Local home sales were up 32% year over year in February 2010 from February 2009, however the median home sale price went down 10.3% during that same time period.   Crain’s Chicago Business just published an article that highlights this data in a neat fashion.  

The good news – the number of homes that sold year over year is up.  The bad news -  median home prices are still declining.  This is due in large part because of the number of foreclosures and short sales prevalent in this market.  I’ve said it before and I continue to reiterate that until these sales clear the market, we will continue to see downward pressures on home values.  Perhaps a bright spot in all of this is that Mortgage Bankers Association recently reported that the number of homeowners falling behing on their mortgage payments declined in 4th Quarter 2009 compared against the 3rd Quarter 2009.

Time and time again I run into homeowners in Cook County who are not taking advantage of the property tax discount allowed on their primary residence.  YES, Cook County will provide owners a property tax discount for their primary residence.  So many homeowners miss this – and so I’m compelled to write.

Just this past Friday, I was at a client’s home signing all of the listing paperwork to put her place on the market.  She handed me a copy of her property tax bill, and printed right there in the lower right hand column of the bill there was $0 listed as the discount under the homeowner’s exemption.  Even though she has been living in this condo for five years as her primary residence, she wasn’t taking advantage of the homeowner’s exemption discount which could be anywhere from $250 to $2,000 per year.

How does one obtain this property tax discount?  Simple.  Print the homeowner exemption form on the Cook County Assessor’s website, fill it out, and send it in.  You only need to apply once.  The Cook County Assessor’s office now automatically renews Homeowner Exemptions for properties that were not sold to new owners in the last year.      

There are other property tax discounts permitted under various circumstances, including a senior citizen exemption, home improvement exemption, returning veterans’ exemption, disabled veterans’ exemption, and a disabled persons’ exemption.  For more information visit the Cook County Assessor website.  

If you want to view your exemption history online, visit the Cook County Treasurer’s website, click the “exemption history” link, and punch in your PIN (Property Index Number).  If you don’t know your PIN, let me know and I will help you find it.

Cook County Assessor’s Office
118 N. Clark Street, 3^rd Floor
Chicago, IL  60602
(312) 244-7550

Cook County Treasurer’s Office
118 N. Clark Street, Suite 112
Chicago, IL  60602
(312) 443-5100

The National Association of Realtors surveys home buyers and sellers each year to gather information about the home buying and selling process.  These surveys provide information on demographics, housing characteristics, and the experience of consumers in the housing market.  Buyers and sellers also share information on the role that real estate professionals play in home sales transactions.  Here are some exerpts from the Chicagoland Profile which I found most interesting.  If you’d like more information on the reports for Chicago, Chicago Suburbs, or the entire Chicagoland PMSA please let me know.

Characteristics of Home Buyers

• Fifty-nine percent of recent home buyers were first-time buyers, compared to 47 percent nationwide.
• The typical first-time home buyer was 31 years old, while the typical repeat buyer was 43 years old, nationwide first-time buyers were typically 30 and repeat buyers were typically 48 years old.
• The 2008 median household income of buyers was $86,300 which is higher than the median income of buyers nationwide which was $73,100.
• The median income was $78,700 among first-time buyers and $99,600 among repeat buyers.
• For 40 percent of recent home buyers, the primary reason for the recent home purchase was a desire to own a home.

Characteristics of Homes Purchased

• New home purchases were at the lowest level in eight years nationwide—down to 18 percent of all recent home purchases. This is reflective in Chicagoland PMSA—15 percent of homes were new.
• The typical home purchased was 1,200 square feet in size and was built in 1969.
• Thirty-seven percent of home buyers purchased a detached single-family home.
• The median price of home purchased was $272,500 compared to $185,000 nationwide.
• When considering the purchase of a home, commuting costs were considered very or somewhat important by 82 percent of buyers.

The Home Search Process

• For 38 percent of home buyers, the first step in the home-buying process was looking online for properties.
• Ninety-four percent of home buyers used the Internet to search for homes.
• Real estate agents were viewed as a very useful information source by 83 percent of buyers who used an agent while searching for a home.
• The typical home buyer searched for 12 weeks and viewed 15 homes. This compares to 12 weeks and 12 homes viewed by the typical buyer nationwide.

