What Is An "As-is" Property?

Occasionally, you will see a listing with the notation that the property is being sold “as-is”. Some buyers will see this and immediately head for the hills. Others will view it as an opportunity. What does it mean and why would a seller employ this in their selling strategy?
Essentially, stating that the property is “as-is” implies that the seller is not making any warranties or representations about the property. As in the sale of any other property, the seller must disclose any latent defects that may be present in the property; however they are also saying that they will not take financial responsibility for any problems that may be obvious or that are uncovered in the inspection.
Many potential buyers will assume that the home is either a disaster or that the seller is hiding something with the hope that it won’t be uncovered in the inspection. Sometimes this is a valid fear, but there are a variety of reasons why a seller may choose the “as-is” route:
· In some situations, the seller has not lived in the home for a very long time and does not feel they are familiar enough with the property to identify the potential issues
· Often in an estate, the executor will choose to sell “as-is” because of their unfamiliarity with the home
· Sometimes the seller is financially unable or just doesn’t have the time or energy to have repairs made prior to putting the home on the market
· The participants in investment property may not be aware of potential issues

It’s important to note that in spite of the “as-is” designation, it is still crucial for the buyer to have a thorough home inspection performed by a qualified inspector. If the buyer finds through the inspection process that there are greater problems than they had envisioned, the buyer has the right to attempt to negotiate with the seller to either repair or remunerate the buyer for the cost of the repairs. As is the case in any real estate contract, if the inspection findings cannot be successfully negotiated, the contract can be nullified.

Please keep in mind; we are not attempting to provide legal advice here. For a legal opinion on this topic, please consult your attorney.

The science (and art) of pricing real estate: Part 2

In Part 1, we looked at the Comparative Market Analysis and what might be included in this document. You now know that a CMA takes between 3-5 hours to produce. It will include various data that can be used or misused to price your home. Keep in mind that these posts and the ensuing pricing methodology are based on current market conditions. In a strong seller's market, a different methodology and/or set of guidelines might likely be employed.

It’s all in how you look at the numbers

As you look at a CMA for your home, you will likely see ‘active’, ‘pending’ and ‘sold’ listing sheets depending on what data the prospective agent has culled. What are the most important of the group? Surely the best indication of current market action is the most recent sale or ‘sold’ prices. These prices tell you where the market of comparable homes has actually traded.
Next, look at the ‘pending’ sales data. These listing sheets tell you the price where comparable homes were listed when they went under contract. When looking at pended properties, pay attention to the market times and the original listing prices. If market times are high and original list prices are significantly lower from current list prices, we can see where/how the market is moving through time. Often an agent’s and client’s perception of market value can differ drastically from the reality of where comparable homes are actually selling.
Lastly, look at the ‘active’ listing sheets. These will tell you what prices your neighbors are listing their comparable homes for. STOP and remember this – now is not the time to ‘keep up with the Jones’! Do not play the subjective game of pricing your home according to where you neighbors have priced their property. Intelligent buyers and their intelligent buyer agents (there are some out there) will be looking at sold prices of comparable properties as the benchmarks for negotiation. It makes little difference to a buyer if your home is priced 5% less than a similar home down the street. Your home may still be overpriced in relation to where the market has recently traded. What you may perceive as value in relation to your neighbor’s home might be nothing more than two over-priced homes at an inflated price point!

Evaluate what the prospective listing agent says about price

Listen to how the prospective listing agent interprets the CMA data. Remember, there is good logic, fuzzy logic, bad logic and/or a combination of these. You are looking to the agent for a logical presentation on where the market has traded recently (the ‘solds’), to where the market has facilitated contracts (the ‘pending’), and to where the market for currently listed properties (the ‘actives’) is. If an agent’s suggested listing price is far greater than where comparables have recently sold then ask the agent where the added value has come from? Conversely, if an agent’s pricing comes in much lower than recent sold comps; ask what demerits were used in the analysis of your home.

Be objective

Most importantly, be as objective as possible. Look at the data and decide if what the prospective listing agent is telling you about price sounds realistic. By all means, do not just list with the agent that gives you the highest suggested listing price. Some agents will try to out price the competition with an inflated list price in order to ‘buy the listing’. This is an old practice that still works on many very intelligent people. The tactic appeals to a seller’s greed factor and almost always adds weeks or months to market time. It might be very charming to hear an agent tell you how beautiful your home is in relation to your neighbor’s home. You might even be told that your home is worth a lot more than comparable homes on the market. While it may be music to your ears, it will strike a sour note when your home is not attracting showings and/or offers and sits idle as the days go by. Remember, an agent is giving you their opinion of value and opinions are only as sound as the logic that backs them up.
While we hope that this two part post on pricing has been informative, it merely scratches the surface on this complex subject. Look for other posts on this topic in the future.

