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from Local Attorney, Michael H. Wasserman

Sunday, May 31, 2009

THE NUTS & BOLTS OF USING THE FIRST TIME HOME BUYERS TAX CREDIT AT CLOSING

FHA (finally) Reveals the Details

U.S. Secretary of Housing and Urban Development Shaun Donovan made headlines two weeks ago when he first announced that the FHA would allow first time home buyers to apply their $8,000 tax credits immediately, at their closings (The credit would otherwise be claimed when the buyer files his or her Federal Income Tax return).

Last Friday, FHA released mortgage letter 2009-15 which sets out the rules to implement this new policy. Welcome the latest form of secondary mortgage financing - the Tax Credit Advance Loan.

A big hat tip to Peter Olson's CCRE for alerting us all to the FHA's announcement.

The concept seems pretty straight forward. Buyers are going to offered the opportunity to take a second loan at the closing that roughly equates to the amount of their tax credit. The loan will be repaid or forgiven over time as would the tax credit as originally formulated.

WHY CHICAGO AREA BUYERS WANT TO USE THE CREDIT AT CLOSING

This might be helpful for buyers want to lower their monthly mortgage interest rates by either
  • making larger down payments, or
  • buying down the interest rate with discount points at closing
WHAT THE FHA EXPECTS TO SEE - THERE WILL BE SOME STRINGS ATTACHED:

The tax credit cannot be transferred from a Buyer to anyone else, so Buyers are not going to be able to "lease" their tax benefit like, say, a parking meter or a toll road to Indiana. Rather, these are going to be more like payday loans or advances against income tax refunds - only this time the loans will be secured against real estate.

Of course, there will be restrictions:

  • Home buyers will NOT be able to take cash back at closing. No walking away money.
  • The advance loan CANNOT be used towards the first 3.5 % of the purchase price, used as a down payment.
  • The advance loan CANNOT exceed the total of a buyers' down payment, closing cost and pre-paid expenses (pretty much the same as not being able to take cash out, isn't it?)
  • The loans cannot have a balloon re-payment period of less than 10 years.
  • If the loans call for "short" re-payment schedules, and buyers fail to repay on time, the loans must provide for a repayment schedule with principal & interest specified or that the loan goes "soft."

BUYERS WILL HAVE TO PAY TO PLAY:

Closing costs, that it. The FHA is suggesting that anything more than 2.5% of the credit amount ($200 on an $8,000 credit) is excessive. Anyone want to bet what the lenders are going to charge to make these tax credit advance loans? (Me, I am thinking ....$200). Then again, I will not be surprised to see some lenders "push the envelope" on that suggestion and some will certainly charge more. There don't seem to be any apparent or immediate penalties for charging "excessive" fees.

Depending on the title insurance requirements for these secondary loans, Buyers could reasonably expect to see $500 or more in additional title company charges too (second loan closing fees, second loan policies, recording fees and the like).

Interest rates for these loans will be set by the markets.

EXPECT EVEN MORE PAPERWORK

Lenders are going to have to verify that
  • the home buyer is eligible for the tax credit
  • the credit advance loan doesn't exceed the amount of the credit.
  • the buyer actually applies for the credit, and that
  • there are no offsets against the credit (i.e. wage garnishments, other tax liabilities or unpaid student loans)
We will have to see what terms lenders actually affix to these different options to decide which makes more sense for Buyers. The notion of using the credit towards the purchase price certainly seems like a good deal, particularly for buyers who intend to live in their first home for three or more years. Lowering monthly interest payments offers substantial savings over time.

On the other hand, I see two potential drawbacks.

First, it seems to me unlikely that these credit advance loans are going to be forgivable. The tax credit itself has a repayment period only if the home is resold within the first three years. Does it make sense to pay interest over a period of years to advance an otherwise free benefit?

Second, if the credit advance loan has to be applied to closing costs and pre-paids, Buyers will lose flexibility in negotiating inspection-related credits. There are only a finite number of costs and pre-paids. Interests rates can only be bought down so far. Negotiation of inspection issues for Buyers who intend to use advance loans will be much more restrictive.

Let me know if you want further details about Credit Advance Loans, or if they are going to make sense for you closing.

