Karp Real Estate

Mortgage holders holding up real estate market recovery - still!

The banks and other mortgage holders and NOT behaving rationally and that is delaying the recovery of the real estate market.  Here is a real-life example that I have came across recently:

A Tale of Two lots

Mr. X bought a very small house on a huge piece of property a couple of years ago.  He subdivided the property into two lots (all legal), tore down the house, and put together plans to build two houses on the property - one for himself and one to sell. Unfortunately when he tried to get financing to build the first house, he couldn't get a construction loan.  Making matters worse, as the economy worsened he fell behind in payments on the original mortgage.

So, Mr. X hired a real estate agent to sell the property and a lawyer to try to get him out of this mess.  By this time the value of the vacant land is well below what he owes to the bank, so he is looking at a short sale situation.  His lawyer talked to the bank about various options (loan modification, deed in lieu of foreclosure, etc.).  During this period the bank realizes that the collateral for the mortgage, the house, is gone.  Mr. X didn't know that he had to get permission from the bank before he knocked down the house. Of course the bank is not happy about this.  The bank hired another real estate agent to do a Broker's Price Opinion (BPO) - this is to tell the bank the approximate market value of the property (and it is cheaper than getting an appraisal).  Then the bank instructs the real estate agent hired by Mr. X to lower the asking price to the BPO price.

Within less than a week of changing the price, there are two cash offers on the property.  One is over the asking price.  The buyer wants to close asap.

The entire deal is contingent on the bank approving the short sale.  The bank set the price, and the contract is over that amount.  Seems like a no-brainer - sell the property and move on.

But not so fast. The key contact at the bank says that they have to make a decision as to whether or not they want to do a "work out" for Mr. X (if they don't do a "work out" then they will foreclose instead). Since he tore down the house without their permission, they are behaving like a deer in the headlights - they don't know what to do.  I've already been through this process with another property.  If the bank decides to foreclose instead of taking the short sale it will cost them more money than if they just take this deal. There are real estate taxes, property maintenance - even an empty lot requires maintenance - and legal fees, plus the cost of various people at the bank having to deal with one more property.  The whole process could take them 6 - 12 months! And in the end, the sale price will probaby be even lower than the current deal that is on the table. 

And the biggest problem is that if the bank doesn't accept the offer within a reasonable amount of time the buyer will take their cash offer somewhere else. The bottom line is that the bank is acting irrationally.  The house is gone, get over it.  Foreclosing on the property is just going to make a bad situation worse.  Take the money and move on to the next deal!

And speaking of buyers taking their $ elsewhere, my next post will be about the pitfalls of shortsales. I have 4 short sales pending and two short sale listings...

Tax Credits for "Green" Home Improvements

The Federal Government is providing tax credits for energy efficient home improvements as of January 1, 2009, per the Emergency Economic Stabilization Act, signed by President Bush in October 2008. 

Before you start you home improvement projects, see if anything you are planning to do will qualify. (NOTE:  home improvements made during 2008 are not eligible for tax credit)

Some of the home improvements included are: windows, doors, roofs, insulation, HVAC, and non-solar water heaters.There are also tax credits available for solar energy systems,fuel cells, small wind energy system and plug-in hybrid electric vehicles.  New home builders can also get credits for building energy efficient homes.   click here for more details, www.energystar.gov

Thanks for reading!

nsk

"Green" Remodeling Ideas

If you are planning to do any home remodeling in the near future, here are some things to consider...

TOXINS. Most people don't realize that their are toxins in many of the standard items that are in our homes.  This includes cabinets, flooring, counter tops, paint, insulation and much more.  The wood adhesive that binds together plywood found in cabinets and sub-flooring is often toxic. And, the varnish used to coat these surfaces can also be toxic.  Many commerical paints, chemicals, glues, veneers and finishes have toxic chemicals as well.  Since we spend so much time in our homes, all of these items could be causing allergic reactions or other symptions due to sensitivity to these chemicals and toxins.

