before... oh, and this is your first time buying or selling... you'll instinctively be skeptical. Unethical and untrustworthy agents (and people for that matter) are far too common, which is why trust and ethics should be one of the more valued attributes you seek in finding an agent. There is a harsh truth that you know already, but I must share with you: There are a lot of honest, ethical, and trustworthy people who still suck at things. So even though trust is a very key attribute for an agent to possess, you still need to try to find one that is ALSO good at what they do. Once you find a good agent, realizing that this trustworthy and awesome agent cannot help you with your out of area purchase or sale, can be a real bummer. This may not come as a surprise to some, but more of an assumption. Sometimes clients assume that an agent living in Illinois cannot possible help them buy a home in another state, legally or practically. However, there IS a way to put that same awesome trustworthy  agent into your corner.

[...] if your agent is truly awesome and trustworthy, then they will try and help every way they can.

The Agents’ POV

Basically, an agent can refer you to another agent. This is not complicated at the core, but as things develop it may be trickier or awkward. The awesome and trustworthy agent is going refer you, as a lead, to another agent that CAN legally and practically help you for a % of the commission. If you’re not sure how commission works read my post about how your agent does or doesn’t get paid, HERE. From the referring agent’s point of view, they’re going to get a paycheck at some point in the future, and they won’t have to do anything except wield a few phone calls—this is well worth it. From the receiving agent’s point of view, this is normal. There are costs for lead generation no matter the source; sometimes it’s a monthly fee that can cost several hundred dollars per month per zip code, and other times is a % of the commission—20%-30% typically. Getting 70% of something instead of 100% of nothing is well worth it for them too. Not only does the agent receiving the referral get a new client and the majority of the commission, there’s an incentive to treat you well; if they do well with you, then your awesome and trustworthy agent may continue to refer clients to that same receiving agent in future--of course, visa versa applies as well.

Going back to the referring agent for second, the awesome and trustworthy one. You may think this is a cop-out way for an agent to get paid and do no work. You're not wrong, it is possible for them to hand you off, and pretty much disappear. It's also possible for them to be very involved in the process. You may have to be the one to tap into that resource that's available to you, but if your agent is truly awesome and trustworthy, then they will try to help every way they can.

The Client’s Side

As a client, after you are referred to another agent, it's important to go back to your original agent with any issues. Whether your original agent likes it or not, they are eventually going to get paid, therefore they have a vested interest in your situation and need to be sure you are being treated fairly, with respect, and with a high level of service. Not only are they getting paid, but if they leave you hanging with a terrible agent, you may start to doubt how awesome they were to begin with... the agent doesn't want their reputation tarnished. It's very important for the you to have an open line of communication with the agent that referred you. I like to think of the clients that I’m referring out as a treasure of some sort. Any agent who doesn’t think of them in the same way doesn’t deserve to represent them, nor should they get paid for it. Because the incentives for both agents lead to helping the client, the client should essentially have 2 agents working for them.

One way your original agent can help is when the referred agent is not doing their job correctly. Luckily, the referring agent can handle all the awkward conversations. Sometimes the receiving agent may not be as great as the original agent thought, but often times there's a personality clash between the client and the receiving agent; sometimes people just don't get along. The referring agent and the client can make the decision to technically fire the first agent and find another agent that will be a better fit. Firing someone is a very awkward situation and most people will simply deal with a bad agent instead of having the awkward conversation. In this case, you'll have your original trustworthy awesome agent to do your dirty work. Agents understand the inner workings of the agency relationship laws, and have experience communicating with other agents anyway, so this really isn't as big of a deal... and remember, your awesome trustworthy agent is probably just as dissatisfied that you weren't happy with the referred agent as you are. Sometimes the managing broker will get involved, and again it would be important for an agent to communicate in that instance.

...2 professional opinions throughout your home buying/selling process can really help minimize your stress.

Another way that your original agent can help, and probably the most valuable, is with advice and a second opinion. Often times clients question the motives of agents. Sound advice can be misconstrued as pressure or pushy. In these situations you can find peace of mind by getting reassurance from your original agent, after all they are trustworthy and awesome remember? Sometimes things aren't so black and white. There are different ways to approach things such as price valuations, negotiation positions, strategy, etc. This is when you get 2 points of view before you decide what to do. Getting 2 professional opinions throughout your home buying/selling process can really help minimize your stress. You'll feel more confident about the decisions you're making as well.

When you decide to buy or sell, you can get reach out to an agent that you know and/or trust, no matter where they’re licensed, and they can refer you to another agent. This gives you the advantage of having 2 real estate agents to help you through the process. You'll be able to use them to do any dirty work amongst attorneys, agents, lenders, etc. but also to get an unbiased second opinion. It's a nice way to help support a preferred agent if they are "out of area" for where you are/are going; most agents are more than happy to take and make a few phone calls in return for a good reputation and a good chunk of commission.

Remember too! That if you're not in the market now, you can inform friends and family of this information so that they can take advantage of double agent help. As always, please connect with me on my social media profiles, and reach out if I can help you or someone you know, wherever they may be!

Thank you for reading! Comments and questions welcome!

Best,

Joe

Is it a Buyers' or Sellers' Market??? Neither, Here's Why...

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The internet throws things in your face that pertain to you as a consumer. And it follows you around. You may have noticed when you were shopping for loafers online one day (btw it's so hard to find a good pair of loafers!) and then all of a sudden, there’s loafer ads on every site you go to and all over your social media feeds. It's the same with real estate. If you’re interested in buying a home, you’ve probably searched something related, and therefore seen the articles titled “cheaper to buy than rent” and others referencing great interest rates—it must be a great time to buy, right?! On the selling side, you’ll see articles talking about all-time highs for home sales, forecasting value increases, and “we’re back to 2008 prices” etc. It must be a good time to sell, right?! All these articles are simply there to sway you in a direction that is best for the person posting it, but they can’t both be right, right? Technically it’s a great time to sell and a great time to buy, as long as you’re selling a quality product or willing to buy that product for a little more money. Poor buyers and sellers are being manipulated by the artciles on the internet and running into some rude awakenings when they enter the market. Let’s talk about some stuff... What the hell is The Market?

Pricing and Quality

Current Market Status

 

What the Hell is… The Market

The Market, yes it has capital letters… it’s like a scary pronoun! In most markets, you don’t run into long periods of “buyer” or “seller” markets like you do in the real estate market. Most other markets can go from bull to bear in a second because of one world/business event. In real estate, however, things move much slower. When the market gains the titles of Buyer or Seller it typically means there’s irregular activity within that market, or there’s a major correction occurring to the market. Without the irregularities or corrections, it’s just “The Market.” I get asked this question all the time, “So, is it a buyer’s or sellers’ market?” It’s not anyone’s fault because we’ve all been brainwashed over the past decade to think that it must be one or the other.

As the market tanked, we DID experience a buyer’s market; furthermore, as the market rose, we DID experience a seller’s market. It’s not as if they weren’t existent, when they in fact were, but it doesn’t have to be categorized with one or the other forever. To my point above, there was a major correction happening during both of these time periods. When I get the question about whether “The Market” is a buyers’ or sellers’ market, my answer is that it’s a fair market. The Market…in its true form… is fair.