Friday, May 29, 2009

One Reason Why Condo Buyers Pay More to Get their Mortgages

I helped some clients sell their condo apartment yesterday. As we sat at the closing table, the topic of conversation turned to the recent pricing increases and still tighter lending standards that were recently implemented for condo purchase money mortgage loans. The loan officer, real estate agents, and buyer were all commiserating & railing against the higher cost as being pointless and painful.

Then, on my return to the office, I saw an email from Kathleen Robson, a loan officer at Wintrust, that helped remind me why the lenders are still being so cautious.

She described 2 recent files she had worked on: The one involved a developer apparently had been collecting money from unit owners but then suddenly left town (presumably to a country with no extradition) and no one was left to run the condo association. The other involved a developer that simply was not collecting assessments from the owners of sold units (or paying assessments on the unsold units) but may have lied on paperwork submitted to the lender to say that he was.

No lender wants to loan money against a Condominium that is not operating honestly (or not at all). No Buyer wants to own in this scenario either. If the association does not have funds on hand, it cannot pay for say... water, electricity, insurance, property taxes or any of the other common expenses. If there is no management, there is no forum to address problems or manage the property.

Kathleen asked if there is any way to verify, independently, whether or not a developer - controlled condo is operational. There is none. The developers handling of assessments is just one of many risks involved in a purchase transaction. Lenders see the risks the same way as I do, (and we both charge clients more because of those risks)

A large part of any Chicago area real estate lawyer's practice involves the purchase and sale of condominiums, at least mine does. A large portion of my condominium practice involves purchases and sales of newly-built or newly converted condominiums.

I've been seeing these scenarios too for the last couple of years. Of all the condo purchase opportunities out there in the world right now the riskiest (to me, anyway) are:
  • conversion projects built since 2006,
  • by small and medium sized developers,
  • with fewer than 70-75% of the units sold
I routinely URGE clients to steer clear of these. New construction condos of similar provenance to be nearly as dangerous.

In Illinois, a developer is required to turn over control within 60 days of (the earlier of) closing 75% of the project or within 3 years of recording the Declaration. Once they turn-over, the unit owners run the show themselves, and there is much less risk of financial malfeasance. But until the turn-over? There's the danger zone.

When the markets are hot, turnovers happen pretty quickly. In the doldrums, Developers have been holding on to many unsold units and are retaining control of associations for much, much longer. Very few of them have the sort of financial "transparency" that allows for owners - or prospective buyers - to get much comfort.

We simply can't stop unscrupulous developers form lying on questionnaires or financial statements, but we can be more exacting in our due diligence as we review contracts prior to closing. I for one have begun asking developer-attorneys to prove that assessments will be paid into a segregated, single-purpose bank account established for the association's funds alone - as an additional provision in the purchase contract. I am also asking for photo-copies of bank statements to support the existence (and use) of the account.

Even then, no one can force the developer who is collecting assessments checks to actually deposit them after a closing.

The good news here is that, at this point, the "bad guys" are doing this more out of
desperation than greed. they are not making sales so they are not making any money. if this is all that is left to them, they must be pretty desperate. the small-time, under-capitalized developers are dying off. before too long we will be rid of them.

Friday, May 22, 2009

a little more on inspections

Either shear coincidence and good timing or industrial espionage (you decide)

Alan May, a Coldwell Banker Realtor in Evanston also blogged on inspection contingencies today. Well worth checking out.

Thursday, May 21, 2009

NEGOTIATING A BETTER CONTRACT - SELLER CONSIDERATIONS



These days, it (still) is really very hard to find Buyers who are willing to submit a written purchase offer.
and perhaps a somewhat less obvious truth:
That's just half the battle.
Its just as hard (harder?) to get contracts to close. Doubt me on that one? Ask any realtor or real estate lawyer, mortgage broker or loan officer. Ask at the title companies too. They will all likely sigh heavy and confirm it. A great many contract are taken that never close. Even the contracts that can and do close have their problems.

However, with care and caution, savvy Sellers, and the real estate agents & attorneys that represent them, can minimize the risks of delay, and the disappointment of failed closings.

This series explores some steps proactive sellers can take to improve the odds

Tip #3
INSPECTIONS CONTINGENCIES ARE NOT FOR THE FAINT OF HEART

No buyer should go forward on a contract without a professional home inspection. That inspection give Buyers re-assurance that the home they are interested in is free of material defects and life-safety hazards - or at least lets them know just what hazards and defects are apparent so that they better understand what they are getting themselves into.

