Real Estate Corner...

THIS ISSUE'S CORNER...

Q. We Are Considering Purchasing A Home And Are Uneasy About The Negotiation Process. Can You Help?

A. The goal of a positive real estate negotiation is to result in a win-win agreement. This is an agreement where both the seller and buyer feel they have received an equitable deal. Here are a few simple tips to help ensure that you negotiate fairly.

First, make sure that you offer a fair price. Nothing turns a seller off faster than a “low-ball” offer. Likewise, don’t get into negotiations on a grossly overpriced home. This can leave you feeling taken advantage of and exhausted. Both the asking price and your offer should be based on current and factual comparable sales in the area.

Second, always respect the priorities of your counterpart. Try to identify the other side’s motivations. Then, examine your own. If some items prove to be a sticking point in negotiations, offer to meet half way. This may require you to pay half of some expenses or modify your closing date, but in the end you will feel as if you have fairly compromised. If you have addendums to your main agreement, it may be helpful to solidify the purchase agreement and then deal with the addendums later.

Finally, using a third party on your behalf will keep you focused and emotionally disconnected—resulting in a much better outcome. I’ve made the art of successful negotiation the cornerstone of my business. I work hard to understand the needs of both the seller and the buyer in the transaction, and can put these years of experience to work for you. If you are thinking of selling or buying soon, and require competent and caring representation, please call us at 773.395.9999

LAST ISSUE'S CORNER...

Q. How can I figure out how much insurance coverage I need to protect myself if my home is ever destroyed?

A. Over 70 percent of homes in the <st1:country-region w:st="on">United States </st1:country-region>are underinsured. And, of those homes, 70 percent are underinsured by at least 30 percent. This is a major problem! The confusion between market value and replacement value is where many of these problems originate. Many people base their insurance coverage on the market value of their home. Market value is what a buyer will pay for your property, but this is irrelevant if your home is destroyed. What you should really be basing your coverage on is replacement value. This is much more complicated to compute.

When computing replacement value you must figure in all of the costs of rebuilding your home. This is often 20-30 percent more than new construction because of the added demolition and removal costs. Once the land has been cleared, you will need to add the cost of actually building your home by multiplying the square footage by the average cost per square foot. You can find out average square footage costs from your local builder’s association or builder’s union. Then, you need to add in additional money for upgrades and improvements that you have made. Also, check your local building codes because changes in codes since your original home was built can cost a bundle when rebuilding. In some cases, it may cost even more to rebuild your home than the market value. This is often the case in run-down areas where land values have fallen. In any case, don’t just base your homeowner’s coverage on the lender’s requirements. These often only cover the mortgage balance leaving you with nothing. If you are thinking of selling or buying soon, and require competent and caring representation, please call us at 773.395.9999.

NOVEMBER'S CORNER...

Q. We’re considering buying a second home for vacations and eventually for retirement. What are the pros and cons of doing this?

A. Second homes are becoming an increasingly popular investment due to the great tax advantages. Before you buy, it is a good idea to consult a tax expert, but in most cases up to $1 million in mortgage debt insurance is deductible in addition to points and property taxes. As a bonus, you may collect rent for up to 14 days per year without claiming it as income. Be sure that you don’t go over that 14-day limit or you will have to abide by a whole new set of investment property rules. The Taxpayer Relief Act of 1997 also allows you to keep up to $500,000 in profit from the sale of the home as long as you have lived in it for two of the last five years and haven’t sold another home in the past two years.

Although these tax advantages may sound great, there are some pitfalls associated with the purchase of a second home. Financing on second homes is often more expensive than for a primary residence. Lenders raise the interest rates because during hard times, most people will let the mortgage payments for their second home falter before they risk loosing their primary residence. You will need to shop around to find a good mortgage broker. Often brokers close to the purchase site will give you a better deal. Also, consider seller financing or co-ownership to ease the financial burdens.

When buying a second home you need to concentrate on the location very carefully. Look for the cheapest home in the best area in order to maximize your value and appreciation potential. Be sure that you choose something close to the activities you love and consider renting in the area before you buy. If you are thinking of selling or buying soon, and require competent and caring representation, please call us at 773.395.9999.

SEPTEMBER'S CORNER...

Q. We are planning to make major home improvements. I am worried about getting our investment back when we decide to sell. How do we know if we are spending wisely?