The Market…in its true form… is fair

Disclaimer: Not all markets are the same nationwide. I’m speaking to what I’m seeing in most Chicago suburbs. If you’re in Seattle, you might see 250 showings in a week… for a $1M home (true story of one of my clients). Obviously, Seattle is a currently an example of a seller’s market. Again, demonstrating the other part of my point above, there’s an irregularity, and therefore and unfair market, in that case benefiting sellers.

In Chicagoland, and in most places across the nation, markets are correcting themselves. The market is becoming fair and buyers and sellers need to understand this. In order to understand how you’ll fare (see what I did there?) in your home buying/selling process, you need to understand a couple of things. Pricing and Quality.

Pricing and Quality

Let’s break down some words. Overpriced and underpriced. Determining whether something is over/underpriced is the important piece, and it can be challenging for many buyers and sellers (even agents sometimes). To understand pricing, you need to understand quality. I’ll spare you the boring definitions, but we need to change quality as you know it so that it applies to real estate. We need to add the cosmetics of homes under the “quality” umbrella. An outdated home is not a quality product; it’s undesirable. Start thinking of quality not just as builder quality and quality of care/upkeep, but also desirability. If something is low quality—whether it’s in disrepair or cosmetically outdated—it needs to be priced lower, or it will not sell. You cannot make a pricing distinction without knowing the quality factors first. We also need to add impracticality and dysfunctionality to the “quality” umbrella. A home can be built with quality, updated, and kept up well, but will take a hit on its quality if there’s a dysfunctional space or something impractical. Examples would include bedrooms that are inaccessible without walking through another bedroom, a master bedroom with no walls/doors (loft), small kitchen sinks, awkward door patterns, extra narrow staircases, poor entry locations, lack of closet space, no bathroom on the main floor of a 2 story home, etc. These things are large deterrents for buyers because it usually takes structural reconfiguration or a change/replacement of existing quality fixtures and/or finishes in the home. These major changes are costly, and therefore lower the quality of a home. Now, understanding this, including all aspects of quality, it’s still possible for a “quality” home to be overpriced. Shameless plug, be sure to use an agent that can assess these things accurately. Is your home actually “updated” based on what buyers are looking for? Or based you and your agent’s taste?

An outdated home is not a quality product; it’s undesirable

Current Market Status

The market is fair. This means no extremes scenarios, irregularities, or large corrections.  Quality homes are selling faster and for more money. Low quality homes are sitting, and sellers are learning that their homes are overpriced the hard/long way. The inventory is mainly low quality homes because the high quality homes have been sold already. Profit margins for investors are smaller. Buyers are not in any rush to buy either; they will not be forced to buy a low quality home at an inflated price. The overpay/undersell margins are getting lower and lower. This is The Market becoming itself again.

I’ve been capitalizing the letters in “The Market” throughout this whole article, and every time I’ve typed it, there’s a small pause that happens, and I hear a trumpeted intro play in my head. This is just me trying to be funny (Unless you hear it too!? *gasp*) The Market isn’t really this big scary thing ready to do battle on the consumer… we, the consumer, ARE “the market.” The supply and demand of the market is based on the buyers, sellers, and product, which are you and I.

Know that the market itself is fair. There are still some small corrections being made to the market all over the county, but it’s getting closer and closer to being fair. A fair market means you need to buy/sell a home for a fair price. Please reach out if you need help finding a fair price for your home or the home you'd like to buy.

Thank you for reading!

Comments and Questions are Welcomed!

Best,

Joe

Rising Assessments Causing Affordability Issues

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Quick post this week. There are not signs of another bubble like the 2007-2008 situation... well, I can't make guarantees... nobody can since then--but that's not why I think there may be another little pop coming soon. Let's go through the very simple progression of the following... Monthly Payment Buying

Assessments

Property Taxes

Current State

 

Monthly Payment Buying

Buyers should be able to get a monthly budget amount from their lender. The days of "you've been approved for 250,000" are over. The lender needs to take into account not just the price of the home, but the taxes, homeowners insurance, homeowners association fees, and private mortgage insurance. All of these things go into your monthly payment. So, once you have a budget you can begin searching, and playing the mortgage calculator game. If you know the numbers that your lender used to calculate your monthly payment, then you can change them with any mortgage calculator to figure out what you can/cannot afford. Please read my post about how you can probably buy a home. I explain in detail how affordable home buying may be along with some of the details affecting monthly payments.

Just as in the scary times of old , pre-2008, many buyers are pushing the limits on what their lender has given them for an allotted monthly payment. Rightfully so, as a buyer you may want to get the nicest and biggest house that's within budget, but some buyers are leaving no wiggle room within that budget for things that may change in the future--I believe their called "variables" (gasp!).

Assessments/Property Taxes

The market collapse of 2008 lead to drastic decreases in home values, as you probably know. Assessments were way behind the market for a couple of years as the market decreased. Homeowners knew their homes were not worth what they once were, yet the assessed value, which directly impacts the tax bill, was much higher than what the home was worth. These over-assessed homes caused a flood of property tax appeals, the majority successful; also, the assessors' offices were catching up on this on their own as well. So until the "bottom" of the market crash took place, assessments were always a little behind... and they are still behind today. But, we're not decreasing anymore-- You may see where I'm going with this, but let's talk about taxes for a sec...

Because you've already read the link above (READ IT!) you already know that property taxes have one of the biggest impacts on your monthly payment. This is a very large if not the largest piece of revenue a village receives from its residents, and the village has 2 ways they can affect this bill for their homeowners. 1. Assessed Value and 2. Tax rate. As a last-ditch effort some villages tried to recuperate some of their revenue when the assessed values were dropping by raising the tax rates; the rate increases were not as dramatic as the drop in assessments, and most homeowners didn't notice because their tax bills were still decreasing; they weren't decreasing as much as they would have if there wasn't a rate increase. Nonetheless... this is what happened post 2008. Since you're loving my talk about taxes and other exciting stuff soooo much right now, check out how to calculate your taxes here.

So, just a stupid recap: houses were worth a lot, and going up in value... then they weren't, and were dropping in value. The assessments were behind, but still chasing the market down... as assessments dropped so did the property tax bills, and some villages increased the tax rates to offset the loss in revenue a little.

Current State

Now, the housing market prices in most places are almost at or above the prices of pre-2008 market crash. Due to all of the things that happened post 2008 as property values, assessments, and tax bills were decreasing, home owners that have purchased during that time may be driving straight into a wall. As the market is rebounding upward, you guessed it, assessments are behind, as usual. This time, because you read that last link (Common! Read 'em!) you know that since assessments are lower than true market value so are the taxes. Don't count on homeowners raising a red flag with the village trying to correct their taxes this time-- "Hello? Hey Village, can you increase my tax bill please? I'm not paying the appropriate amount of taxes because my home is assessed too low." In your dreams Village!