This is an important safeguard for Buyers. I cannot stress that enough. But be that as it may, the inspection contingency should not be allowed to give a Buyer open license to renegotiate the sale price, or demand concessions simply for the sake extracting something more from the seller.

But few Buyers seem to "get it," and Buyers routinely ask Sellers to address issues that are merely cosmetic or routine maintenance issues. Conventional wisdom (and hungry agents) suggests that a Seller must whatever it takes to appease their Buyers, which only seems to goad Buyers into taking more unreasonable positions and making more onerous demands on the Sellers.

Sellers are giving away far too much, and leave their transactions feeling "nickled and dimed" to death.

Smart Sellers avoid these losses by avoiding actively managing the inspection contingencies. There are at least two defensive plays here. First and foremost, the Seller, Seller's agent and attorney must make clear to the Buyer, at each and every opportunity that presents itself, that the house is being sold “as is.”

To be totally clear about this, the Seller should warrant that everything is safe and works fine, but that the Seller does not intend to negotiate minor repair issues. The buyers should be given free reign to conduct a home inspection with that understanding. The transaction should be framed as a take-it and love-it or a leave-it and leave-us-alone proposition. In some instances, this will avoid inspection related requests altogether. In others, it will at least set an expectation, for the buyer that he should not expect to receive concessions for any but the most significant (deal breaking) mechanical or safety issues.

I firmly believe that there are few buyers, even in this market, that will absolutely reject the condition of an otherwise acceptable property based solely on an inspection - unless there is a very serious defect. But setting the proper expectations from the start is critical to the successful negotiation. Few Buyers will accept the "as-is" concept if they hear about it for the very first time after the inspection.

A second, and perhaps more daring play is for a Seller to engage a home inspector BEFORE listing the property for sale. Pre-contract inspections serve dual purposes, both of which will maximize the profit from a sale. They frame the issues that can be topics of negotiation, and they limit the amount of time it takes to negotiate those issues to resolution.

A Seller inspection will likely alert Sellers to those easily corrected safety issues and functional problems that the Buyer's inspector will surely pick up. Things that the Seller either over-looked or ignored over the course of home-ownership. These can be corrected - or disclosed as the seller deems fit. If the Buyer is aware of these things before the offer is submitted, the price already takes that condition into consideration. Sellers has eliminated those topics from the discussion.

Depending on the overall condition of the home, a Seller may wish to take the additional step of deliberately seeking out one of the "tougher" inspection services to evaluate the home. Many of these inspectors are considered "deal-breakers," known to strike fear in their Buyer-client's hearts by pointing out all of a property's blemishes, large and small. At worst, their inspections give the seller the “worst-case” scenario evaluation of their homes. At best, these reports give even greater comfort to potential Buyers. They know that the "worst" inspector has seen the property and now know all that he/she could detect.

Controlling the inspection contingency also helps manage the contingency clock. Negotiations over repairs and repair credits frequently bog down when contractors must be called in to prepare subsequent evaluations and cost estimates. A five day inspection period can easily blow up into a three or four week process. The contract remains uncertain far too long. Sellers lose market time and opportunity.

The quicker these issues can be resolved, the sooner Sellers (and their lawyers) will be able to sleep soundly.

Monday, May 18, 2009

LEGISLATIVE ALERT: CHANGES LIKELY for ILLINOIS REAL PROPERTY DISCLOSURES

Our real property disclosure covers 21 specifically enumerated types of material defects ranging from unsafe drinking water, to defects in the roof or ceiling, to boundary and lot line disputes. This disclosure is a critically important safeguard for home buyers and is one of the very first things I look for when I am representing Buyers and Sellers.

Last fall, I blawged about an emerging trend on the National scene, requirements that Sellers disclose their knowledge of whether or not a home has ever been used as a meth lab.

Illinois seems poised to "go with the flow" on that one, and before too much longer, we will likely be adding disclosure point number 22. HB0214 would mandate the disclosure of known usages of residential properties for the manufacture of methamphetamine. The bill was introduced by Pekin, Illinois State Rep. Michael K Smith, and flew through the legislature, passing both houses last Friday (May 15) and awaits the Governor's signature.

Sure, it would be nice to know if the home-of-your dreams was previously used to manufacture illegal narcotics. The argument in favor of disclosure posits that there are toxic by-products involved in the manufacture of methamphetamines.