The science (and art) of pricing real estate: Part 1

What’s the most important consideration for home buyers after finding a home that fits their needs and desires? If you are thinking price you would be correct, most of the time. For sellers, price is equally important and becomes the statement to buyers as to where a particular home is positioned in a given real estate market. This positioning, or pricing, is often very subjective and can lead to inflated listing prices and the dreaded longer market times. Assuming a seller’s goal is to maximize profits in the most efficient and timely manner, how does one price their property most effectively?

It all starts with the CMA

A good real estate agent should be able to assemble the market data for a CMA or ‘comparative market analysis’, sometimes called a ‘competitive market analysis’. The CMA compares the subject (seller’s) property to similar properties in the area. The comparable listings should be as similar in construction, location, lot size, age, and terms of sale as the subject property. The goal of the CMA is to provide a probable market price or market price range for the subject property. Usually agents will also provide a suggested listing price or listing price range. Assembling a quality CMA can take between 3-5 hours of an agent’s time. It’s not just a computer generated document requiring a few keystrokes while logged onto the local multiple listing service. Because of the time and thought involved in its creation, agents prefer to present and interpret the results in a meeting with the prospective listing client.
The CMA should/might include the following:

• Sales of homes similar to the subject property that have occurred within the last 6 months.


• Pending and contingent listings similar to the subject property that have occurred within the last 6 months.


• Currently 'active' listings similar to the subject property that are available for purchase now.


• The market times of the above listings and how these numbers will provide direction in the pricing of the subject property.


• Commentary on current market conditions and the 'tone' of the market as evidenced by supply/demand statistics and absorption rates for the area and price range considered.
  

Please look for ‘The science (and art) of pricing real estate: Part 2’ next week where we will discuss how to use the CMA to price your home competitively. We will also look at some of the common misconceptions when pricing a home and why you should pay attention to the statistics and not to your heart or necessarily, your agent!

What Are Subprime Mortgages? (and how do they affect me?)

We have all been hearing a great deal of discussion regarding subprime mortgage lending in the past few weeks, and many people are asking…What is subprime lending and how does it affect me?
According to Wikipedia, SUBPRIME describes a specific lending market sector. Typically, subprime customers are those who do not qualify for prime market rates because of blemished or limited credit. Consequently, subprime customers are charged a higher interest rate to compensate for the increased risk. The general lending philosophy can be described as "priced to risk"; the higher the risk on the deal, the higher the interest rate. Statistically, approximately 25% of the population falls into this category.
It has been suggested that the recent fall in the stock market is somehow associated with the subprime issue. There has also been mention of a possible collapse in this area of the mortgage market and hence, a greater difficulty in getting mortgage financing.
Yes, the foreclosure rate in this market segment has recently been rising. It is probable that these types of loans will not be written as aggressively in the future as they have in the past. It has been noted by Baird and Warner’s Financial Services Senior Vice President/Chief Operating Officer Donna Burge, the changes that are occurring right now are being driven by 3 factors:

1. Federal bank regulations introduced last fall requiring stricter underwriting guidelines and risk-based pricing
2. A significant increase in delinquencies and defaults in sub-prime portfolios, requiring increased reserves and earnings adjustments
3. Wall Street prices for sub-prime mortgages have declined dramatically, diminishing both the value and outlet for this product.
What does this mean for borrowers? Several subprime lenders have already, or will soon go “belly up”. Most of America’s financial institutions will not experience any serious disruption of business or severe financial losses because they do not have a great deal of exposure to the subprime marketplace. Most traditional mortgage products will continue to be available to borrowers. Stay tuned to see how this story plays out.

Venerable Kenilworth

(Kenilworth Fountain circa 1910)

Modest in size, but note-worthy on the North Shore is the Village of Kenilworth. Tucked in between Wilmette to the south, and Winnetka to the north, Kenilworth enjoys its location along Lake Michigan and a fascinating history. The original acreage that was to become the Village of Kenilworth was purchased by a fellow named Joseph Sears. Sears had a dream: a planned community where streets were plotted to maximize sunlight in every home, where land was set aside for a school building (Sears School bears his name, and enrolls K-8 children) and a place of worshp. The gracious entrance into the heart of Kenilworth at the east corner of Green Bay Road and Kenilworth Avenue is attributed to architect George M. Maher, who also designed some 37 homes in the village. Other notables whose talents molded the growth of Kenilworth include Jens Jensen (landscaping) and Frank Lloyd Wright. The village annexed more land in the 1920's to grow to its current size of a diminutive 0.6 square miles, and a community of some 2,500 souls.

Kenilworth today is primarily residential, with a few commercial sites along the west side of Green Bay Road, primarily service entities (dentist, financial services, etc.).

A visit to the Village's website gives the reader a sense of what Kenilworth is all about: if you promise to help coach the winter basketball league for children in grades 1-3, your child is GUARANTEED to be on the team that you coach!

Kenilworth has a dedicated police force, and receives fire protection services in cooperation with Winnetka. Library services are shared with both Winnetka and Wilmette.