A. When remodeling, you must weigh the cost of the remodel versus the value of the finished product. When I say “value,” I am not only talking about resale value, but I am talking about the value of the remodel to you personally. Some important questions to ask are how long you will be staying in your home and what benefits will the remodeling project bring to your daily life.

Regarding resale value, your remodeling project needs to be assessed based on your neighborhood. The best home improvements are cosmetic improvements. Minor updates to the kitchen and bathrooms, or a new roof are always valuable. Aesthetic additions such as new carpeting or paint are another type of remodeling project that returns almost 100 percent of their cost to the value of your home.

For larger projects, the average return within one year after the remodel varies. Major kitchen remodeling gives an average return of 87 percent, a family room addition at 84 percent, a master suite averages 82 percent, and window replacement 68 percent. As you can see from these examples, your remodeling project will always add some degree of value to your home.

When remodeling, it is important to remember that you will be selling your home someday and you need to make wise remodeling decisions. You must weigh the up-front cost of the project versus the usefulness to you and added value to your home. If you are thinking of selling or buying soon, and want a FREE estimate on your remodeling job call Echo Builders at 773.365.0235. We can help!

JULY'S CORNER...

Q. We are getting ready to sell our home, but we don’t fully understand how the asking price is determined. Can you help us figure out how much our home is worth?

A. There are a number of ways to determine your home’s value. The first item is to disregard your view of your home’s worth and start considering what it is worth to a prospective buyer. Chances are you have invested a lot of time and money into fixing up your house to be the perfect home. A buyer doesn’t share your memories or care about your financial situation. A buyer cares about the value of the home in their lives.

The second item to consider is the comparative market analysis (CMA). This tool allows you to see what other similar homes have sold for in your area. Be sure to ask why certain homes were included on the CMA while others were not. The CMA is often a good tool to use to determine your beginning asking price. Consider going to open houses in your area to learn how other homes compare to yours. Remember to look at other homes with the impartial eye of a buyer, not from the view of a current homeowner looking to sell. Using the price per square foot formula is a good way to compare your home to others. This should not be the only determinant, but it can be helpful in setting a fair asking price.

The final item used to determine an accurate asking price is to consider add-on options. You may consider offering a lease to buy incentive, a quick closing date, or to assist in buyer financing. These added benefits could help you get a great price and help the buyer choose your home over another house. If you are thinking of selling or buying soon, and require competent and caring representation, please call us at 773.395.9999.

MAY'S CORNER...

Q. We have heard that selling our home could have a major impact on our federal and state tax returns. What should we watch out for?

A. There are many factors that can affect your taxes as a result of selling your home. Some examples include how the home was bought, how the home was used, and if you made any improvements while you owned the home. For instance if you bought the home, it will affect your taxes differently than if it was gifted or willed to you. Also, if the house was used as a rental or business property, then you will be affected differently than if the home was your primary residence. Home improvements and costs associated with selling your home are items that can be used to offset some of the capital gains that you will have to pay taxes on. These are all factors that need to be discussed with a tax professional.

In addition, the Federal Taxpayer Relief Act of 1997 allows for capital gains of up to $500,000 (if filing jointly) or $250,000 (if filing single) to qualify for exclusion if a variety of requirements are met. This includes that you must have lived in the home for at least two of the previous five years. There are some exceptions, but in any case you may be able to get an exclusion so that you can take advantage of this tremendous savings.

As far as state tax laws, they differ, but your tax consultant should be able to help you address these. If you are planning to move to another state, it may be wise to contact a tax consultant in both states to be sure that you come out the winner. If you’re thinking of selling or buying soon, and require competent and caring representation, please call us at 773.395.9999.

APRIL'S CORNER...

Q. Our daughter and her husband want to buy a home, but recently asked us to “Co-Sign” on the loan. What are the consequences of this action?