Home Buying and Real Estate Professionals

• Eighty-six percent of buyers purchased their home through a real estate agent or broker.
• Six percent of buyers purchased a home in foreclosure. Nationally, 10 percent of buyers purchased a home in foreclosure.
• Fifty-four percent of buyers found their agent through a referral from a friend or family member.
• Fifty-eight percent of buyers would definitely use their real estate again or recommend the same agent to others.

Financing the Home Purchase

• Ninety-nine percent of home buyers financed their recent home purchase. This is slightly more than all buyers nationwide—92 percent financed their recent home purchase.
• The typical home buyer financed 87 percent of their home purchase.
• More than half (55 percent) of home buyers reported they have made some sacrifices such as reducing spending on luxury items, entertainment or clothing.
• Thirty-five percent of first-time buyers reported their mortgage application and approval process was somewhat more difficult than they expected, and 12 percent reported it was much more difficult than expected.

Home Sellers and Their Selling Experience

• Eighty-nine percent of sellers were assisted by a real estate agent when selling their home.  Nationwide, 85 percent of sellers used a real estate agent when selling their home.
• Recent sellers typically sold their homes for 94 percent of the listing price, and 72 percent reported they reduced the asking price at least once. Among all sellers nationally, sellers typically sold their homes for 95 percent of the listing price, and 60 percent reported they reduced the asking price at least once.
• Twenty-eight percent of sellers offered incentives to attract buyers, most often assistance with home warranty policies and closing costs.

Home Selling and Real Estate Professionals

• Fifty percent of sellers who used a real estate agent found their agents through a referral by friends or family, and 29 percent used the agent they worked with previously to buy or sell a home.
• Ninety-six percent of sellers reported that their home was listed or advertised on the Internet.
• Among recent sellers who used an agent, 81 percent reported they would definitely (55 percent) or probably (26 percent) use that real estate agent again or recommend to others.

For-Sale-by-Owner (FSBO) Sellers

• The share of home sellers who sold their home without the assistance of a real estate agent was 9 percent this is lower than the national share of 11 percent.
• All FSBO sellers reported not wanting to pay a commission or fee was the reason they chose to sell their home without assistance.

Peter & Mary, Chicago, IL

Peter & Mary purchased a beautiful newly constructed one bedroom condominium in the River North neighborhood of Chicago in 2006.  The bought directly from the developer, and paid a total of $290,000 for the unit including one deeded garage parking space and some upgrades.  When they purchased the home, they put 5% down and financed the purchase with a first mortgage for 80% of the purchase price and a second home equity line of credit (HELOC) for 15% of the purchase price.   

In 2009 Peter and Mary had their first child and were relocating to another city.  With their imminent relocation and the added financial responsibility of parenthood, they needed to sell their home.  Unfortunately given the state of the real estate market, Peter & Mary knew they wouldn’t be able to sell their home and pay off the $227,000 balance on their first loan with Bank of America, the $44,000 balance on their HELOC with JP Morgan Chase, their past due homeowners assessments, past due property taxes, and all closing costs associated with the transaction.  They would either have to fund the transaction with money they didn’t have, or attempt a short sale. 

Peter and Mary enlisted us to handle their short sale.  We found a purchaser who bought their condo at the current market value of $232,000.  $196,000 of this went to fund a portion of the first loan with Bank of America, and $6,500 went to fund a portion of the HELOC with Chase.  The balance covered past due assessments, past due property taxes, and traditional closing costs associated with a real estate transaction.  On behalf of Peter and Mary, we negotiated a lien release and forgiven deficiency from Bank of America and Chase.  Peter and Mary have now moved on with their lives and have no future financial obligation to their lenders.

I read an article just yesteraday that stated the average short sale success rate for most agents across the country is 23%.  Stated another way, real estate agents fail to execute the short sale transaction 77% of the time!  What’s the typical outcome of a failed short sale?  A FORECLOSURE!  Yes that’s correct – a foreclosure.   That darned F word again.  And that’s exactly what you are looking to avoid when you opt to short sell.  Conduct a short sale correctly and you will avoid foreclosure.  Mess it up, and you are likely to be foreclosed.