By reputation, Kenilworth is not an inexpensive community in which to purchase a home; the current average list price of home is $2,588,732. That's a significant number, but homes can also be found in the $700-$800,000 range. In reaction to a rising number of "tear downs" by home builders in Kenilworth, the National Trust for Historic Preservation placed the entire village on its 2006 list of 11 endangered places, right up there with the Arts and Industries Building of the Smithsonian Institution in Washington, D.C. and Mission San Miguel Arcangel in San Miguel, California. The image provide here is a home that recently escaped demolition, saved by the efforts of a local community group that is dedicated to preserving these magnificent homes of distinction.



(157 Kenilworth Avenue)

Beautiful in its design and proud of its tradition, Kenilworth offers the blend of hometown ambiance and a Metra commuter train station in the heart of town to whisk you into the city.

A great way to meet new people

It is always difficult to come to a new area where you know very few people and try to make friends. Almost every area has its own International Club, usually through the local Elementary School. But here's some important pieces of information... Once the kids have left grade school you do not need to leave the International Club. In fact you do not need to have kids to be a part of these clubs AND you do not at this point need to be international to be part of these clubs. You just need to like people from other places. These groups are often the primary social groups in these areas and have some interesting and fun activities and are a great place to start making new friends.

Behind the scenes: "Brokers Tour"

Open the Sunday newspaper, or log on to the Chicago Tribune's real estate section, and you will find the familiar listing of Sunday afternoon "open house" opportunities. This is the time when you are invited to stop by for a brief look into every conceivable type of residential property, and at virtually any price point. Look for the modest studio condo, or the stately multi-million dollar mansion. They're all there for a few moments of your idle curiosity or, perhaps, serious home buying evaluation.

But the hard-core open house activity happens on weekday mornings throughout Chicagoland, the time set aside by real estate agents to traverse a wide geographic area in a short period of time, hoping to stay current with the market's latest offerings by ALL broker companies. We agents call it "touring", but this "tour" is hardly a relaxed guided tour of properties for sale. Far from it.

In order for an agent to fully experience the weekly tour, he/she must first determine which communities will be the morning tour for himself. Wilmette only? Or should he try to include Winnetka as well; and maybe that new listing his client is so excited about in Glencoe will be on the tour. The first step is to hunker down in front of the Internet-based MLS the night before tour, and pour over the published listings. This is serious business, folks, determining which to include on one's personal "list" of must-see properties: how many of the 72 in Evanston need to be seen? And the 25 in Wilmette? or the 21 in Winnetka. (Kenilworth's 5 are a walk in the park!) But Glencoe has 16 possibilities. And the spring market hasn't even kicked into high gear yet! Determination of which to include on one's personal tour is a combination of curiosity, client needs and wants, and simply staying on top of what the marketplace is doing as far as pricing and preferences go. And this can be complicated if the agent has agreed to carpool with one or more additional agents who each has his/her own personal agenda of what to include on the tour. Logistical nightmare. And then try to figure out the route to get to all those properties efficiently. Whew!

And one more critical factor in choosing which properties to view on tour is whether there will be snacks or lunch offered by the sponsoring broker. Really. Somtimes an agent will tour on his/her stomach. Hey - agents have to eat to keep their strength up!

And here's the really interesting part: all of this touring activity must take place between the hours of 9:30 AM and 12:45 PM. Exactly. This is dictated by the rules of our North Shore/Barrington Board of Realtors.

The final nuance to all of this is that multiple communities have their weekly brokers tour on different days of the week, enabling an energetic agent to be out on tour more than one morning per week, if desired.

But it's all for the good of the industry and the public; the agent has first-hand views of properties that a client might want to see, or be able to judge better how to price a new listing that will soon be offered to the public, based on how other similar properties are priced. Reading about a listing online, and viewing the photos online, can never take the place of an on-site visit.

Brokers tour: just one more activity that your hard-working North Shore Home Advisors embrace with enthusiasm to better serve the needs of our clients.

Even More Statistics

As a follow up to the previous post regarding statistics, it might be interesting to poke a little deeper. As we view the year-to-year statistics on appreciation, we are often awed by what appears to be the huge increase in home values in many of our communities. One of the factors which are often ignored is the effect of teardowns on these rates. As an example, during the past several years, homes that were valued at $400,000 - $500,000, were torn down and replaced with new homes that sold for approximately 3 times the cost of the original house. These numbers can be reduced or increased based on the price of the “before” and “after” project. In our example, this displacement shows up in the statistics as a sale one year, at half a million dollars, and a sale on the same property the next year at a million and a half. Multiply this by the number of teardowns that we have seen in recent years, and you will see a phenomena that plays a major role in skewing the statistics. It would be interesting to only view the appreciation rates for existing homes.
Yes, there has been a great deal of appreciation over the past several years, but perhaps it has not been as extreme as the numbers might indicate.