A. There's nothing wrong with helping a family member or close friend with buying a home. However, co-signing on a loan should be done with great care and knowledge of the consequences. Co-signing means that you are extending your personal credit for the benefit of someone else. Problem is, if the borrower defaults, the lender will look to you for full repayment. So you're not really a co-signer, you're a co-debtor. Here are a few tips that may prove helpful when co-signing:

• Although you’re co-signing, make sure your co-borrower is putting cash into the transaction. The more they put in, the lower your risk.
• Obtain a credit report on the person you’re co-signing for, even if it’s another family member. If they’ve defaulted on other debts, there’s a good chance they’ll default on the debt you’re co-signing.
• Ask the lender to release you from the loan when the principal balance is reduced to a certain amount.
• Examine how your credit rating and ability to borrow will be impacted. Co-signing on a loan can sometimes impact your ability to get financing if you need it.
• Make sure you’re name is listed on the deed as a co-owner. If you’re on the deed, and if you make any cash contributions, you may be able to deduct mortgage insurance, property taxes, and a pro-rata portion of interest you pay. Ask your accountant or tax planner.
• If the home is sold, will you share in any appreciation or gain in value?

If you’re considering buying or selling soon, and you need competent and caring representation, please call us at 773.395.9999.

MARCH'S CORNER...

Q. Our real estate agent suggested that we have a professional home inspection performed before we put our home on the market. Why should we consider this?

A. Getting your home professionally inspected before you put it on the market seems like a strange thing to do at first glance. In fact, many agents don’t even think of having homes inspected before they list them. But once you understand how it can benefit you, the home seller, it turns out to be a very prudent decision. Here’s why…

• Home inspections eliminate any “surprises” that can delay or even kill a home sale. They also help the seller negotiate better. In most cases, the buyer(s) will use weaknesses of the home (frequently from an inspection performed after the home is in escrow) to negotiate a lower price at a time when the seller is most vulnerable. Rather than become a victim of such tactics, you can show you’ve already taken their issues into account in determining your price.
• Getting your home inspected before going on the market actually allows you to understand the true value of your home – knowing what you may need to fix and what you want to leave alone. It also helps you to price it better and understand what your “net” proceeds will be from a sale. The strengths and weaknesses of your home are going to be known by the buyer at some point anyhow. And the sooner you know them, the more you can act to minimize, eliminate, or adjust for them.
• Home inspections ensure a faster close by eliminating contingencies and other issues, and help ensure a problem-free closing.

FEBRUARY'S CORNER...

Q. We have our home for sale and recently received an offer from a buyer. Problem is, the offer isn't quite what we wanted. What should we do?

A. The first thing you should do is analyze the offer carefully with your agent. Here's why. Sellers frequently examine just one or two parts of an offer: price and financing. While these items are important, there may be other areas that can make the offer either more or less attractive. These include: earnest money, down payment, interest ceiling (the highest rate buyers will pay for new financing), closing costs, financing time limit, closing date, type of financing, personal property contained in the offer, and any contingencies related to the offer. By examining the offer with your agent, there are three actions you can take:

First, you can accept the offer as is. If you do this, you have a binding agreement.

Second, if the offer is totally unsatisfactory, you can, of course, reject it altogether. This option closes the door on the offer. Sometimes it's the right action, but I would suggest the third alternative.

Third, make a counter-offer. If everything is satisfactory except the price, for example, you can ask for more and submit the counter-offer back to the buyers. Or, if there are other elements of the offer you want to counter - say, for example, they want to close in two weeks - you can ask for a month.

Keep in mind that an offer you have in hand will be binding as soon as you've signed it. Any changes you make to the offer will require the buyer to initial or sign it again. If you're thinking of buying soon, and require competent and caring representation, please call us at 773.395.9999 or contact us via e-mail at reo@risingrealty.com.

JANUARY'S CORNER...

Q. We just received a great offer to purchase our home. Problem is that the prospective purchaser wants to close escrow on February 15th, just three weeks from now. Things are happening so fast… "Can the buyer really close in three weeks?"

A. Yes, the buyer can close in just three weeks, even if the buyer is obtaining financing for the purchase. The loan process can usually be completed in time for the closing; however, your REALTOR® has a very important responsibility to protect you against the following scenario:

Let's say it is three days before closing and you are still waiting for the buyer's lender to issue final approval on their loan. You're packing at a feverish rate, the movers are scheduled, utilities are transferred, services will be cancelled in three days, and you're made all arrangements predicated on the home closing on February 15th.

On February 14th you receive a call from your REALTOR® informing you that the processing of the loan will delay closing (or worse yet, the buyers have been declined for financing!). As you can imagine, the financial and emotional consequences of this call are devastating.