But does anyone really think that an owner is going to be truthful about his or her home-pharamcology business?

no, i didn't think so.

Friday, May 15, 2009

THREE THINGS SELLERS SHOULD EXPECT WHEN THE NEW LY REVISED ILLINOIS NOTARY REQUIREMENTS TAKE EFFECT

Things get a bit more complicated next month for Sellers who want to Close on Real Estate Transactions in Chicago, and the Lawyers who represent them.

We've watched the progress of Public Act 95-988 for some time as it winded its way through the legislative process last year. The new law takes effect in just two weeks. Based on my conversations with several other local practitioners and title company representatives, I think that sellers can certainly expect three significant changes with regard to their intended real estate closings.

First, a quick recap.
  1. Public Act 95-988 creates a pilot project that is effective June 1, 2009 and terminates June 30, 2013.
  2. The new law affects the notarization of transfers of residential real estate in Cook County.
  3. Illinois notaries public who notarize documents of conveyance of qualifying residential real estate in Cook County will be required to create a Notarial Record,
  4. Take a thumbprint of the seller(s), and providing for record keeping of the Notarial Record to the responsible parties.
  5. The new law requires all Illinois notaries public to verify a person’s identity with a currently valid state or federal photo identification document that bears a photographic image of the individual’s face and his or her signature
  6. Depending on whether the notary is an agent/employee of the title company or not, the Notarial Record must be retained delivered to the title company or County Recorder, and stored for 7 years.
The Three Things Sellers Should Expect:

First, Sellers are (what else?) going to pay more. Notaries are allowed to charge $25 for each notarial act that requires the thumbprint notarial record. At least two of the major title companies intend to impose the maximum fee.

Second, it is going to get harder (and this summer for sure, a whole lot harder) to find a notary public willing to perform notarization of deeds. Its going to be bad enough for notaries having to buy the equipment and notarial record forms, and learn how to use them. It is going to be a pain for many of them to establish appropriate record retention and preparation policies. Worse still, they will also have to comply with the Illinois Biometric Information Privacy Act. Which requires establishing additional written policies, disclosure protocols, and storage/confidentiality considerations. For many, I fear, it just won't be worth the bother.

As a result, I expect a lot of sellers who would otherwise pre-sign documents let their lawyers handle closings will be attending themselves, watching buyers sign loan documents and waiting for funding approvals.

Third, they will be participating in an endeavor that requires the thumbprint custodian to retain records to comply with one law that will conflict with the obligations to destroy records to abide by another. That's right folks. The good legislators in Springfield have mandated a seven year retention policy for notarial records, but that Biometric Records act? It directs that all such records be destroyed within three years (if not sooner).

So what happens to a record custodian who violates the records act to comply with the notary act? Well the penalty for an intentional violation is $5,000 per occurrence.

I say Yikes.

Then again, as one title rep assured me, this will be fixed down state, eventually. "Don't worry Mike, Springfield has three years to fix this "oversight."

Tuesday, May 12, 2009

NEGOTIATING A BETTER CONTRACT - SELLER CONSIDERATIONS part II

PART 2:
DON'T DELAY- Do The DUE DILIGENCE NOW

Current market conditions present two unfortunate realities for prospective home sellers: prices are declining. Market times are not. As a result, there are a lot of unsold homes languishing on the MLS and many, many more that are not currently active, but are available if there were Buyers willing to Buy. Worse still, merely accepting an offer does not assure an actual closing.
A great many contracts are falling apart before the closing. So why do so many Sellers shoot themselves in their collective feet by not being fully prepared to go forward on acceptable offers?

Sellers simply MUST do better. A great start is to compile the necessary due diligence materials when the property is first readied for market, well in advance of that acceptable offer.

Every seller of residential real estate in Illinois must make certain legal disclosures, to be given to prospective Buyers. For homes and condominiums that are considered "re-sales" these requirements include:
  1. a residential real property disclosure statement;
  2. a lead based paint disclosure statement;
  3. an information booklet about the dangers of lead poisoning;
  4. a radon disclosure statement
  5. an information booklet about the potential hazards of exposures to radon.
Chicago homeowners are also required to provide a heating cost disclosure.

Optionally, Chicago area homeowners may also be asked to provide mold hazard disclosures.