I have been advising my buyers on the assessed value of the homes they're looking to purchase as we shop. If it's much lower than what homes are selling for, we need to budget for an increase in their taxes. There's a small trick to this, I mention it in the sidenote below.  I feel many buyers are drooling over a low tax bill but don't realize that the house is undervalued; even worse, there may be a senior and/or senior freeze exemption that they won't qualify for. And to add insult to injury, many buyers may be at the top of their budget when they buy the home, and won't be able to afford the increase in the tax bill when the assessed value jumps up to true market value and/or the exemptions are gone.

***Sidenote: You'll be asking for a tax bill pro-ration from the seller, since taxes are paid in arrears. 105%-110% is pretty common. However, if you know that the home is very under-assessed, you may be able to get a larger pro-ration from the seller. This weakens your offer, but most of the time not a deal breaker, and can give you a little bit of cushion in your  escrow account, at least for the time the seller lived there prior to you taking ownership. It's only one year of cushion so you still need to plan for the future!

Villages seem to be playing a little bit nice, for the time being. I've seen some corrections from 2015-2016 but they are not TRUE corrections. The assessed values went up, but not to the value of what the home sold for. And for any village that decided to increase their rates during the recession, we'll see if they decide to lower the rates as the assessed values increase or not. If not, we could be looking at some astronomical tax bills in IL. Higher than what they already are. Now that you have fallen completely in love with me from my last 2 links... why not throw in a third: property taxes by suburb will tie the knot for you.

Moral of the story!? Prepare. Your real estate agent should be able to look up assessed values and prepare you for an increase in taxes or not. If they can't then please connect with me and reach out if you would like me to represent you as your Realtor. I hope this helps you!

Thank you for reading! Comments and questions welcome!

 

Open Houses Market your Agent... Not Your Home

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Open Houses are a huge marketing farce. You might understand this already or this might be a revelation for you. I'm sure "open house" is a familiar term and most likely one of the things about real estate that you expect to encounter. Perhaps you're entrenched in the buying process and you're actively seeking a free lunch of cookies, cheese, and crackers—you can even search for open houses on many of the online real estate websites and get your fill. Or maybe the open house bit was part of the sales presentation the last time you sold your home. If you're on social media, I'm sure you've seen an Open House on Saturday - Post. The open house is very familiar, but it's not for the seller, in fact, I could probably argue that it doesn’t help sell the home either. Sellers who allow their agent to hold an open house are doing that agent a huge favor. Let's talk about... Typical Open House Logistics

Who This Helps and How

What You Should Do

Broker Opens

 

Typical Open House Logistics

Put yourself in a seller's shoes for a second. You are a seller, okay? You want your house to sell, and you want to make sure everyone possible sees your home in hopes that one of them will buy it, and therefore you want your agent to hold an open house. For you, this means you’ll need to be gone on a Sat/Sun (or both) for 2-4 hours (or more). Your home doesn’t need to be any cleaner than usual because it should be show-ready anyway, but nonetheless, you’re going to make sure it looks extra good. So you have a little inconvenience of cleaning and leaving. For your agent, this means driving around the neighborhood and putting up signs at key intersections, buying some sort of snack/spread, maybe some waters, and being at the home to “sell” it (we’ll get to “Selling it” later).

"Who is going to show up? No one, that's who.

Who is going to show up? No one, that's who. I’d be interested to know what you actually think the answer is in your mind, or if you’ve even thought about the answer to that question. The real answer, unfortunately, is… No one who’s going to actually buy your house. Here’s why. Most buyers have agents and can see the property whenever they want. Odds are that buyers with agents would have seen your home regardless of the open house—they might actually show up with/without their agent during the open house, but again, they would have made arrangements with their agent to see the home even if there wasn't an open house. Buyers without agents DO exist, however, most of the time they are not serious buyers, otherwise they would have reached out to an agent to help them see some homes. Despite these truths, and in all fairness, there are serious buyers without agents out there, and they might show up to the open house—this is really the only demographic that you’re looking for. But most will be hungry neighbors and non-serious "buyers" and they will be few are far between.

Who Benefits From an Open House?

You want the result of an open house to be an increased chance to sell the home, and technically it IS an increased chance… but the actual result benefits your agent more than anyone. This benefit comes two-fold: marketing and lead generation. With whatever avenue(s) your agent decides to market themselves, they’ll be able to use the open house as an event to put in front of peoples’ faces—this lets the public know they are at least good enough to get a listing (and… They’ll "do an open house for you too!!" SMH). This is actually very beneficial for agents who are smart enough to use social media. The agent that is a social media novice love these posts, because their posts are either open house, new listing, or sold listing. The open house gives agents the chance of exposure and potential gain more clients. The lead generation continues offline in the physical realm of the home. Everyone who walks through the open house will be required to register with their name phone number, email, or both. As I mentioned before, most people walking through will be neighbors and non-serious buyers, however, they may turn into serious buyers and sellers in the future. This doesn’t sell your home at all; it only allows your agent to make contact with future buyers/sellers.

"The actual result benefits your agent more than anyone"

Now there is the rare case of the aforementioned serious-no-agent buyer. If this happens it can be very beneficial for you as a seller. Your agent is probably smart and good at negotiating, because you are smart and wouldn't have hired a "bad" agent. The serious-no-agent buyers are often less educated regarding the market than they would be if they were using an agent. Your agent may be able to take advantage of this by persuading them to buy your home due to X, Y, Z features, justify the price, and even learn more about the buyers’ motivations. This probably sounds great; even if the chances are low, it's worth it to ask your agent to do the open house for the chance of taking advantage of the serious-no-agent buyer... right? Well, yes, that is right. But... here's the kicker...

**Sidenote- If you're a buyer without an agent, and you are thinking about doing it on your own, read my post here. From the buying side, there is no reason why you shouldn't have an agent in IL. BTW... I'd be happy to help. ;)

Agents know the truth that is the title of my post. The benefit of an open house is more for them than it is for the seller. Open houses need to be done on weekends, and there is low probability of getting many leads, let alone quality ones. The awesome, smart, negotiator you hired will usually look for an agent in the office to hold the open house for them. These agents are typically newer agents that are looking for leads. This isn’t a guaranteed bad thing, but you’ll want to be sure that the agent hosting the open house knows what makes your home unique, why it’s priced the way it’s priced, and how to talk to serious buyers. If not, the potential for that serious-no-agent buyer just went out the window! Or maybe the front door, literally! Because that agent may be inexperienced and/or uneducated on your home. They were simply a place holder for the listing agent, so that he/she could tell you, the seller, that they had an open house, and "we're doing everything we can" to sell your home. These open house holding agents also need to know how to make people feel comfortable in the home, which often times, because their true motivations are to gain a lead/new client, the atmosphere can become a little intrusive and salesy—this will turn people away and/or cause them to not focus on your home. They'll be busy wondering where your used care salesman is in order to avoid further pressure and being forced to answer any more awkward questions.

What you should do?

If you like your agent, then let them have an open house or two, if they’d like to, because again, this benefits them 99% more than it does you (93% of all stats are made up). If it’s too much of an inconvenience, then NOT having an open house isn’t going to hurt your chances of selling. If you are still a believer in open houses or don’t want to take the chance that you miss out on an opportunity for your agent to sell your home, be sure you know how it’s going to be run, and by whom; you also may want to run an ad in the paper (just kidding, sorry I couldn't resist).

