Short Sales
The real estate market has certainly seen its challenges over the past couple of years but for buyers there are opportunities available that have not been seen in decades, the short sale. Short sales are becoming more prevalent in the Chicago area and buyers are seeking them out as never before. It is not rocket science to understand the basics of a short sale. Short sales are when a lender agrees to accept less than the amount owed against the home because there is not enough equity to sell and pay all costs of the loan. It used to be that lenders would not even consider short sales if your payments were current but with the changing real estate and mortgage markets more and more lenders are more agreeable to negotiate.
There are several areas you need to be aware of if you intend to pursue a short sale. First of all hire a real estate agent who has short sale experience. Not all agent even know what a short sales is or ever been involved in this type of transaction. An experienced agent can help expedite the transaction and protect your interests. It is important that you not miss any details that could affect the sale somewhere down the road. Next is to prepare the seller for demands made by the lender. Remember the seller has no equity and is unable to pay the difference between the sales price and existing loans. Your seller may need to provide a hardship letter indicating their inability to pay the difference as well as taxes they may owe. Another very important area to address is to make certain the lender is given a deadline in which to respond once the seller has accepted an offer. Some lenders submit short sales to committees but that does not mean a decision could be reached in two to three weeks which lessens the possibility of getting further behind. Remember the lender may not be under any pressure to make a decision and the paperwork could sit on someone's desk so a deadline can be beneficial to everyone involved. One last area to consider with short sales is commissions. The seller may agree to pay a commission but actually the lender is who ultimately will pay. The reason is the seller is not receiving any money in which to pay the commission. Since the lender is losing money they will likely negotiate the commission directly with the listing broker.
Short sales in Chicago can be the path to home ownership for many buyers which are expected enter the market in the next few months. It is not always an easy way to purchase your home or condo but the benefits can be enormous.
Open auctions
Open auctions
The fact that the U.S. Postal Service is using a open auction to sell its former Chicago headquarters, a 14-story building at 433 W. Van Buren Street, after trying unsuccessfully to sell the property conventionally, just might be an indication of the increasing popularity of the auction method of selling real estate of all kinds, whether it be a condo or a corporate headquarters.
The building known as the Main Post Office originally went on the auction block on August 27, and British developer Bill Davies submitted the $40 million winning bid for the 14-story, 3,000,000 square-foot property. Considering that the suggested opening bid was $300,000, it is easy to see how the price can escalate in the competitive environment of an open auction, when bids are made publicly. This is just one reason real estate auctions are becoming popular ways to sell property in a difficult economic climate.
Built in 1932, the building that spans the Eisenhower Expressway and two city blocks once held the record as the largest postal facility in the world, with operations conducted on nine floors. It has been vacant since 1995, when the USPS moved its headquarters to a few blocks away, to 433 W. Harrison St. Several attempts to redevelop or sell the unique property have been unsuccessful.
Before the August auction, Tom Samra, vice president of facilities for the USPS, expressed confidence that the "innovation and transparency of an open auction" would result in the sale of the building. But because Davies did not complete the transaction within the allotted time, for whatever reason, the historic structure is going up for sale again. Mark Reynolds, the USPS spokesman in Chicago said only that Davies is no longer in the running. "I'm not sure why he didn't complete the deal. Only he could answer that," he said on Oct. 15.
Of course, setbacks like that can and do happen with all types of real estate sales. When that happens, depending on what the owner decides to do, the property could go back on the auction block, the second-highest bidder could be given a chance to buy the property, or the property could be taken off the market or sold in a conventional manner. Just what will happen does not have to be decided before the auction. In the case of the post office, the runner-up bidder, Chicago attorney Nathaniel Hsieh, has been described in published reports as "outraged" that the USPS mailed letters to all the auction participants to solicit new bids, rather than just accepting his back-up contract. He said he intended to file a complaint.
Reynolds said that to his knowledge, no plan had been set up before the open auction to determine what would happen if a deal fell through. He said the USPS "is in communication" with other bidders and a decision has not been made about how to proceed. He did not rule out accepting Hsieh's offer.
"We had expected to have the building sold by now. We want to complete this as soon as possible," said Reynolds.
Condominium Sellers Embrace Auctions
While auctions have long been touted as a good way for buyers to take advantage of market inefficiencies and desperation selling, sellers are more and more often utilizing auctions as a way to move inventory quickly without the expense or hassle of dealing with brokers.
The market has firmed - that is to say, stabilized - in much of the country, and people looking to live in or invest in property are turning out in substantial numbers at condo real estate auctions and have, consequently, put a floor into many markets' prices. But auctions, historically reserved for liquidations of developers' or banks' foreclosure portfolios, are gaining traction with sellers.