All Condominium owners and owners of properties located in planned developments or within homeowners associations must also produce association Declarations, By-Laws, financial statements, budgets and other related information. (as set out in the 'infamous' "rider 5") or in section 22.1 of the Illinois Condominium Property Act.

Failure to provide any of these documents or disclosures gives Buyers an easy way to back out of the deal, right up to the time of closing - and, in some situations, to even rescind a contract after it closes.

Why allow a buyer such an easy way out?. As an attorney representing Buyers, I typically see contracts well after they have been signed. One of the first things I do is request copies of all the applicable disclosures. Other competent lawyers do the same.

I am constantly amazed (but frankly, not at all surprised anymore) that it can take days to get Sellers to complete those disclosures. It can take weeks, sometimes a month or more, to collect the Condominium materials.

Its not like asking for them is going to come as a surprise to anyone in the business, and yet time and time again, Sellers and their listing agents fail to act proactively to have these things ready to go. The list has not changed in years.

Everyone knows the list. Everyone knows that the disclosures must be made... and that until the buyer sees ... and approves.... the disclosures, the Buyer can weasel out of the deal. So again, why would you let the buyer have free reign on this contingency?

Have everything ready to go, before the offer is received. Give it all to the Buyer the MOMENT her offer is accepted.

Start the clock as early as possible in order to close the contingency as early as possible. Get the deal closed.

Monday, May 11, 2009

TAX RELEIF - for some Suburban Cook County Homeowners

CRAINS CHICAGO BUSINESS:

County to lower home assessments

By: Lorene Yue May 11, 2009

(Crain’s) — Residents in some suburban Cook County townships will see a reduction in the assessed value of their homes as the tax system catches up with the real estate downturn.

But because tax bills are paid in arrears, it won’t be known if homeowners will see any benefit until next year.

Homes in 30 suburban townships will have their assessed values lowered by 4% to 15%, Cook County Assessor Jim Houlihan announced Monday. The reduction is being made to accommodate market changes at a time when suburban areas are not up for reassessment, which happens every three years.

“After careful analysis of market sales and foreclosure data, we determined those townships should not have to wait until their next reassessment for the impact to be reflected,” Mr. Houlihan said in a statement.

River Forest Township will receive a 5% reduction, while Cicero Township gets a 15% reduction.

“Areas hit hard by foreclosures and market drops will see the biggest reductions,” he said in the statement. “The percentage reductions will change if the conditions warrant it.”

The assessors office has begun reassessing Chicago residences this year, and Mr. Houlihan said some homes in the city may receive lower assessments.

NEGOTIATING A BETTER CONTRACT - SELLER CONSIDERATIONS

PART 1:
QUALIFY THE BUYER BEFORE ACCEPTING THE OFFER

Current market conditions present two unfortunate realities for prospective home sellers: prices are declining. Market times are not.

As a result, the general perception in the marketplace is that Buyers now have the upper hand over Sellers. To the extent that there are so many more Sellers than Buyers in the active market this may be so. This makes many Sellers uneasy and quite understandably so. Once they get past the lowest low-ball offers, many Sellers are quick to accept the first "decent" price offered and then hope for the best.

Reality is showing us however that merely accepting an offer does not assure an actual closing. There are still many perils and pitfalls that are keeping a high number of contracts from closing.

Sellers MUST plan carefully to better the likelihood that the contract will close. This post and others that will follow in this series will offers specific suggestions to help sellers write better better contracts.

Two simple objectives here:

Get the Contract Closed

Save Whats Left of the Equity.


Once a Seller accepts an offer, the MLS listing is supposed to be changed from “active” to “pending.” The property is as good as off-the-market for as long as it is pending; Few Buyers invest time or effort looking at properties that is already promised to someone else. Even fewer real estate agents want to show such homes to prospective buyers.

If you are trying to sell a home, the only thing worse than long market times is the risk of losing market time while the home under contract and “pending” a Buyer's mortgage approval, only to find out that the Buyer cannot secure the financing and that the contract will not close. This is especially important right now, during the all important spring and summer markets.

To be clear, we are not talking about closings delays caused by a lender processing the loan application (though these days, that happens plenty too). I mean loans that are denied. Ash canned. Rejected. We are talking about the time lost to a Buyer that will never close. Not on time, not late, never.