There is a growing number of products that use "green" building materials, such as low toxicity plywoods, and water-based paints, adhesives and finishes.   These products are better for the environment and better for your health.  Look for woods that are from sustainably managed forests.  Or consider products that are made from recycled wood fiber particle board without the use of toxic chemicals.  

RECYCLE. Using recycled materials whenever possible is another suggestion. You can find tiles for your floors or bathroom walls made of recycled porcelain.  Or, many people are using bamboo, which is a very fast growing plant that is easily replaced (unlike wood, which take years to replace).  There is also carpeting available that is made from recycled or recyclable materials.

GRANITE ALTERNATIVE:  Before you install granite counterrops, which are so popular these days, consider these facts.  Recently granite has been linke to radon emmisions.  One alternative to That I've heard of is a terrazzo counter top  which is made from recycled glass and cast concrete.  This does not have any emissions so it won't affect your indoor door quality.  I am sure that there are and will be more alternatives on the market.

DISPOSAL. Another thing to consider is how are the old materials being disposed?  I know that it will be good for you and your family to removed the toxic materials from your home, but what impact is there on the environment when these items end up in the local garbage dump?  I don't have any answers for this question - if you have any information on this, I'd be very intersted.

This is not a comprehansive list, just a few new ideas that I came across this week.

Thank you for reading!

nsk

Eco-friendly Water Management via Rain Gardens, Cisterns, and Rain Chains

Most homes these days have gutters along the perimeter of the roof that collect rain water and send it through downspouts.  In some communities this water runoff is sent directly into the local sewer system where the water is then sent elsewhere.  In other communities the water just drains out onto the property, ideally away from the house so that it won't cause any damage to the foundation (I've seen some of the damage that poorly maintained downspouts can cause - it's not pretty).

Recently I've seen two alternative methods for handling rain water that are smart and Eco-friendly. The reason I say that they are smart is because these are very simple methods for using this free resource, rain water, instead of using up resources to send it somewhere else, or just letting it flow onto your property creating a puddle.  

The Rain Chain
According to research I've done on the Internet, rain chains originated hundreds of years ago in Japan.  They are considered a decorative alternative to regular downspouts. Here are some photos I found  - as you can see they can be very decorative.  Some of these decorative rain chains can produce pleasant sounds as the water flows down. The ones that I saw in person were very plain, just a chain hanging down from the gutters and connected to the ground where they "fed" a rain garden. 

             

 

Rain chains can drain into a variety of receptacles like basins, bowls, saucers, barrels or pebbles.  They cannot replace conventional downspouts in all situations - it is recommended that they hang away from the wall of your house by about three feet.  Not all homes have eaves that are far enough away for rain chains, through some people figure out a way to improvise and make it work. You can find more information at these sites and others:

www.rainbarrelsandmore.com   -   www.rainchain.com   -   www.harvesth2o.com/rainchain.shtml  

Rain Garden
A rain garden is an planted area filled with plants that prefer moist soil.  The rain garden should be arranged so that the water from the rain chain or a cistern flow naturally (by gravity)  into the garden and away from the house.

Cistern
When I heard that some homeowners in Highland Park were using a Cistern to capture rain water, I envisioned a big ugly tank on the property somewhere, or on the roof.  I was pleasantly surprised when I had a tour of the home and found a cistern with a beautiful stone facade at the front of the home.  This cistern collects rain water from the roof of the home - all of the gutters feed into the cistern, which can hold over 80 gallons of water. This home is situated on a bluff overlooking Lake Michigan.  During heavy rains, this home is not contributing to flooding or erosion and there is no water going into the local storm sewers.  Using a low-tech gravity system, the water from the cistern is drained into a rain garden on the property by the home owner (by opening a simple spigot), and then it goes into the underground natural aquifer, as nature intended.  Since none of the other plants on the property need any watering, the cistern provides all of the water required for outside usage. No sprinkler system needed here!  (I will be writing about other Eco-friendly aspects of this lovely lake-front home in Highland Park in future posts!  The homeowners provided an inspirational tour of their home.)

If you are building a new home or remodeling you have a great opportunity to do something to help the environment - water management is just one area to consider in your plans.

I would love to hear about any other Eco-friendly ideas for utilizing rain water.  Please post your comments!