To prevent this scenario, your REALTOR® could place the following clause into the purchase contract: "If by February 5th both seller and seller's agent have not received documentation of loan approval from purchaser's lender for the purchase referenced in the contract, sellers, at their exclusive option, reserve the right to adjust the closing date up to 15 days after such time as documentation of unconditional loan approval is received." Thinking ahead and handling potential problems like this are just one of the reasons why you should be represented by a competent, caring REALTOR®.

Rising Realty agents are here to help you. Call us at 773.395.9999 and ask to speak to an agent directly. You may also inquiry via e-mail at reo@risingrealty.com.

DECEMBER'S CORNER...

Q. How Soon After We Put Our House On The Market Should We Start Looking For A New Home?

A. Well, that depends on a number of factors. If your current home is owned outright, and you’re not making payments on it, then you can look for your next home at your leisure. In this case, we would advise you to find your new home and move into it, then fix up the old home and offer it for sale vacant. This increases the ease of marketing it since agents and prospective buyers can inspect it at any time without fear of disturbing a family. Without furniture, the rooms will look larger and lighter and buyers can easily visualize their own belongings in them.

If, on the other hand, you are making a payment on your present home, you should be careful not to become financially burdened by having two payments. The best plan is to have the old home sold before you make an offer on another one.

However, if you absolutely fall in love with another home and simply have to have it, or if it’s a tight market with lower than usual home inventories, you might be able to negotiate a “bridge loan” or “swing loan” to cover your interim expenses. This is a temporary loan made to allow you to buy your next home while your existing home is on the market. This sometimes requires more equity in both homes, or a stronger financial position, but many homeowners opt for this route. Often the security for the loan can be attained through the equity from either your old or new home, or both.

If you’re thinking of selling your existing home, and have questions about selling it fast and for top dollar, or questions about “bridge financing,” please call Rising Realty at 773.395.9999. We handle situations like these all the time, and we're confident our agents can help you too.

NOVEMBER'S CORNER...

Q1. We are thinking of selling our home, and heard there are four critical phases of the selling process we must examine with our agent. What are those phases?

A1. If you’re selling your home, you need to be aware that there are four critical phases of the selling process. A mistake in any of the phases can jeopardize a fast, top-dollar sale.

Here are the phases: 1) Pricing the property to ensure the likelihood of stimulating offers. Many people try to set a high price thinking they can come down later. That’s a big mistake because above-market pricing stifles showings and discourages offers of any kind, usually netting the homeowner a lower price than they planned on getting. 2) Marketing the property to attain the highest number of showings from qualified buyers. Check your agent’s marketing plan carefully to ensure they have the ability to do more than just place it in MLS and hold a few open houses. 3) Creation and Negotiation of the purchase contract. A good agent’s negotiating skills can make or break a purchase contract. Check their experience in these matters. Ask questions about past transactions they handled. 4) Managing the escrow process. During this phase, your agent must be on top of all the escrow functions: inspections, appraisals, financing, contingencies, and more. When interviewing real estate agents, make sure you address each of the four phases of the selling process. Your dialog will be pivotal in establishing trust and a personal chemistry that is crucial between you and your agent. If you have a question about selling your home, please call us at 773.395.9999.

Q2. We’ve been thinking of hiring a REALTOR to list our property. What should we look for in a qualified, competent agent?

A2. Do you remember the old riddle, “what do you call the person who graduated dead last in his/her medical school class?” Answer: DOCTOR! Well, the same is true for real estate agents. Just because someone passed a state licensing examination doesn’t mean they are qualified to handle your needs. All agents are not the same. Here are a few things you should look for in a qualified agent.

First, determine if he/she specializes either in your area or type of home. Second, ask them specifically how they helped clients overcome specific problems they encountered in a past transaction. Third, ask them specifically what they will do for you if they represent you. They should have a step-by-step plan of action. Fourth, ask them how long they’ve practiced real estate, and how many transactions they have under their belt. Fifth, ask them about their marketing skills. See, most agents are trained to handle transactions and understand the law, but few are trained in effective marketing. A poor marketer will cost you thousands of dollars in wasted time and energy. And finally, ask them for a reference list of past clients they’ve helped. Call those references and ask questions about how they handled the transaction.

If you’re thinking of buying or selling a home soon, call us directly at 773.395.9999, we can save you lots of time and money.