Renting Versus Buying in a Real Estate Down Market

I met yesterday with two of my favorite clients. They recently closed on and moved into a new home. They were fortunate that they were not required to sell their current condo in order to qualify to purchase their new house.

The problem? After many months on the market, their home has not sold. They came to me looking for advice about the possibility of renting out their condo. They were smart to ask.

What Attributes to look for in a Real Estate Agent

There are four main attributes for finding a good real estate agent: knowledge, comfort, trustworthiness, and reputation.

Knowledge:
I look for an agent with expertise in a limited geographical area and a limited type of property. In a large metropolitan area like Chicagoland, it is impossible to find an agent who can competently cover a whole city or all of the suburbs and just as difficult to find an agent with the expertise to handle all types (commercial, residential, leasing, etc.) of deals. Location, location, location. Don't use a suburban real estate agent for a south side property. Don't use a commercial broker to find a residential property. Find an agent who knows and works a particular area and with a particular type of property. The right tool for the job! Such an agent will have a basic knowledge of property values, common problems or pitfalls (ie. this property is near the freight train line that comes through in the early morning or is on the landing path for the local airport), and local customs and practices (ie. customary tax proration in the city versus a collar county). Most real estate deals are pretty smooth and just about any agent could handle them. However, when a deal does not go as planned, choosing the right agent becomes critical. The right agent will have a good level of experience so that the agent will know how to handle the "off" situation.

Comfort:
A real estate buyer or seller will spend plenty of time on the phone with an agent and possibly even more time in the agent's personal company. Some buyers spend weeks in the real estate agent's car driving from showing to showing. The client must be comfortable and get along with the agent. This is a matter of personal taste. An agent that some consider to be pushy or short to some may be forceful and to the point for others. An agent who is non-confrontational and collegial to some may be too withdrawn and without enough fight for others.

Trustworthiness:
Most people know that a real estate agents is only paid when a transaction closes. As a result, bad agents sometimes work "for the deal" rather than working "for the client". Avoid agents that do not put the client's best interests first. These agents are easily found out when they begin to play "devil's advocate" a little too much with regard to price, repair requests, or contract terms or when they "babysit" a deal too much to make sure it closes on time (because they need the commission check to eat). Trustworthiness is important when a client needs an agent who knows the law and does not cross over the line. A good agent will find novel and smart ways to solve problems; a bad agent will suggest an illegal or unethical course of dealing and merely suggest that "everyone does it". This behavior is commonly demonstrated by the "bad" agent who has no problem with "off the HUD-1" credits or who smooths over inspection issues by downplaying the importance of those issues to the client.

Reputation:
The best way to find a good real estate agent is to ask someone who has recently been through the real estate buying or selling process or, better yet, to ask someone in a related real estate profession. Attorneys and mortgage brokers know the good agents and the bad agents and can usually help a client find one or more who might be the "right" fit. There is no substitute for experience. It is better to get a referral to a good agent up front than to get stuck with a bad agent only to learn that the agent is bad at the closing table.

A real estate deal is one of the largest transactions that most people will engage in during their lifetimes. The choice of an agent should not be left to random chance, the cheapest quote, the luck of the draw, the first guy who called back, or whoever was "on the desk" when the client called in to the broker's office. A prospective client should always interview multiple agents. Choose the one with the best blend of qualities and the results should pay off.

Pre-Closing Possession

For one reason or another, a Buyer may need to take possession of real estate before a closing. For instance, if there is a "dry-closing" (ie. one where the lender fails to fund but all other parts of the closing are done and the lender's funding should take place shortly thereafter), a Seller may be willing to allow a Buyer to take early possession of real estate. Most attorneys disfavor pre-closing possession. Why? Mostly because of liability concerns. What if the deal fails to close? What if the Buyer discovers a condition in the property that causes the Buyer to decline to close? What if the Buyer burns down the property? What if the Buyer's property moved into the real estate is stolen?

A proper and well thought out pre-closing possession agreement can address some of those concerns. While granting possession only at the time of closing is preferable, sometimes pre-closing possession is necessary.

What happens if, having transferred possession, the property is destroyed? In such as case, the Illinois Uniform Vender and Purchaser Risk Act shall apply. Unless specifically disclaimed or modified, all real estate contracts in Illinois are subject to the Act.

The act provides first that when neither legal title nor possession of the real estate have been transferred, in the case that all or a material portion of the real estate are destroyed without purchaser's fault, the Seller can not enforce the contract against the Buyer.

The act makes provision, however, for pre-closing possession. When either legal title or possession of the real estate has been transferred, in the case that all or a material portion of the real estate are destroyed without Seller's fault, then in such a case, the Buyer is not relieved of the duty to purchase the real estate.

Thus, if a buyer takes pre-closing possession of a property and the real estate burns down, the Buyer is still on the hook to buy the property.

Changes at the Chicago Water Department affect home sales in Chicago

On November 12, 2007, the Chicago City Council passed a number of amendments to the Municipal Code of Chicago that affect the City of Chicago Water Department and real estate transactions in the City of Chicago.

It is expected that, beginning December 17, 2007, the City of Chicago will increase double price charged to obtain a "Full Payment Certificate" also known as a "Water Certification" from $25 to $50. (See changes to 11-12-530)

In addition to the fee increase, the City has reinstated the requirement that a "Full Payment Certificate" be obtained for condominium property. In addition to the normal requirements for obtaining an FPC, a condominium request must also include a paid assessment letter current for the month of closing that includes the condominium unit number, the condominium assoication water account number, the name of the condominium unit owner, a statement from the association that the condominium association pays the water bill, and a statement from the association that the to be conveyed unit's monthly assessments are paid in full and up to date. (See changes to 11-12-531)

The alleged policy behind the FPC is that the City is given a final chance to make a seller pay their water account in full before being allowed to sell property and flee the city. Is this really necessary for condominiums where the association is responsible for payment of the water bill?

So what does this mean to sellers of property in the City? Increased fees and more hassles. Condominium Sellers who will be selling early in any given month will need to pre-pay their assessments so that they can timely obtain a paid assessment letter that conforms to the City's requirements. The new law will also likely cause a major disruption in obtaining FPCs.

If the City needed more money, they should have just imposed a new tax on the sale of real property. Instead, they increased the bureacratic workload by forcing hundreds more people to stand in line to obtain FPCs for condominium units where the association already pays the water bill.