Thanks for reading!
nsk

Tear Down Impact on Home Value

According to an article by Marilyn Kennedy Melia in the Chicago Tribune today, the Cook County Assessor's Office recently conducted a study that concludes that "tear down sales are unique in nature and not appropriate to use in valuing existing homes."  That means that if the home next door to yours was torn down and a new larger more expensive home is now in its place, it should not have a direct impact on your real estate tax bill.  However, if land values in your area go up as a result of some overall changes in the neighborhood, then yes, it could affect the assessed value of your home, according to the article. 

When I see a trend in an area where more expensive and larger homes are being built - say an area where 3 bedroom 1950S ranches and bi-levels are being replaced with 2-story 4 or 5 bedroom colonials as well as major additions to the current homes - then this is an area where the land value is already strong or on the rise and the new construction is reflecting the demand for larger housing units.  So, I don't think the tear-downs are causing any increases in land values, rather it is the other way around.

In those areas on the North Shore with vintage properties, typically built in the early 1900S, the situation is quite different.  Here the land value is already quite high, and the tear downs and renovations here are a result of the age of these homes combined with the high desirability of these areas.  In these areas, the land is already high value, and the tear downs next door should not have a direct affect on your property values.

What do you think?

Thanks for reading!

Tear downs

Every community on the North Shore has been witness to the tear-down frenzy of the past 5 - 8 years.  I am referring to the practice of people purchasing a home and then demolishing it in order to build a new and larger home in its place. Or, in some cases, one home is knocked down and multiple homes are built on the property.  This practice isn't completely new to the North Shore.  Over the years many estates have been split up into multiple properties, sometimes leaving the original mansion intact, and other times not.  What seems different about it now is that almost any property has become a tear-down candidate.

Several communities have adopted more stringent rules about what homes can be torn down and become more restrictive about making exceptions to zoning regulations.  Some townships have added red tape and additional fees.  Other places have created incentives for home owners to expand their current space instead of starting all over with new construction. There are people who are concerned preserving historic properties and they have tried to save certain homes from the wrecking ball (do they really use a wrecking ball anymore?).  None of these measures seems to have made a huge difference - the construction crews seem to be in every neighborhood. (Between the construction crews and the lawn maintenance crews, it is hard to navigate through some of the streets during the day!)

Meanwhile, there are over 330 new construction homes available for sale as of today on the North Shore* per MLSNI.   That is about 16% of all homes listed and currently available for sale.  (PLEASE NOTE: these statistics only include those homes listed in MLSNI, one of the multiple listing services used by REALTORS in the area.   Custom homes being built for a specific buyer or not listed with a Realtor won't appear on an MLS.)  All of these new homes are between $700,000 and $8 million, with the average price around $1.9 million.  There is exactly one exception to those prices - there is a new 3 bedroom home listed in Evanston for only $489,000! 

I had thought that the glut of luxury homes on the market combined with rising interest rates (which have actually dropped in the last several weeks) would stem the tide of tear downs.  Many builders are sitting with a lot of inventory on their hands.  Then, just this week 2 more houses came down on the very same street (not in one of the more exclusive/luxury areas on the North Shore).  And yet, within this same small area there are already several new construction homes waiting to be sold, all with a price tag over a million dollars.  Meanwhile, I have several clients looking for a home in the same area between $700,000 and $800,000 - and there is nothing really available that meets their needs.  They already live in this area, and want something a little bigger for their growing families.  Their homes, which are in great condition, will sell or have already sold for $450,000 - 500,000. 

The rule of thumb for new construction is that the lot should be about 1/3 the price of the finished home.  So, you can see the dilemma here.  People are being priced out of their own neighborhoods. If someone purchases property in this area for $400,000 - $500,000, then they will have to build a new home for $1.2 - 1.5 million. I am not against tear-downs by any means. My 7-year-old home was built on property previously occupied by a small ranch on a double lot - now we have two homes on the same property.

Would love to hear your thoughts about tear-downs, or stories about new construction in your area.

Thanks for reading!

*see the WELCOME post for my definition of  this area