Should you need to short sell, it’s imperative you partner with a real estate professional (a.k.a. Realtor, but I’ve never liked that term) with a successful history in the short sale department.  The more I work these deals, the more I realize that most of my real estate peers just do not know the “ins and outs” of a short sale transaction (nothing against you my fellow agents, but you’ve got to know your stuff before you venture off into short sale land).

Here are five simple questions (beyond the obvious “how many short sales have you closed?”) you can ask your real estate agent to see how versed they are in these specialized types of transactions:

1)  What are the possible deficiency judgements that may result from my short sale?

2)  What is the foreclosure process and timeline in Illinois (or whatever state in which you reside)?  What are my alternatives to foreclosure?

3)  How does a short sale, a foreclosure, or a deed in lieu effect one’s credit?

4)  Deed in lieu, what’s that?

5)  How do I qualify under the Mortgage Forgiveness Debt Relief Act of 2007?

If your agent cannot confidently answer these questions, then you might want to look elsewhere for short sale guidance.  The first questions I ask a prospective short sale client include:  “What is your total debt on the property?  How many loans do you have?  If you have a 2nd, is it a HELOC or a true second?  Who are your lenders?  How many payments have you missed?  What is your intention with this property?  Please fax me copies of your latest mortgage statements.”  Please, please, please make sure you’re working with someone who knows this niche.  Otherwise, the odds are strong that you’re just spinning your wheels.  Don’t be on of the 77% of short sales that do not succeed.

Does all of this make sense?  Feel free to comment or ask me questions.  I’m always happy to share whatever knowledge I can.

Tax season is quickly approaching.  There are many benefits to homeownership, including some tax deductions you are allowed to take on your income tax returns.  In order to deduct expenses of owning a home, you must file Form 1040 and itemize your deductions on Schedule A.  Below are some general guidelines taken directly from the IRS publication 530.  Here is my disclaimer:  I’m not an accountant and I’m not trying to give tax advice, and I cannot guarantee all the information below is 100% accurate.  You should always seek an expert opinion to determine the appropriate deductions for your situation.  If you need a referral to a CPA, let me know and I’ll point you in the right direction!

DEDUCTIBLE EXPENSES

• Mortgage interest on first or second home loans.  Your mortgage company will send you a year end statement for all interest paid during the year (Form 1098)
• Interest paid (up to $100k) on home equity debt, even if not used for home improvements
• Mortgage insurance premiums
• Real estate taxes
• Prepaid interest at closing – This amount should be included in the mortgage interest statement provided by your lender
• Points paid at closing – may be deductible depending on certain requirements.  Check with your accountant to see if you qualify

 NON-DEDUCTIBLE EXPENSES

• Insurance premiums (other than mortgage insurance)
• Wages paid for domestic help
• Depreciation
• Cost of utilities
• Most settlement charges (closing costs)
• Transfer tax stamps paid at closing – these are not deductible but add to the cost basis of the home for stamps paid by purchaser, and add to the expense of the sale and reduce the amount realized for stamps paid by seller.
• Homeowner’s association assessments – cannot be deducted because the homeowners association, rather than the state or local government, imposes them.

HOME IMPROVEMENTS & HOME REPAIRS

Generally you cannot deduct home repairs or home improvements on your tax return in the current tax year.  You can however add the cost of home improvements to the tax basis of your property, which will reduce your total gain (or increase your total loss) when you do sell your home. 

Home improvements add to the value of your home, prolong its useful life, or adapt it to new uses.  Examples of home improvements include putting a recreation room in your unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, putting on a new roof, or paving your driveway.

Home repairs maintain your home in good condition.  They do not add to its value or prolong its life, and you do not add their cost to the tax basis of your property.  You cannot deduct home repairs on your tax return.  Some examples of home repairs include repainting your house inside or outside, fixing your gutters or floors, repairing leaks or plastering and replacing broken window panes.

HOMEBUYER TAX CREDITS

On November 6^thObama extended and expanded the Homebuyer Tax Credit program.  Below are some general guidelines on who may qualify. 

