Tuesday, April 22, 2008
The Illinois Association of Realtors released data today on the number of existing home sales for March, 2008. To me, there are two ways of looking at the this data. One - the cup half full. or, as Woody Allen said in the movie Scoop - a cup also half full; with poison.
In Chicago, median prices on homes sold (single family and condominiums) increased 5.3% comparing March 2008 to March 2007. But then again, only 2,045 homes sold, 11.5% fewer than last year.
For the larger, Metropolitan Statistical Area (Cook and surrounding counties), there were 5,753 total sales in March, 2008, up 33.5% from February. But then again, that March number is down 29.0% from last year.
There is a small part of me that wonders how much of the statistical bump-up from February to March can be attributed to those Chicago home buyers and sellers who wanted to "beat" the City's transfer tax increase, versus a typical Spring market effect versus overall economic recovery (or malaise). Probably won't know that answer until next months data is released. But these numbers certainly illustrate something we all know already, far to clearly. for the time being, there are simply fewer deals being made right now compared to last year.
Fortunately, the vacuum created by the declining number of transactions is being filled with what I like to call the increasing "drama to contract" ratio in the remaining deals. But that is another story for another day.
Wednesday, April 16, 2008
Monday, April 14, 2008
On March 3, 2008, Fannie May, Freddie Mac, the NY Attorney General and the Office of Federal Housing Enterprise Oversight reached agreement to address this problem. Effective January 1, 2009, mortgage brokers will no longer be able to order "Made as Instructed" appraisals (requests for appraisals that contain instructions for a report to match the purchase price, or that have real or implied threats that continued business orders will only be made if the appraiser establishes a property's value "as instructed."
After December 31, only specially trained broker employees will be allowed to order appraisers and brokers will be prohibited from exerting any type of pressure on appraisers to influence their findings.
Saturday, April 12, 2008
Wednesday, April 9, 2008
Yes, yes. City Transfer Tax increased effective April 1. Yes, yes, the City Council made a last minute switch so that Sellers are paying the increase, not buyers. Yes, yes, the revised tax declaration form may be the worst, most confused tax form ever. Yes, yes, in the short term many Buyers will be forced to pay the seller's share of the tax based on the contract language they agreed to months ago, before anyone ever considered the increase or the fee shift.
The absurdest cherry on top turns out to be the "CTA Portion Refund." Recall that refund, was proposed and passed as part of the original ordinance, in February, 2008, when the entire transfer tax was going to be borne by Purchasers. At that it made good political sense for the aldermen to jump onto Governor's populist "protect the seniors" bandwagon. They wouldn't have to pay for bus rides, or the tax increase to fund those rides (ok, transit worker pensions too).
But now, the tax increase will in almost all circumstances be paid for by sellers. If the seller is lucky enough to find a senior-citizen buyer (who will attest that they intend to live there for the first year after closing) and the purchase price is less than $250,000, that seller can apply for a refund of the new CTA portion.
Lets all say one that together to make sure we all get it: "Sell to a senior, get a tax refund".
What were those wacky aldermen thinking? Three possibilities:
- Promote reverse ageism in the City by encouraging sellers to focus marketing efforts on seniors (to the detriment of young families and low income wage earners)
- Encourage more seniors to move to Chicago to take advantage of free transit rides
- Eliminate the tax revenue stream that was supposed to pay for all those free rides
Tuesday, April 8, 2008
Back in February, I posted comments on a presentation made to the Illinois Real Estate Lawyers Association regarding mortgage appraisals in the current market. The presenter described the tighter standards lenders were imposing on their appraisers to try to guard against lending too much money against properties located in areas suffering declining market values.
I guess it was only a matter of time before I would see a client's deal nearly scuttled by a low appraisal. After all, the harder it is to get a property to appraise, the more difficult it will be for a Buyer to secure appropriate financing, the less likely the deal will go through. (Kinda like asking how many licks it takes to get to the center of a Tootsie Pop) Two licks? Nope, Two months!
So here is what is happening: A most excellent client wants to buy a condominium. She battled a competing Buyer who wanted the same unit. Bidding war! She is paying full asking price, but at least she is getting the home she really wants. Only now, the mortgage appraiser says the property is worth $20,000 less than the agreed purchase price! (Yikes!)
Ordinarily of course, the lender would refuse to make the loan and Pop goes the weasel! Not so, dear reader. (Yikes, again!) My client, you see, has the wherewithal to make a big down payment. Her financing clause only requires that she accept an 80% (of purchase price) loan. Even with the "low" appraisal, the lender is willing to lend. No weaseling out based on the financing contingency; She can get the loan!
Will the client be forced to overpay for the property? Drum roll please... good lawyering to the rescue. Fortunately, I anticipated this scenario early on when prices started declining locally. For months now, I have insisted that all Buyer contracts be not only contingent on a lender willing to make the loan, but also on an appraisal at the agreed purchase price.
In this instance, the lender's appraisal is low for reasons that are somewhat unique to this property and appears to be more reflective of the provable value rather than the home's actual value in the marketplace. We are pretty confident right now that the property is worth what my client is paying and we will almost certainly go forward. But, most importantly, my client has the opportunity to decide for herself, and will not be forced into buying this home.
Saturday, April 5, 2008
Sometimes I long for the good old days of caveat emptor in Real Estate transactions. Ya pays your money, ya takes yer chances. That sort of thing. Still applies here in Illinois of course, but we have all sorts of disclosure laws now that have subsumed that ancient legal doctrine. We must disclose known problems with lead paint, mold, possibilities of radon, heating costs, and certain specified "major" material defects. It has reached the point that the number of pages of disclosure forms exceed the number of pages in the standard Chicago Association of Realtors form contracts!
Kinda takes all the fun out of real estate deals, but for the fact that sellers often play cute and fail to make necessary disclosures - and then get sued when their Buyers find out. Fun for my colleagues, the litigators I suppose. Troublesome for the rest of us.
So what happens, lets say, when a seller discloses a problem to his buyer, the buyer never experiences anything to suggest that the problem exists while he owns the property and then fails to disclose that problem to his buyer?
Well, thanks to colleague and Illinois Institute of Continuing Legal Education columnist Steve Bashaw, I have yet another reason to lie awake worrying about my clients and their real estate contracts. Steve reports the answer to that very question in the recently reported Illinois Appellate Court decision, Fox v. Heimann, 375 Ill.App.3d 35, 872 N.E.2d 126, 313 Ill.Dec. 366 (1st Dist. 2007).
The original Property Disclosure Report disclosed material defects in the basement or foundation, walls and floors, and settling of the building. The buyers did not investigate the statements in the disclosure report or have the property inspected prior to purchase. After the purchase, they renovated the kitchens, resurfaced the roof, and decorated, but did no structural work. When the property was sold a year and a half later they did not disclose any foundation problems or settling of the building and stated they were unaware of any such issues. Four and a half months after the closing, the building suffered damage from significant settling. After a trial on the merits, the court entered judgment in favor of the "buyers' buyer" and awarded $151,050 in damages, based on negligent misrepresentation.
"the Defendants were contractually obligated to disclose material defects in the property…[and]…breached their contractual obligation by failing to inform the plaintiff of known material defects that were disclosed to them when they purchased the building from [the original owner]."
Does this mean that we have to ask our seller-clients to pull out all the disclosure forms from their original purchases to make sure they "pick up" all previous disclosures?
Will we have to ask our Buyer-client's sellers if they received disclosures of defects that they did not disclose directly to us?
I'm uncertain, what do you think?