Broker Open

Broker Opens are Open Houses for agents only. These are just as pointless as open houses if not more so. Both open houses and broker opens CAN be beneficial if your home isn’t on the market yet; otherwise, everyone will be able to see your home online and can schedule a showing with their agent or your agent. There is no potential to take advantage of the serious-no-agent buyer, because they aren't invited to these. It's simply a waste of time for you and a way for your agent to brag to other agents.

Contrary to this entire post, it is not a 100% blanket statement that open houses are never appropriate. In certain markets, such as Denver and Seattle, where sellers are faced with over 100 showing requests within a week's time, an open house is probably the best way to show the property. In situations of high-demand the open house is better for everyone involved; Sellers have a planned day away, and buyers have a larger window in which to stop by the home. There's a lot of agents in the real estate industry that like to look busy and spend time on things that are irrelevant, outdated, inefficient, and ineffective. The Open House is one of those things, the majority of the time... in my humble (not really) opinion. :) Thanks for reading! Comments and Questions are welcome!

Sellers are Panicked in Lake Forest, to You go the Spoils...

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"You" being the Victor in the quote "to the victor belong the spoils." Which means in a war or a contest, the winner also gets the booty or the treasure. Right now in Lake Forest, it is a very strong buyer's market. If you're a buyer, you're going to get a great price on a great home in a great location. I hope I don't lose some of you by talking specifically about Lake Forest, but instead, I hope you find this interesting. If you're a buyer considering some higher-priced (ish) homes, then you definitely need to read on. Let's start with a poor attempt to hook you in... (psssh, as if I needed it). I can help you buy a home in Lake Forest for 10% less than the list price.

This may seem a little crazy, me guaranteeing a pretty large discount for homes in one of the most prestigious suburbs. It's actually pretty simple. If it wasn't so obvious, I don't think I'd feel as confident about it either, but let me show you how I got there.

July 2016 was the 15th straight month of increased inventory in Lake Forest, and any agent with a listing (or several) in Lake Forest has been panicking, along with their sellers, since the middle of spring when the weight of the natural market's correction began to take place. Sellers are being forced to either take their homes off the market or decrease their prices dramatically.

Most people know that basing a decision on 1 statistic can lead to a bad one; therefore, my analysis of the Lake Forest market comes from many stats combined, not just one. However, there IS one statistic that speaks a little louder than the others, which we'll talk about later. (I'm so good at hooks!) I hope you like bar graphs...

  • Median Sales Price
  • % of Last List Price
  • % of Original List Price
  • Average Market Time
  • Months Supply
  • Number of Homes for Sale

To do this in a way that makes sense, I decided to compare the market stats of the 4 highest priced suburbs, of which, Lake Forest is surprisingly the cheapest! Nonetheless, we're dealing with similar markets regarding buyers and sellers financially.

Let's get to it.

Median Sales Price

Median Sales Price

These are some pretty high prices. These are the average sales prices for Lake Forest, Glencoe, Winnetka, and Kenilworth, and they are the highest of any Chicago suburb. When you're selling a home at or above these price points, you will have a limited number of buyers that can afford your home. For this reason alone, it's important to look at other areas that have expensive homes as well.

 

Percentage of Last List Price

Last List

This graph shows a percentage of the most recent list price at which properties sold. Say that 5x fast. This gives you an idea of how far sellers will come down from their current list price. As you can see, Lake Forest sellers come down on average 6.3% from the last listed price prior to accepting a contract. As we go through the graphs, you'll see some comparisons between Kenilworth and Lake Forest... this is one instance.

 

Percentage of Original List Price

List Price

This graph shows a percentage of the original list price at which properties sold. You can see that sellers in these markets need to come down at least 8% on average from where they decided to list the property. For Lake Forest and Kenilworth it's even more so, 10% and 13% respectively. You can see this is where my "bold" statement came from- it's an average, so there's no guarantee on EVERY home... but you're chances are pretty good.

Are you ready to save $76,000 on your Lake Forest home?

To give you a little perspective regarding the last 2 graphs, while keeping the first graph in mind, we're talking about a lot of money. 1% of the average sales price for these properties is $7000-$12,000. Dropping your price by 10% from $1M means coming down $100,000! Are you ready to save $76,000 on your Lake Forest home? (10% of $760k, keep up please). It's definitely not out of the question, and these graphs prove it!

 

Average Market Time

Market Time

If you leave Lake Forest out of the graph for a second, and look at the other three towns, you'll see a pattern. Yes, Kenilworth is a little bit of an outlier here, but again as homes get more expensive, buyers are scarcer. You would expect Lake Forest to be even less, but it's higher than Glencoe and Winnetka, who are both significantly more expensive on average. Again pointing out a concern for sellers in Kenilworth and Lake Forest. Your home might take 6months to sell in Lake Forest, and almost a year in Kenilworth!

Months Supply

Months Supply

This statistic might not be something you've heard of before. This takes the average time to sell a home and divides it by the homes that are currently on the market. To simplify it, if there were no more listings, this is how many months it would take to sell what's currently listed. Again, you see a pattern as you get higher in price, but Lake Forest is well above Glencoe and Winnetka despite being a lower average sales price... further confirming a concern for sellers.

Thus far, both Lake Forest and Kenilworth have had similar statistics. Well, in the statistics world, you want to pull from as large of a sample as possible; the larger the sample the more accurate the numbers. Below is a graph that shows the current number of homes for sale. I think you'll see that it will be much easier for Kenilworth to correct their market than it will for Lake Forest. I'll explain more below.

 

Homes for SaleHomes for Sale

As you can see this seems to be a bit of an issue for Lake Forest. This is that stat that speaks a little louder than the rest for me. Kenilworth has the opportunity to change their averages because we're working with a much lower volume. Since Lake Forest's inventory is such a large number, it's harder to impact the averages. This graph truly shows why Lake Forest is currently a buyer's market. This graph also explains why I can't make the same promise in Kenilworth. They don't have an inventory crisis, just a high price point and limited buyers.

Now, considering all of these statistics and factors. I don't believe that there is a problem with the town of Lake Forest, nor the Illinois suburban market as a whole. The town of Lake Forest and the benefits of being a resident are the proverbial spoils/booty/treasure you'll be getting along with winning the "war/conflict" that is negotiating a great price on a home. Click Top 10 Reasons to Move to LF to see why the current residents love their town so much.

This is simply a bad-timing situation for the town of Lake Forest. There are many sellers that don't NEED to sell their home, but yet decided to list it anyway; furthermore, those sellers are trying to get a premium price for their home... just to see if they can get it. Those types of sellers are hurting their own market by increasing the supply of homes and the average market time. They're also going to end up decreasing the % of list price (if they actually sell, the price will be much lower than their list price).

It's simply poor timing, too much inventory, too high of pricing, and outdated homes [...]

Contrary to my point, there are homes that are selling quickly and closer to list price. The graphs above are averages. So there's better and worse than the numbers you see. People are not running from Lake Forest for any particular reason. In fact, Lake Forest has some of the best tax rates around, and the best in Lake County--See my post here regarding property tax rates. It's simply poor timing, too much inventory, too high of pricing, and outdated homes owned by a baby boomer generation (lots of people).