Sadly, I have opened (and closed) a number of files over the last year in which a Buyer flat out could not close the contract. For example, in recent months, I have seen buyers sign contracts where they
  • had no job history for any of the the previous years.
  • no proof of the source of substantial gifts
  • were relying on a graduate student job prospectively being extended into full time employment
  • were relying on an insurance settlement check for a claim that had not yet been resolved
  • applied for a mortgage on a contingency with terms 1 full point lower than the prevailing market rate.
  • contingent on the sale of a home that had not sold in 6 months on an active MLS listing.
Not one of them closed.... and took weeks and months of waiting before disappointed Sellers were able to reactivate listings.

There is a school of thought (often advanced by the listing agent) that says that any offer - even a shaky offer - is better than no offer at all. Take it, see what happens. Hope for the best. I beg to differ. I do not see the point tying a property up, taking it off the market, and working with a Buyer unless there is a good likelihood of getting the deal done.

How is it that this still happening? Hard to say, but I am seeing a significant number of offers being made by buyers who are completely unprepared for the mortgage application process and who have very little understanding of their ability to borrow or their financial means and needs.

These are the types of disappointments are best avoided by giving fuller and more careful consideration to a given Buyers' financial qualifications before accepting an offer. Sellers, and their real estate representative should be asking more - and better - questions.

  • Has the buyer presented any evidence of ability to secure financing?
  • Is the buyer working with a known / reputable mortgage broker or banker?
  • More importantly, is the buyer working with a known & well regarded loan officer?
  • Has the Buyer obtained any sort of lender pre-approval or pre-qualification?
  • Is the approval letter sourced from a broker, or an actual lender/underwriter?
  • Is that "approval" based on any sort of actual credit check or other “real” review?
  • Is the Buyer employed (in a stable or long-standing job position?)
  • Is the buyer’s offer contingent on the sale of some other property? Is that property actually under contract or is it just now being offered for sale?
  • Can the buyer prove that he actually has funds available for the down payment?
Better the chances of arriving at the finish line by asking the right questions at the start -


Let me know if you have any questions about evaluating the sufficiency of a Buyer's proposed financing - or any other aspect of reviewing purchase offers. I would be glad to be of service.

Tuesday, May 5, 2009

NEGOTIATING A BETTER CONTRACT - 6 THINGS EVERY SELLER NEEDS TO KNOW, NOW

Two days ago, I wrote about the re-emergence of multiple offer transactions. In response, I heard from a number of real estate agents who confirmed that they are encountering this phenomenon. I also have heard from another of others who essentially groaned and who all collectively wished for just one stinking offer, at this point, any offer.

They are, almost certainly, still be in the majority - which lead me to states an obvious truth:
These days, it (still) is really very hard to find Buyers who are willing to submit a written purchase offer.
and perhaps a somewhat less obvious truth:
That's just half the battle.
Its just as hard (harder?) to get contracts to close. Doubt me on that one? Ask any realtor or real estate lawyer, mortgage broker or loan officer. Ask at the title companies too. They will all likely sigh heavy and confirm it. A great many contract are taken that never close. Even the contracts that can and do close have their problems. These days deals are just as likely to close late as on time.

Some times it is the Seller's fault. Other times, it is the Buyer. More often than not, there is a mortgage lender on one side of the deal or the other that is going to shoulder some of "the blame."

Closing on an offer in no sure thing. Not with any reasonable degree of certainty, anyway. Until the markets stabilize, signing a contract is best viewed as a calculated risk for the Seller... an expensive one at that.

Whatever the reason, unclosed contracts serve nobody well. No home/shelter for the Buyers. No money to the Sellers. No commissions earned for Realtors or mortgage brokers. Everyone incurs costs. Other opportunities will have been lost. The time invested in putting the deal together? all for naught.

HOWEVER, with care and caution, savvy Sellers, and the real estate agents & attorneys that represent them, can minimize those risks of delay, disappointment and dashed hopes of a closing.

I have been studying several recent instances of canceled deals trying to understand why these contracts are not closing - and what can be done to improve the odds. I have looked at both deals I have worked on personally, and had some extensive conversations to debrief colleagues and other business associates about their recent transactions.

My research points to six critical steps that every Seller can (and should) take as they market their homes and consider offers from potential Buyers.

These ideas will be described over the course of several upcoming blawg posts.