First-Time Homebuyers:   You may be able to claim a one-time tax credit of up to $8,000 ($4,000 for a married individual filing separately), if you are a first-time homebuyer of a primary residences purchased in the United States after April 9, 2008 and before July 1, 2010.  You may also qualify as a first time homebuyer if you did not own any other main home during the 3 year period ending on the date of purchase.  This tax credit will phase-out for individual taxpayers with a modified adjusted gross income between $125,000 and $145,000 and for those filing a joint return, it’s between $225,000 and $245,000.

Existing Homeowners:  The homebuyer credit may be claimed by existing homeowners who are “long-time residents.”  For purchases after November 6, 2009, you can claim the homebuyer credit if you (and, if married, your spouse) maintained the same principal residence for any 5-consecutive year period during the 8-years ending on the date that you buy the subsequent principal residence.  There’s no requirement for your current home to be sold in order to qualify for a homebuyer credit on the replacement principal residence. The maximum allowable homebuyer credit for qualifying existing homeowners is $6,500 ($3,250 for a married individual filing separately), or 10% of the purchase price of the subsequent principal residence, whichever is less.

KEEPING RECORDS

Keep full and accurate records to properly report your income and expenses, to support your deductions and credits, and to know the basis or adjusted basis of your home.  These records include your purchase contract and settlement papers from your purchase, any receipts, canceled checks, and similar evidence for improvements or other additions to the basis.

All you tax experts out there, did I miss anything worth mentioning????

Great location close to Lincoln Square and Andersonville.  This home has an extra wide layout, providing a very open and bright space.  Large kitchen with lots of cabinets, a 10 foot island, granite countertops, and stainless appliances.  The master bathroom was just beautifully refinished and includes a whirlpool tub, separate shower, double vantity with granite countertops and undermount sinks.  Other features include hardwood floors throughout, fireplace, in unit laundry, exposed brick, large back deck, and parking.  This property is only a short wal to the Ravenswood Metra stop and the EL, for a quick and easy commute downtown.   

I just read an article which many of you may have seen published by US News & World Report written by Luke Mullins.  The jist of the article was that many Americans today are re-prioritizing how they pay their debt.  Back in the day before the “Great Recession”, it was always mortgage first, and credit card debt second.  Today more and more homeowners are choosing to pay credit card debt first, and mortgage debt second simply because credit cards can be used to pay for basic necessities like food, gas, and clothes.  While shelter will always be considered a basic human need, homeowners in Illinois often have more than 15 months before they lose their home through the foreclosure process!  Essentially, these homeowners will do all they can to preserve their existing credit lines at a time when it has become more and more difficult to obtain new credit.

Quoting directly from the article:

The development is rooted in the housing bust. When home prices turned south–falling roughly 30 percent from their peak in the second quarter of 2006–a great deal of borrowers watched the value of their homes drop below what they owed on their mortgages.  Today, roughly one in four homeowners finds himself in this position, which is also known as being “underwater.”  Without equity in their homes, such borrowers are more likely to default. “They don’t see any value in putting money into an asset that has lost that much value and will probably never regain that value to offset the mortgages,” says Celia Chen, of Moody’s Economy.com.

One in four homeowners are “underwater”, in that the current market value of their property is LESS than their outstanding mortgage debt.  This is one of the main reasons we are seeing a record number of mortgage defaults across the country today.  What incentive do people have to pay their mortgage when it may take 10, 15 or even 20 years for them to return to positive equity?  From a purely economic standpoint – NONE!  But from a moral standpoint, a borrower may continue making payments because they made a promise to the bank to repay that debt.  Whether or not this moral obligation is reason enough to keep a homeowner current, well that just depends each individual borrower. 

Read the article if you have time.  There are some interesting facts about this shift in debt prioritization.

When facing foreclosure it is important to know that you have options.  Remember that when you are in foreclosure, or on the verge of foreclosure, you still own and control your property.  Take time to understand the options below, and make a educated decision on how best to proceed. 

In Illinois the foreclosure process from start to finish can take twelve to fifteen months from the time of your first missed payment.  By the time a homeowner has received a Notice of Default (the official notice that the foreclosure process has or will begin) foreclosure can take 210 to 250 days.  This gives the homeowner approximately a whole year to address the issue and fix the problem.