If you're considering moving to suburbs in the 500k+ range, now would be a good time to check into Lake Forest. I believe that sellers are becoming more aware of the situation, and will start to lower their prices large chunks at a time, accept lower offers, and/or take their home off the market. This opportunity won't last forever, because the market will correct itself soon. I'm not trying to pressure you to buy... I don't want to be "that agent" that's always saying "buy buy buy!" However, I do believe this is an opportunity and there are going to be some great deals in Lake Forest relative to what you would have had to pay a year ago, and what you may have to pay next year.

Please reach out to me for help buying or selling.

Questions and comments are welcomed!

Thanks for reading,

Joe

Property Taxes by Suburb... You're Welcome

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Since the first installment of Chicago 2015 property taxes has come out, many are upset about the increases. And they're not finished increasing yet! Read this if you need to catch up. I'm writing this post for those willing to sell/leave their current home in the city, and buy in the suburbs. Defining whether or not your property taxes are high or low is somewhat relative. Are you comparing your taxes to those in a neighboring town? County? State? Or are we looking nation-wide? Also, since they're pretty much inevitable, what benefits are you receiving from the village in return for the property taxes you're paying?

We're going to talk about:

  • What you get/don't get in the city and the burbs
  • Illinois’ bad rap
  • Chicago's taxes aren't that high (shocker)
  • Compare hypothetical property taxes based on suburb

 

City VS. Burbs

There are both positives and negatives to city life and suburb life.  If you're in the city, things like proximity to transportation/work, limitless restaurants, activities, and events, nightlife, and the busy-energetic vibe are some of the things that keep you there. Proximity to the workplace is definitely a large factor when people determine where they live, and you will definitely find this to be the case with city dwellers. If you're living in the city, and reverse commuting to the burbs, then buy in the burbs my friend, I can help you :) … In the meantime, we'll pray for you.

Finding a good public school, however, is pretty rare in the city. Chicago Public Schools (CPS) doesn't have the best reputation as it is, and in recent years there's even been many CPS closings. If you read link above (here again), you'll read that part of what the tax increases will go toward the CPS system-which, seems to be mainly for construction and pensions. This is not reassuring for Chicago homeowners. The point is… you don't get the "schools" in return for paying your property taxes in Chicago. On the other side of the coin, since buyers tend to be less concerned with the school situation when looking in the city, the lack thereof is less likely to negatively affect your property's value. The other thing that you won't get is acreage. Not to anyone's surprise, I'm sure, most properties have very small yards, and needed to at least be mentioned here.

On the contrary, when buying a home in the suburbs, one of the biggest factors I come across is "Schools." Unlike the city, this has a large effect on current and future value. Therefore, even the people/couples without plans to have children still want to be within the best school system possible, all in the name of “resale.” MOST school systems in the north and northwest suburbs have at least good schools if not great, and in many cases the schools are some of the best in the country. (I say "most" because obviously not "all" school systems are quality --see the High School rankings for IL here). You'll also get a decent sized yard in the suburbs, or at least have enough options to choose the yard size you desire.

The point is… you don't get the "schools" in return for paying your property taxes in Chicago.

I realize the city life cannot be duplicated; furthermore, each neighborhood in Chicago has its own feel and famous points of interest--that certainly cannot be duplicated. However, many of the suburbs have done a very good job creating their own downtown areas with great food and nightlife. This makes the transition a little easier for those who are reluctant to make the move to the burbs.

Illinois’ Bad Rap

Illinois, has been getting a pretty bad reputation regarding property taxes being among the highest in the country. I will not fight the stats...but I will defend the state a little. This is based on a story I heard while talking with a neighbor the other day. She mentioned a friend who moved from Libertyville, IL to a suburb in North Carolina. She was telling me how their taxes are so low... like $2500/year for a 400k-500k home. As you'll see below, that is very low relative to what we'd be paying in IL. However, she also mentioned a couple concerns that seem to be directly related to the low tax bill. She said they’re on the verge of closing the local library, the kids don't take a foreign language until high school, families need to pay for sports equipment--even for some of the main sports, and how some schools don't have computers--I mean, computers? In 2016? That's a pretty bad.

To defend good ol’ Land of Lincoln Illinois a little, although the taxes are among the highest in the country, the school systems and villages are among the best in the country. I would argue that you’re getting what you pay for in most of the Lake and Cook County suburbs. Even some of the towns and schools that are locally known as the middle to low schools and villages are probably better than those in other areas just because of the sheer proximity to the great schools and trying to keep up with the competition. Some things you'll see that can be pretty standard around here and are direct results of the financing received through property taxes are as follows: School-related examples could be: new wings/additions (tech, science, field houses, etc.), sports equipment, special sport options (field hockey? Pole Vaulting?), amazing facilities (new turf grass, the track, pools, clubs houses, etc.), low student to teacher ratios, take-home iPads in junior high, state of the art tech... And, of course, the actual curriculum and quality teachers. Some village examples could be: clean streets, updated downtown area (lights/seasonal decorations, sidewalk repairs, fireworks/parades, etc.), events, twice/week garbage pickup, beaches, parks, parking, medians, landscaping, etc... Up keeping these things can make a town more functional and look nice. Illinois residents have to take on the financial burden of the property taxes, but they at least get something in return. If you're not getting these things and the tax bill is high, then you can question your choice of 'burb. But! Below you'll see how affordable they can be, especially when you compare them to what you'd be paying for in the city.

Although the taxes are among the highest in the country, the school systems and villages are among the best in the country.

Chicago's Property Taxes Aren't That High

If you live in the city and you're reading this, I’d be curious to know what the Cook County Assessor’s website has listed for your tax rate for your property. Click here

Compare your tax rate to the rates in Cook County in the chart below. If your rate is lower than those you see, the tax bill will definitely be lower. Cross-county comparisons would require comparing the final property tax number, not the rate. Some of the final tax numbers below are not that much higher than they would be in the city. You’ll need to do your own comparison, but I think the benefits you receive in comparison are far more than you would receive in the city. There are of course other issues, tax wise, to leave the city. This article talks about several, here.

Tax Breakdown by Suburb

Finally, the reason you even clicked on this article :)

Below is a chart to show what your tax bill will be in each suburb for a $500k home and a $1M home. Some disclosures about the chart:

  • The rate is only comparable within the same county due to differences in calculation
  • My tax numbers include the Homestead Exemption which is a discount received for occupying the home
    • The tax bill will be slightly higher if you are buying as an investment or second home
  • If you're a senior you can claim a senior exemption that will discount the bill even more
  • This chart doesn't include all the suburbs, but many of the most saught after areas in the area

If you want to know more about how to calculate your property taxes, click here.

Propert taxes chart

If you don't see a suburb that you're interested in, please get in touch with me by clicking here, or going to my homepage.

If you're interested in selling your current home and buying in any of the suburbs, please find me via the Connect tab above, or the social media icons at the bottom of the page, and reach out to me.

Comments and questions please!