Hello Old Friend

Ladies and Gentlemen, mothers, fathers and children of all ages,

please direct your attention to the center ring.

back from an extended absence,

returning to critical acclaim,

and the jubilant cheers of its many fans,

I GIVE YOU:

MULTIPLE OFFERS!

I don't have any statistical data to back me up on this one, but in talking to real estate agents over the past couple of weeks, I was pretty taken aback to hear multiple stories of buyers and sellers finding themselves in multiple offer situations (negotiations in which more than one buyer wants to purchase the same property... bidding wars). 

Bidding wars were well known in my practice, and in the larger marketplace during the go-go or boom years. Buyers were so desperate to win a Seller's acceptance that they were paying more than the asking price, and waiving protective contingencies such as inspections, mortgage financing and sale-of-other-property requirements. 

I had not, until just recently, seen one in many, many moons. But now, it seems our old friend has returned. Is this a good omen for the markets?

Yes. Clearly, yes. Multiple offers indicate that at least some Sellers have hit the right price point, low enough that Buyers are recognizing value opportunities and are confident enough to go forward with purchase offers.... in numbers large enough that more than one Buyer is ready to pursue these "right" properties. 

Multiple Offers make for winners and losers. Winners get to go forward on their deals. Losers, burned by the experience are (typically) quicker to move on to the next opportunity and will likely "pull the trigger" on an offer sooner, lest they miss out again. Other Buyers will also hear of these developments, which will also colour their perceptions of the market, add to their confidence levels and when this happens, the overall market velocity will (in my estimation, anyway) quicken. 

So what properties are the subjects of these bidding wars. Again, I have only anecdotal evidence to work with, but for the most part, I am hearing about multiple offers following in reaction to significant price drops for two specific types of properties; north side condominiums, and recently built but never sold single family homes  (mostly selling at or near $1 million). Again, this is only anectdotal, but the pattern seems pretty apparent from my vantage.

For me, the only question that remains is "who are the sellers?" If these are resales, then the news is even better. The market might be finding its bottom, and perhaps these particular sellers have even "under priced" their homes in relation to it. If these multiple offer deals have been mostly REO and pre-foreclosure sales, then perhaps the market still has a bit farther to go before reaching that bottom.

I am still seeing significant price differentials between otherwise comparable REO properties and conventional resales. Until that gap is bridged, non-distressed owners will continue to be at an ongoing disadvantage to the owners of the distressed properties.

The main point however remains. Whatever the circumstances of the Sellers, several (and hopefully, soon, many others) are finding that not only is there A BUYER out there who wants their property, there are actual SEVERAL BUYERS who do.  

Monday, May 4, 2009

New Real Estate Contract to Debut Soon


Ready to make that real estate deal? Get it in writing. A written contract is essential to any purchase and sale transaction. But where are you getting that contract and who's form are you going to use?

Lets face it, the blank forms look like endless mad-libs that are already littered with unreadable prose, even before the "missing words" get added in. Which one are you going to use?

There are scores of contract forms available to get to the essence of a real estate deal (the buyer's promise to the seller to turn over a whole bunch of money if the seller forks over a deed and the keys.

By my last count, I have at least 20 of those forms in my collection of contracts accumulated over the last few years. I have worked with nine different pre-printed (form) real estate contracts over the last year alone.

That does not even include the various forms used by new home (and condo) builders or condo conversion developers, each of whom seems to use a different form from the others, each crafted by that given developer's attorney, and increasingly, each more obnoxious than the others.

And then figure in the various riders that relocation companies and foreclosure / REO Asset Managers insist on.

The premises are simple, but (as always) buyers and sellers are cautioned to understand that
there is no one "standard" real estate contract anymore, just as there are no standard / simple transactions anymore.


As an attorney representing buyers and sellers, its just as important these days to understand which form of contract is being used as it is to understand the "negotiated" terms of the deal.

Which begs the question: are there ever too many choices of contracts? The Illinois Real Estate Lawyers Association, several other local bar associations, and boards of Realtors think not. Get ready for Version 5.0 of the "Multi Board" Contract, which should debut later this year.

I've been studying a draft form for about a week now, and I am very pleased to see several significant improvements over the last version, already three years old. Among the several changes are significant revisions of the inspection, attorney approval and mortgage financing contingencies.

More details to follow.