While open market sales with brokers will generally allow sellers to realize higher sale prices in a softer market, in firmer markets, the difference between a seller will get at auction and what a seller will get after a commission sale through a broker is sometimes greater, but more often less enough that the difference is negligible for the peace of mind that comes with having disposed of an unwanted or unaffordable property.
Auctions are run with far lower commissions, and in firmer markets, demand is strong enough among an active investment community that there is actually rational pricing and decent liquidity for housing inventory.
This liquidity and pricing rationality is most frequently found at condo real estate auctions, since there seems to be a consensus that new construction will outperform existing homes in any real estate rebound (not to mention that it is smarter to buy new if it costs the same as buying old because of lower maintenance costs, etc), and that urban areas will turn before suburban areas because demographic and economic trends do not favor as rapid a recovery in suburbia.
While the vast majority of homes sold at auction are part of liquidation, retail sellers looking to sell property quickly are frequently surprised by how well they are able to do at auction, particularly if their property is in a desirable building in a desirable urban market like Chicago.
While there are no guarantees in the auction process, reserve prices protect against any outrageous low-balling, and the frequency of auctions and the consistency of pricing has even given way to a new breed of speculators who flip condos for tiny profit margins at various auctions. For those with a bit of a stomach for risk and a burning desire to sell a condominium quickly, an auction or online auction is worth considering.
Condominium Law
In most states, condominiums do not have a corporation set up to be responsible for the liabilities, taxes and governance of condos, PUD's or condotels. That is why each state has a special set of condominium laws detailing how condos must be organized and operated. These laws require each condominium project to file a declaration and by-laws, with specific requirements regarding the rights and duties of the association. Condominium statues vary considerable from state to state and many times lack protection for the consumer. While some states provide only the barest framework for creating and governing condominiums others are very complex and can be confusing. Before you buy a condo it would be a good idea to obtain a copy of the state law and consult a trusted real estate attorney.
Condominium law can be quite confusing with all the definitions and time well spent may be the key to making a good decision if you are a first time homebuyer or a seasoned homeowner purchasing for the second or more times. Some important definitions are contained and been paraphrased in the interest of space.
Declaration - the instrument by which the property is submitted to the provisions of the act. Declarations can be amended from time to time depending on local or state laws.
Unit - means a part of the property designed and intended for any type of independent use.
Common elements - means all portions of the property except the units.
Unit owner - means the person or persons whose estates or interests, individually or collectively, aggregate fee simple absolute ownership of a unit.
Condominium instruments - all documents and authorized amendments thereto recorded pursuant to the provisions of the Act, including the declaration, bylaws and plat.
Common expenses - means the proposed or actual expenses affecting the property, including reserves, if any, lawfully assessed by the Board of Managers of the Unit Owner's Association.
Association - the association of all the unit owners, acting pursuant to bylaws through its duly elected board of managers.
Reserves - those sums paid by unit owners which are separately maintained by the board of managers for purposes specified by the board of managers or the condominium instruments.
The condominium law definitions above are from the Illinois Condominium Property Act first established in 1963. Today the popularity of condo living has exploded throughout the country and laws governing these types of properties are being looked at closely. With baby boomers entering the market interested in moving away from the traditional detached homes, condo living has become much more attractive and laws governing them can be very important.
Chicago real estate auctions
OwnACondo.com is holding a Chicago real estate auction November 8, 2009 at the Oak Brook Marriott. There will be approx thirty properties auctioned off that day. There will be seven vacant lots, two single family homes and twenty-one condos in the auction. Five of the vacant land lots will be auctioned off absolute with all the remaining parcels being auctioned off reserve.
Chicago real estate auctions are becoming increasing popular with more than 30% of all real estate expected to sell by auction over the next three years as reported by the National Auctioneers Association. Real estate auctions give both the buyer and seller the comfort of knowing the real estate was sold fairly and at fair market value. The seller receives what the top bidder is willing to pay and the buyer pays what he wants. It really is a win-win for all parties involved.
The excitement is very real as the bidding goes back and forth between hopeful buyers. As the crowd looks on and buyer decides if they want to up their bid, the excitement grows even more. Then as things wind down eventually the last bidder standing wins. The crown cheers and claps and the bidder goes on to sign the contract.
Chicago real estate auctions can be found by looking in the Chicago Tribune on Wednesday's in the business section. A few pages in there is a section called "auction mart". Most of the auction houses will advertise their event here. As you look through the advertisements, you'll notice that there is a Chicago real estate auction virtually every week somewhere in the Chicago area.