Thank you for reading,

Joe

How to Calculate Your Property Taxes

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Property tax calculations can seem convoluted, but our friend, the Government, isn't doing it on purpose... it's just that they don't want it to be too easy for us to appeal the tax bill. They're like an older sibling that's teaching you a lesson the hard way by NOT letting you win. How are you supposed to learn if they let you win? How else is the government going to make money if everyone can understand and appeal their tax bill so easily? K, I'm done with the rhetorical sarcastic questions. Sorry. All joking aside, you should know how to understand your tax bill. For this post, which isn't very long, we'll look at Lake County and Cook County. Then we'll look at whether or not you should appeal your tax bill.

Both counties use an Assessed Value to start their math. This assessed value is NOT necessarily market value; in fact, while you want your market value to be high, you don't want the same for your assessed value. Let's use an example to help you understand the math (don't be scared). We'll start with the basic breakdown for both, then we'll get into some additional details. For the example we'll use an Assessed Value of $100,000.

Lake County:

100,000 divided by 3, multiplied by the village tax rate.

Cook County

100,000 divided by 10 (10%), multiplied by the state multiplier (2.6685), multiplied by the village tax rate.

Each village has a different rate. See my Property Tax Chart here (it's at the bottom of the post). In the below example we're using Glenview's tax rate at 8.924% and Libertyville's tax rate of 8.13% for Cook and Lake County respectively.

Libertyville (Lake County)

(100,000/3)*.0867 = $2,890

Glenview (Cook County)

((100,000/10)*2.6685)*.08924= $2381

Now the extra details... some that matter and some that don't. 

If you live in the home, you get a homestead exemption on your taxes. In Cook County this takes $7000 off the value just before it's multiplied by the tax rate. Lake County is the same, but they give you $6000 off the final number before multiplying by the tax rate. 

Furthermore, if you're a senior citizen, you can get a Senior Exemption worth $6000 in Cook County and $5000 in Lake. This is in addition to the Homestead Exemption and applied in the same part of the equation, just before the rate is multiplied. 

The Homestead and Senior Exemptions are a fixed number no matter how expensive your property. This means that whether your tax bill is like the one above for your $100,000 home, or whether it's 10x the amount for your $1M property, you're still only getting a few hundred dollars off the bill regardless. 

Also, some pointless information that you'll find......pointless. Lake county does 2 things in 3rds. The first is dividing your assessed value by 3. The second is dividing that number into 3rds and dictating 1/3rd of it to land, and 2/3rds of it to improvement (building). You're welcome.

To Appeal or Not to Appeal

Contesting your taxes can save you money on your tax bill, sometimes a significant amount. This means lowering the assessed value of the home. Either homes are selling for more than your assessed value, or less. When the market is going down and homes are depreciating, that most likely means that homes are over assessed; they are worth less than their assessed value. That is the type of market that is best for homeowners to save money on their taxes. Unfortunately the market seems to be on the rise. It's possible that some homes are still not selling for as much as the assessed value, but most homes now are under assessed; they are worth more than the assessed value, and therefore tax bills are likely to increase in the future. 

Thanks for reading!

Comments and questions welcome!

Joe

 

 

 

 

Home Buying Steps

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Many buyers I work with have questions about the process. To help them stay one step ahead, I’ve created a simple guideline. Let’s get to it!

  • Pre-Approval
  • Search
  • Visit
  • Offer
  • Attorney
  • Earnest Money
  • Inspection
  • Mortgage
  • Close

Pre-Approval

You must have a pre-approval accompany your offer to purchase. So, if you want to buy a home, this is the first step. This can be done prior to talking to an agent, but, usually agents have reliable and trustworthy relationships with lenders. That relationship can make the buying process go much smoother. Many agents will ask for a pre-approval before looking at homes. This is normal-don’t be offended. This serves as our reassurance that our time is valued, and also offers a sense of safety regarding your identity (Learn more about pre-approvals here). If you are planning to pay cash for a home, you’ll need to show proof of the funds in lieu of a mortgage pre-approval.

Search

This really can get tricky depending on how many properties fall into your criteria. The MLS’ search system (which is what most agents use) limits the original search to 100 properties. This seems like a lot, but you’d be surprised how easy it is to get above that number, especially as the price range increases. I may suggest we set up a search, through my website (here), in order to avoid the 100 property limit. We want to keep things somewhat broad, but definitely rule out the “deal breakers” and be sure to include the “must haves.” If you must have a basement, then we can search for homes with basements and you will NOT see any homes that do NOT have a basement. Same with a 2 car garage… you won’t see ANY 1 car garage homes, etc. So we need to be sure what the absolute yes’s and no’s are when we search so that you have an accurate group of properties to choose from.

***Sidenote. We can set up several folders/searches for different towns, price ranges, or criteria if you want to separate. i.e. Folder 1–Land Lots Only <200k, and Folder 2– 4 bed 2.5 bath w/bsmnt <600k.

Visit

While searching, you’ll be able to mark properties “interested”, “maybe” or “not interested”. Along with, comments for your spouse/family and reminders of what you liked/didn’t like about the property. I’ll be able to view how you’ve categorized these properties, afterwards we’ll schedule a group of homes to see in person. Scheduling with a 24 hrs notice is customary, but we can always try to schedule same day appointments if we’re both free. I’ll schedule the homes you want to see, in an order that makes sense, and we’ll go check ’em out!

Offer

Once we find a home you like, we’ll put an offer in. We can meet and get this done in person or electronically via email. Once the contract is signed on our end I’ll send it, along with the pre-approval/proof of funds, to the seller’s agent. We may go back and forth a few times regarding the terms of the offer, after agreement we’ll change any terms on the contract accordingly and you’ll initial the changes.  (You don’t need amend the contract and initial for every counter offer). Once the sellers sign the amended contract and return it to me, we are officially Under Contract, and the property is marked “Contingent” or CTG.

Attorney

Once we’re Under Contract, your attorney enters the picture. Just as with the lender, it’s not necessary to use the attorney that your agent is familiar with, but it definitely helps the process go smoother if they’ve worked together in the past. I will send a copy of the contract to both your attorney and your lender, and they will immediately get to work with your file. The first 5 days of the contract is called the Attorney Review period; your attorney can review the contract and make changes you and/or they deem necessary.

Earnest Money

The earnest money is part of your down payment up front at the beginning of the process. I usually write “within 2 business days of acceptance” to give us a little bit of time to make arrangements for money and delivery. Either, one of the brokerages or one of the attorneys will hold the earnest money. This shows the seller how serious you are about buying the home. The amount is agreed upon before going under contract, and can be any amount up to the full down payment/purchase price of the home. But, typically the number falls in the 1-3% range (of the purchase price).

Inspection

You have 10 days to complete an inspection, but to err on the safe side we will get one done within 5 days during the attorney review period. After communicating with the attorney, he/she will ask the seller for a credit and/or to repair certain items. This is another step of negotiation, and both parties need to agree. Once agreed what will be fixed/credited, the attorney review/inspection period is over.