Listed below are 9 alternatives you have when facing foreclosure:

1.  Do Nothing:  If you as the homeowner do nothing, you will most likely lose your home in foreclosure.  The bank/lender will go through the legal process of foreclosure in order to resposses your property.  If you are still living in the property at the time of repossession, then you will eventually be evicted from your home.  Your credit rating will be negatively affected by the foreclosure.  

2.  Payoff/Refinance:  Pay off the entire loan amount plus any default amount and fees.  This is usually accomplished through a refinance of the debt.  New debt is at a normally higher interest rate and there may be a prepayment penalty because of recent default.  This option is only available if there is equity in the home.

3.  Reinstatement:  Paying your lender the entire default amount including interest, late fees, attorney fees, and taxes.

4.  Loan Modification:  Utilize your existing mortgage company to refinance the debt, extend the terms of the loan, or change your current interest rate.  This may allow you to catch up at a more affordable level.  To qualify, you must prove to the lender you have fixed the problem that caused the late payment.

5.  Forbearance:  A repayment plan the lender might arrange based on your financial situation.  The lender may even be able to provide a temporary payment reduction or suspension of payments.  The lender will require you to provide information that demonstrates you will be able to meet the new payment plan.

6.  Partial Claim:  A 2nd loan from your lender that includs back payments, costs, and fees.

7.  Deed in Lieu of Foreclosure:  This option allows you to give the property back to the bank instead of the bank foreclosing.  Banks generally require the home be well maintained, and all mortgage payment and taxes must be current.  This has a similar effect on credit as foreclosure.

8. Bankruptcy:  This option can liquidate debt and/or allow more time.  If needed I can refer you to a qualified bankruptcy attorney.

• Chapter 7 (liquidation) To completely settle personal debt.
• Chapter 13 (Wage Earner Plan) Payments are made toward a plan to pay off debts in 3-5 years.
• Chapter 11 (Business Reorganization) A business debt solution.

9.  Sale: If your property has positive equity (money left over after all loans, fees, taxes, and commissions are paid) then you can execute a conventional sale.  If your property is now worth less than your existing debt, you will need to perform a short sale or pre-foreclosure sale on your property.  A short sale or pre-foreclosure sale can be negotiated with your lender by a qualified Real Estate Professional.  In this case, the lender agrees to accept less than the debt owed.

I frequently get questions from clients about the state of the real estate market.  We are all well aware of the challenges that persisted in the residential real estate market through 2009, and most analysts have mixed feelings about what 2010 will bring.  I believe we will see a gradual increase in the total number of transactions; however when we might reach a bottom in home pricing is anybody’s guess.  Until the abundance of current and forecast foreclosures clear the market, we will continue to see downward pressures on home values.   

Because of the large amount of distressed property owners in the market today, I recently partnered with a group that is one of Chicago’s most successful short sale and pre-foreclosure companies.  While conventional transactions are still a large part of my business, I am now able to do more to help those clients and homeowners in need.  Operating under the Jameson brand, we have set a goal to help as many distressed homeowners as possible. 

A short sale allows a homeowner to avoid the damaging effects of foreclosure on their credit and relieves them of their mortgage debt (95% of the time without any further financial obligation).  We have been able to help many homeowners successfully sell their homes at prices far less than the existing mortgage(s) on their properties.  Through the short sale process, we negotiate directly with a homeowner’s lender to accept a mortgage payoff amount significantly less than the total loan balance.  Because of the Mortgage Forgiveness Debt Relief Act of 2007, our client’s tax liability from these transactions is forgiven.  These clients often walk away from very difficult situations with no financial obligation.  

I recently put together a report that provide in depth housing statistics into select neighborhoods in the Chicago residential real estate market.  It tracks average home prices during each of the last five years, and average market times.  I’ve broken it down by Chicago neighborhood, including:  Lincoln Park, Lakeview, Lincoln Square, Bucktown, Wicker Park, Roger’s Park, Ukranian Village, Streeterville, South Loop, West Loop, and beyond.  If you would like me to email you a copy, please let me know!