Make sure that you get your real estate financing in place before bidding. Most real estate auctions cause the buyer or winner of the bid to sign an as-is contract with no contingencies. You want to make sure you can close on the property after win the bid. Financing the winning bid is essential unless you intend on paying for the property cash. Most lenders will want all the information on the property before moving forward on it. The bid package that most realtors will be able to give you will have most of everything a bank will be looking for.
Chicago real estate auctions will continue being very popular over the next several years as banks continue to get their real estate off the books and in the hands of the consumers that will want to live there.
Miami Condo Market: Here Comes the Sun?
As far as new construction goes, Miami is the archetype of a real estate boom gone bust. A historically cheap market for decades, Miami saw massive appreciation during the last real estate boom that many developers saw as an opportunity to monetize in a very big way.
Oops! Rising interest rates the housing crisis they contributed to made it difficult for new buyers to afford new beachfront condos, while a decline in values led many pre-construction or early buyers/speculators to sell. The beach in South Beach is now festooned with vacant art deco buildings that are as unlit at night as they are during the day - completely vacant.
Peak-to-trough prices on new constructions in Miami arguably demonstrate that Miami has taken the biggest hit of any city during the latest bust: somewhere between 45-55% of value has been lost, depending on whose estimates you trust. Is this punishment justified? Buyers of vacant and foreclosed properties at Miami real estate auctions don't think so, and there are a few reasons why.
Many present-day buyers aren't looking for a rebound as quickly as those some expect to see in markets like New York or Chicago. But the values are too good to resist. Consider that a one-bedroom beachfront condo in a brand-new building will regularly sell for $125-150k at auction.
The mortgage on a property like that will run roughly $1200/mo, just 20% more than what the going rent for such a property. So today's buyers are essentially able to buy 100% equity for 20-30% of the cost. High vacancy rates and a slower-growing population mean that inventory isn't likely to be fully cleared for quite some time.
But the economics of renting, let alone the economics of owning for such a low monthly payment, make buying at today's prices compelling even without the prospect of appreciation.
But appreciation may not be too far off the horizon: here comes the sun. Many buyers at today's Miami real estate auctions find Miami compelling on the basis of national demographics.
Such relatively affordable housing in such a fine climate in a state with no state income tax is bound to induce senior citizen buyers, many of whom won't want or won't be able to afford to live where they live now once they do retire.
That demographic, whose growth is accelerating as boomers age, was once destined for Palm Beach; these days, there is good reason to believe that they will quickly sop up excess inventory and restore equilibrium to the Miami market to buy a better life for themselves - and certainly their grandchildren.
Winds of Change Shift Financial Wealth to the Windy City?
Because condominium buildings were so profitable for developers during the recent real estate boom, many major cities are rife with inventory of shiny new condos without any buyers to call them home. Chicago is no exception.
Peak to trough prices on new constructions here are comparable to other cities, the lower median prices mean than New York or Los Angeles mean that least net worth has been lost in dollar terms. But of all major cities with condo gluts, Chicago may represent the best investment opportunity if you subscribe to the inflation thesis that is driving a lot of today's real estate buying. This thinking runs roughly as follows.
The quantitative easing and fiscal stimulus enacted by the government in response to the recent financial crisis will, eventually precipitate inflation. This inflation will in part be caused by a weaker dollar – a dollar weakened by a greater supply of printed currency the government will use to pay its debt – and also cause a weaker dollar, as assets priced in dollars will become cheaper to foreigners who will therefore demand them in greater quantity.
This inflation thesis, along with significant declines in housing prices that have created high rent yields and a good risk-reward profile for investors, has driven some of the logic behind smart money real estate buying recently. And elsewhere in this blog we discuss why this trend will be strongest in cities and why investors in urban real estate stand to make the greatest return.
But buyers of condos at Chicago real estate auctions may stand to do better than investors in other urban areas – even in Miami, where the market has seen a ~60% decline – because one of Chicago's biggest industries is inflation-driven: commodities.
An inflationary environment, combined with new demand for food and energy from emerging markets along with dwindling global water resources set the stage for what many are whispering about as another asset boom connected to inflation.
As a driver of much of the premium real estate buying in Chicago, a big expansion in the commodities trade in the form of a larger work force and higher salaries could put significant upward price pressure on prices that will already be rising because of inflation.
How appropriate then, that one of the best ways to get a good deal on a Chicago condo is by buying one at any of the many Chicago real estate auctions – just like any good commodity trader would want it.
Buying Real Assets Virtually
The recent housing crisis put more condos into foreclosure than the market seemed to know what to do with – until recently, when the smart money began turning up at auctions to buy properties for 50, 60, or sometimes even 70 percent less than original asking price. But who has the time or local expertise to work the courthouse auction circuit?