Mortgage

This is the only thing left that needs to be finalized. Usually at this point we’re waiting for an appraisal on the home to make sure that it’s worth what we’re paying. Your lender will have requested several financial documents from you prior to this point, and may still be asking for more. Your lender’s job is very important since there are deadlines in the contract that they will have to meet. And they need to structure the loan properly based on the contract and what was agreed upon through the attorney review/inspection period. They will send everything to underwriting, and eventually get the “clear to close”…

Close

The attorneys will set a time and a place to close. You and I will do a final walkthrough of the property to make sure the condition is the same as it was when we decided to buy it, in addition to any agreed upon repairs. We can do this walkthrough the day of or the day before depending on your schedule… then we go to closing, sign a lot of papers, and get your keys to your new HOME!

This is a very general description of the process so you have a basic idea of what to expect. Not to worry, you’ll have me, your lender, and your attorney keeping track of the process as well. We’ll make sure things are getting done correctly and on time, and we will keep you informed along the way.

Thanks for reading! Questions and comments please!

Joe

You Need to Change Your Paradigm

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I’d like to articulate something that hopefully resonates with you. It has to do with huge paradigms instilled in peoples’ minds from their parents and their parents’ parents… (I think they’re called Grand Parents?). I’m going to try to be a lyrical Leonardo DiCaprio, and put a new idea into your mind. Hopefully I don’t have to go into a dream’s dream—a Grand Dream? If you will Listen, it’s not your fault. It’s not anyone’s fault really. Technology has advanced, but unless you’re entrenched into the business of Real Estate, you haven’t advanced with technology; AND! And… sometimes, even real estate agents are in this boat too. Again, not your fault, don’t beat yourself up. Since we’re on the subject of actors and awesome movies, let’s Quentin Tarantino it here:

  • Agents do not “serve an Area” and they do not have to live close, have an office in the town, or know anything about the area prior, in order to sell your home, or help you buy, in aforementioned area.
  • Agents that have more years of experience are not necessarily better equipped to help you buy or sell a home.

These are the paradigms you need to accept in today’s world. Now, in true QT fashion let’s go back to the beginning. At first this might seem crazy… because of what you think you know and what the people before you thought they knew. Pre-internet is where these spinning totems existed and no one has taken them out of the safe since then (you need to see the movie Inception for that reference).

Let’s tackle the first paradigm you need to change:

An Agent is better because they live/work/know here.

Back then, having a real estate agent who knew your town, worked in your town, had sales in your town, etc. was VERY important. You needed to rely on them having their ear to the ground, having potential buyers for your home, knowing what’s coming on the market, what is on the market, blah blah blah. I salute these men and women of old, because the real estate job was probably a little more time consuming back then. Living in the town and being an expert in a specific area used to be a very strong benefit, and sometimes this was the only distinguishable attribute for an agent… but that was back then, way back in 1992 (yeah, seriously).

First, having an office in the town does not equal town-knowledge… except for that they know where the office is located within the town, and the roads they take to get there. Not every agent works from the office. Agents pick offices based on environment, commission splits, how much time they can work from home, etc. So just because an agent works at the office in your town doesn’t mean they know the town.

“…just because an agent works at the office in your town doesn’t mean they know the town”

Second, you’re taking the agent’s word for it anyway. When they tell you they live in your town, or grew up there, or whatever… Are you going to quiz them about what used to be on the corner? Are you going to see if they know who the mayor is? Even if they pass your “do you know my area?” test… It’s still mostly an empty sales pitch, whether they’re being truthful or not.

Third, why does this matter? A good agent living in the neighborhood cannot sell a home any better than another good agent unfamiliar with the town. It’s always possible that either an agent prices the home wrong or doesn’t ask the right questions from the seller in order to market the home to buyers—but it has nothing to do with the fact that they are/aren’t familiar.

Echo the first, second, and third points for buyers as well. Agents cannot recommend schools or churches anyway, because we cannot steer you into or away from any town/neighborhood/home. Knowing the different schools is probably the biggest factor for buyers, but again, we can’t steer you one way or another. You need to do your research on which school districts you want to live in, and then we can find a home for you in that district. So again, it doesn’t matter if the agent does/doesn’t know this information because it can’t be used anyway.

Forgive the combative negative tone J (smiley faces always help). Those are my would-be arguments if the only way being familiar with an area was to be geographically near it…But…

We are now in the information age. Every sold property and all of the stats that go with it, including the pictures, are available to anyone and everyone. You can virtually walk through streets anywhere in the world online. You can find out information on any town and all the amenities it offers-i.e. schools, restaurants, etc. This is all available to you, and to your agents. So instead of finding an agent that knows the area (or so they say), find an agent who knows the business, and knows how to find and analyze the information so they can help you make an educated decision.

“…instead of finding an agent that knows the area (or so they say), find an agent who knows the business”

Let’s tackle the 2nd Paradigm to Change:

The longer an agent has been in the business, the better.

There is not “back then” for this idea. This idea stems from assumption in general. There are 2 ends of the spectrum, just like with any bell curve. There are people out there with a lot of experience, which still suck at what they do; and there’s people with little to no experience that are awesome at what they do. Then there’s the majority that fall into the middle—and in most cases the longer you’ve been doing something, the better you are.

However, in real estate, it’s possible to be in the business for 15 years and do the same amount of business as someone who’s been in the business for 1 year. The difference is, the agent with 15 years of experience makes you feel better because they’ve been doing it longer and live in the area (sorry, it just seems like that type of agent would also throw in the locality idea, I couldn’t resist). The better fit in this case might actually be the 1 year agent, because he’s done the same number of transactions at a higher frequency. Which segueys nicely into my next point.

Everything is constantly changing. I’m sure you’ve seen a nice cursive written meme on your feed… maybe with a sunset or a flower backdrop that says “the only thing in life that is constant… is change itself” or some extra corny version of an already cliché phrase. As much as I hate to give it credit, it’s true. The years of experience that an agent has may or may not be relevant today.

There are too many agents relying on their address and the time they’ve put in than focusing on finding a unique sales proposition and keeping up with technology.

It is much more valuable for your agent to be able to think on their feet while protecting your interests to get you the best deal possible. It’s much more valuable for the agent to be able to listen your needs and come up with a plan to meet those needs. It is much more valuable for you to trust your agent and for them to be honest with feedback as you go through the process so that the plan can be adjusted as necessary.

Be sure you have a smart and hardworking agent that can handle social media and modern day communication—who is also trustworthy and can be honest. These agents need to represent you in the sale or purchase—being familiar with the area you’re in/looking in has almost nothing to do with their ability to do that, and the years of experience don’t give you any guarantee either. I would take an awesome agent from a completely different world with decent number of transactions, over one who happens to live in my neighborhood and has been an agent for 10 years… awesome is the key word though.

Thanks for Reading! Comments and Questions welcome!

 

 

You can probably buy a home, and you didn't even know it!

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There was a multitude of issues that led to the housing/lending crisis, but one thing was the lack of regulation when it came to obtaining a loan to buy a home. Immediately following, there were some pretty strict standards set in place to be sure that buyers could actually afford the homes they were buying. This strictness made it more difficult to secure lending and therefore, purchase a home. Since that happened, things have loosened up a bit, but in my experience there are a lot of people under the wrong impression about their ability to buy. Let’s talk about…

  • Pre-Approvals
  • Tax, HOA, Purchase Price Game
  • Money Down
  • PMI/MIP
  • Other Factors

 

Pre-Approvals

You may have had a real estate agent ask you to get a pre-approval before looking at homes. This is an important believe it or not. If you want the honest truth, here it is: Agents don’t want to spend our time looking at houses with someone who cannot buy one. However, there are safety reasons as well. A pre-approval means you’ve given your information to a lender, which vets you a little bit. As an agent, i'll at least have record of who you are if you try to kill me. It seems extreme, but there have been many instances of missing agents that have been found dead recently. So agents may have concerns about their safety, and knowing your name and address may give an agent some reassurance. If an agent asks you to get a pre-approval first, try not to get offended, it’s just part of the process. You’ll also need a pre-approval in order to put in an offer, so what are you waiting for?

The pre-approval should pretty much tell you whether or not you can get a mortgage. If you speak to a good lender, they should be able to give you a monthly allotment for your payment. This payment is your max payment based on your numbers (income, debt, credit, etc) and it needs to include your mortgage, taxes, HOA fees, and home owners insurance. You and your agent can then play with the numbers for different properties depending on how expensive the different variables are.

 

Tax, HOA, and Purchase Price Game

Just as a general rule of thumb, with rates around 4%, you can calculate the mortgage piece to be about $50/mo for every 10k in loan amount. So for a 100k home loan your mortgage payment is about $500/mo. (This doesn’t include taxes or any other expense) The taxes need to be divided by 12 to get your monthly payment amount. What many people need to realize when searching for homes is that every $600 in taxes is equal to $10,000 in purchase price, which both result in $50/mo. Example… $200K home with taxes at $5000/year is the same as $180k home with taxes at $6000/year. If you can afford one, you can afford the other. Sometimes people count out the home at 200k because a lender approved them for a lower purchase price, but didn't give them the full details of how this was calculated. The effects of this can be exponential as you get into a higher price range. If you find a $500k home with taxes at $15,000/year, and that’s the top of your budget, work with your agent to search by tax range. If you search for homes with taxes under $12,600/year ($2400 less), you just bought yourself another $40,000 in purchase price, so you can now buy that house at $540k. Those numbers and that scenario is very realistic in some areas and for many people; furthermore, if they don't realize this, they may be missing out on their perfect home due to poor guidance.

“Just as a general rule of thumb […] it’s about $50/mo for every 10k in loan…”

The HOA fees for townhomes can really hurt you. Typically townhomes and condos sell for a little bit less than single family homes, but an HOA fee is typically around $200/mo or higher.

***Sidenote- if you don’t get a pool, clubhouse, workout room, or some type of amenity other than snow and lawn care, you should seriously consider a single family home. You can pay a lawn care service and a plow company less than $200/mo.

Add the HOA fee into your calculation of monthly payment. You might be hitting a ceiling on purchase price and/or property taxes because you have to factor in $200/mo for HOA fees. Without that $200/mo in HOA fees you can go up $2400/year in taxes or—get this—$40,000 in purchase price! Same as the example above! That is a big swing in either direction and you may be able to get into a better neighborhood or get more house for your money.

 

Money Down

There are 2 types of mainstream loans, Conventional and FHA. A Conventional loan is a private backed mortgage and an FHA is a government backed mortgage. FHA loans are considered easier to get, and most of the time have the best interest rates. One of the things that makes it easier is the minimum amount you have to put down. You only need 3.5% of the purchase price as a down payment. AND! Even for a conventional loan, it’s still only 5% minimum. We’ll get to the downside of putting so little down, but if you are going to be saving money because you own rather than rent, sometimes it’s worth it. Through many conversations with friends and clients alike, I’ve found that there is a common misconception that you need to put 20% down. Again, this is NOT the case. It's currently either 5% or 3% but putting down 20% has it’s benefits, which is where the assumption comes from.

“You only need 3.5% as a down payment. AND! Even for a conventional loan, it’s still only 5%…”

PMI/MIP

These acronyms stand for Private Mortgage Insurance (PMI) and Mortgage Insurance Premium (MIP). They are the same thing with different names for private (conventional) and government (FHA). I’m going to use “PMI” since that seems to be what the general public is most familiar with. PMI is a % rate of the loan that you’ll need to pay per year. The rate varies, but is usually around 1-2%. That’s a lot of money to pay each year, and it's factored into your monthly payment. In addition to some of the things aforementioned, this can really mess up all of our calculations for monthly payment and what is/isn't affordable. This PMI is what you have to pay if you are not putting down 20%. This is why there is a common misconception that you “NEED” 20% down to buy a home.

***Disclosure: talk to your lender. FHA and Conventional PMI situations are different. You may be able to get rid of your PMI payment when you reach an 80/20 loan to value mark, but you may not—sometimes there is a minimum amount of time you need to pay it regardless of your loan to value. Also, there may be ways to pay your PMI up front, and it may be cheaper in the long run to do it that way.

Other Factors

Besides having some money saved for down payment, there are other things to consider. When you speak with a lender, they’ll be quizzing you on all of this so that there aren’t any surprises down the road, and therefore you'll avoid watching the home you fell in love with slip away.

***Sidenote: Be honest with your lender about everything. Thank you.

Since regulations change frequently, I’m not going to be very specific in this section so that the content can remain true for as long as possible. Just understand that your lender is there to help you get a loan, but they cannot break the law or the rules to do so. They can, however, help you remedy some situations and give you options for the future. It would be very wise for you to get in touch with a lender sooner than later if you are planning to buy within the next year or two.

They will be looking at your credit score, monthly/yearly income-bank statements and tax returns, your credit history, debt, debt/income ratios, and monthly expenses. All of these factors will have an effect on your ability to buy. In order to ring true to the title of my article, I wanted to point out a few things that may be misconceptions. The first is regarding your credit score the other is a tip for your budget.

Your credit score doesn’t need to be perfect. Even now the rates don’t change much from a credit score higher than 620. It’s possible to get a mortgage even with credit scores in the 500’s!! Of course a low credit score usually comes with other credit-type ailments i.e. foreclosure, short sales, high debt, etc. BUT! It’s possible.

If you have to go a little over budget to get a home you want, you may be able to make some of it back as a homeowner. Currently (2016) you can write off your property taxes, and mortgage interest. You are primarily paying interest every month towards the beginning of your 30 year mortgage, so the tax benefits can make up for a lot of tightening of your budget necessary to get the home you want.

Considering all of these things, you can probably buy a home! But the important thing to do is find out whether you can or can’t. It doesn' hurt to do some due diligence except your pride if you can’t :( But don’t fret! Talk to your lender and agent to find out what you can do NOW so that you can buy in the future. If you take care of things now, then, when you are ready to buy, you’ll be able to buy. Get a pre-approval, and ask the right questions so you and your agent can plan accordingly and find the most home in the best neighborhood without going over budget nor wasting time. Hopefully this empowers you!

Thanks for reading! Leave your comments/questions below!

Best, Joe