Online real estate auctions provide a convenient way for retail buyers and investors in condominium properties – some foreclosures and others just inventory that developers or sellers are looking to move in a hurry – to bid on them without having to buy through a broker or moonlight as auction-goers.
Today's online real estate auctions operate just like conventional auctions except in that the bidding takes place online, either live or through an agent. Most often, a list of properties is provided in advance so that prospective buyers can take a look at the properties in person or else send their own private appraiser.
The most experienced investors are sometimes satisfied merely through an online tour, though it is recommended that anyone see a property in person before bidding. Come auction day, bidders can place maximum bids that will be automatically entered or else they can bid live as they see the bidding action unfold.
There are certainly merits to each form of bidding. The former method is more convenient for would-be bidders and also ensures that emotion does not get the best of bidders – i.e., that they don't find themselves extricated in a bidding war. The second approach, however, has its practitioners, who like to get a sense of the market and see how much comparable condominiums have gone for in the same auction as a basis for setting their bids.
Regardless of how one chooses to participate in an online auction, the format represents an easy and effective way to buy a home or invest in income-producing property. And because auctions are representative of a much smaller market of buyers than the overall real estate market, there is opportunity for buyers to make out with even better deals than the current market provides.
Sellers also appreciate the format since there are lower commissions, so even if he or she gets 5% less than an official asking price, lower commissions will make up for the difference and allow them to dispose of the property more quickly than if it were left on the open market.
Chicago Real Estate Auctions
Chicago real estate auctions
I knew very little about Chicago real estate auctions when I joined the staff of OwnACondo.com about a month ago. But I am learning quickly about the advantages of condo auctions in particular.
Over the years I have been to a few vehicle auctions, and I am familiar with livestock and farm auctions also. However, I was surprised to learn that industry officials believe as much as 30 percent of all residential property sold annually in the United States will soon come under the gavel of an auctioneer, possibly even more. Already, according to the National Auctioneers Association, $60 billion worth of real estate was sold by auction in 2008.
As I find out more about auctions, it is easy to understand why so many people see them as the way to go when it comes to selling condos, townhomes and other residential property. For motivated sellers and qualified buyers, real estate auctions are an ideal way to do business.
For instance, the traditional way of selling real estate can be fraught with problems and frustrating setbacks. Especially during the current difficult economic climate, perfectly good condos for sale can languish on the market for many months, while sellers wait patiently for qualified buyers. Sellers are often already financially strapped, and if the process drags on too long, the carrying costs of holding on to the property can quickly get out of hand. Banks and other mortgage lenders that find themselves inundated with foreclosed properties can also use real estate auctions to get them off the books, selling the properties quickly and easily, with the least amount of hassle and maximum amount of profit.
One of the many advantages of Chicago real estate auctions is that the brokerage firm conducting the auction handles all the marketing and advertising that the seller would otherwise have to do. Because the goal is to attract as many prospective buyers to auctions as possible, the events are always heavily advertised for about six weeks leading up them. OwnACondo.com holds several open houses to allow prospective buyers to inspect the properties that interest them. Company representatives also organize and produce disclosure packets and auction presentations, everything needed to prepare buyers and sellers for the auction. The advertising fee paid by the seller to take part in the auction is well worth the immense amount of high-visibility marketing done by OwnACondo.com to promote the event, which all puts the seller's property in the spotlight.
A well-attended auction benefits buyers and sellers. The marketing is designed to drive everyone interested in the properties to attend, and this means that the auction process will determine the fair market price of the property. In order to place bids, prospective buyers also must prove they have property financing in place and bring earnest money to the auction , so once the winning bid is decided, the closing can be completed in as little as 30 days. In fact, with an enforced closing date, the sale must be completed within 45 days. A winning bidder who does not complete the sale will lose his or her earnest money.
The bid calling and competitive nature of auctions add to the excitement of the events, and can escalate the price of property above what a seller expected. But by the same token, winning bidders can get deals also, and pay less than expected for a property they really like. Absolute auctions, in which the seller agrees to sell the property for whatever the winning bid turns out to be often generate the most excitement, because the sale is guaranteed. But sellers concerned that they may have to give up the property for an unacceptable price have the option of either setting a minimum bid, which would be published prior to the auction, or setting a reserve price that would not be published. In that case, the seller would have the right to accept or reject the winning bid within a certain period, usually three days.
Ideally, both buyers and sellers will leave Chicago real estate auctions happy, knowing that the deal will be completed in 45 days, whereas traditional, negotiated sales often take months.
