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Thursday, September 24, 2009


The gift my parents gave me when I graduated from 8th grade was that I could have my bedroom decorated. (Less you think that my parents were extravagant in their gift, keep in mind, I had been sleeping in that room since I was 9 and the room probably hadn’t been decorated since before the Depression. My room was the next one in the queue to be decorated.)

Regardless, I was thrilled. Jane Derrick, the decorator who helped my mother, took my mother and me to the Merchandise Mart for a day. I was fascinated with all the rooms of wallpaper and fabric and carpeting. We went through so many racks of wallpaper until I found just the one I wanted. It had soft blue and white vertical stripes with beautiful yellow roses. I loved that wallpaper.

Years later, after I bought my first condominium, I would take my lunch breaks and go over to the home decor floor at Marshall Fields on State Street and pour over the wallpaper books. It took months, but I finally found just the right wallpaper to hang in my kitchen. In retrospect, it was a very '70s wallpaper: white with a little bold green sketch pattern and bright yellow dots. Hard to describe, but I loved that wallpaper, too.

Fast forward 10 years - when I was working in London. On Saturdays I would wander around the city and tour the various decorators' shops: Designer’s Guild on Kings Road or Jane Churchill on Fulham Road or the Zoffany showroom. I had now found the ultimate wallpapers – English wallpapers. I was in love with their dramatic monochromatic use of color and the various designs. One of the Victoria and Albert Museum's special exhibitions showcased William Morris. It was simply fantastic. The craftsmanship that went into creating these masterpieces was amazing.

I loved these wonderful papers and still do: I have a Zoffany paper in my bedroom, a bold Designer’s Guild paper in my guest bedroom, Colefax and Fowler in my hall and dining room. I actually bought the wallpapers in the retail shops in London and lugged them through Heathrow and O'Hare..far less expensive than ordering through a distributor in the US.

Do you see a theme here? I love wallpaper. I guess that’s why it was such a shock to me to find out that a lot of home owners don’t like wallpaper. When I would take clients through homes or sit open houses, I would listen to these potential buyers complain about the seller’s wallpaper. I remember one house that had a fantastically beautiful Greeff wallpaper (which must have cost the seller a small fortune), and my buyers hated it. I couldn't help but let them know, it was a very good paper. Didn’t matter to them. They were mentally deducting from the house's list price, the cost of taking the paper down and painting the room beige.

Like any decorating choice, using wallpaper is a very, very personal decision. So a word to sellers… if you love wallpaper like I do, remember that using wallpaper is a decorating option that probably has zero return. It may even lose you a sale. Buyers sometimes deduct from the purchase price, if the house has wallpaper. Worse, they sometimes eliminate the house all together, because they don’t want “the hassle” of removing wallpaper. Sellers who remove their wallpaper and repaint the room to a neutral color before they put the house on the market, often have a much better resale value than the ones who leave their wallpaper up.

Of course, the sellers might get lucky -- someone like me might fall in love with their house.

Sunday, September 20, 2009

Home as Shelter...

Recently I was reading Kiplinger’s Magazine, a favorite of mine. Knight Kiplinger, the Editor in Chief, had an opinion, entitled, An Investor’s Manifesto. It was actually a series of statements that related to investing. For example, “I know that every kind of asset entails risk -- even cash, which can be eroded by inflation.”

As I read through the list of statements, one of them popped out and resonated with me:

I regard my home as a place to live, not as an investment. It is not a substitute for retirement savings.”

Wow, did he have it right. I think so much of what homeowners are facing today, is that somewhere along the way, their house stopped being shelter and became a financial instrument. When I deal with both buyers and sellers, they talk about their house as an “investment.” Clearly it is something that we invest our money in, but is it an investment?

Last week, in the Wall Street Journal, there was an article by M.P. McQueen, called Your House: Just a Home, which hit really home (sorry for the pun) the idea that a house is first and foremost shelter.

“It's time to face facts, if you haven't already: sometimes your house is just a home.

“For most of the last decade, Americans treated their homes as sources of ready cash and as brick-and-mortar retirement plans… Foreclosures and short sales, where homes are sold for less than the debt outstanding on them, comprised 31% of total sales in July, according to the National Association of Realtors, helping depress prices for all…”

We need to get back to the idea, that our homes are meant to be our shelter, our refuge from the storms and our places of enjoyment and comfort. They’re personal – not business instruments, where we expect “a return on our investment.” A home is no substitution for a 401K account or an IRA. We will always need a place to live.
My brother and sister-in-law bought a house in a wonderful neighborhood in their hometown in central Michigan. It’s located in a real estate market that appreciates at glacial speed. They gutted the house and made it their own – everything was redone to perfection – it’s a stunning, wonderful house which they have lived in for nearly 20 years. Today’s value of the home is nowhere close to what they have put into it over the years.

Recently my brother and I were talking about it. I think he was feeling he was “never going to get his money” out of the house. But as we talked, he told me how much he loved their home. I asked him whether he regretted any of the improvements that they made to the house. His answer was no. I assured him, “Then you haven’t lost any money.”

Because that’s what your house is… it’s your home and unless you’re planning on flipping properties and moving every few years, then you have lost nothing when you improve a home to make it your own. But making it your own may mean, that when you do need to sell your home, not everything that was put into the house will come out. The market may be down. The buyers may not like the decorating choices. Or in my brother's situation, the improvements may never be recoverable, given the size of the house or neighborhood where it is located.

Hopefully, when that time comes, the seller will believe they have no regrets; they have lived in and loved their home.

Wednesday, September 16, 2009

Selling your home quickly

Recently I was watching a movie, where the heroine was selling her apartment. When it sold quickly, her comment was, “I must have priced it too low.”

I chuckled. I’m always amused how sellers want their home to sell, but when it sells quickly then they feel like something is amiss – like they made a pricing mistake. Wrong! When it sells quickly then they priced it exactly right.

Research has consistently shown that the homes that sell quickly usually net more money for the seller than those that remain on the market for a longer time period. In other words, the sellers should jump for joy if their house goes under contract in the first 10 days on the market and not second guess themselves for an instant. This could not be more true than today in our buyers’ market. When list and sale prices are dropping, getting ahead of the pricing curb is utterly imperative for sellers.

Every house has a "bingo" price: the price where a buyer will get off the sidelines and make an offer. Early offers are usually the highest offers. The buyer wants that house and will pay a little more to get it, because they know that there is going to be stiffer competition for that house.

“Can’t we test the market?” is the question realtors are frequently asked. I hate to say it, but the MLS is glutted with properties where their owners tried to “test the market” and, unfortunately, flunked the test. Why? Buyers are out there studying the market -- in fact, I would argue that most buyers understand the market far better than most sellers do. Ready, willing and able buyers are circulating around and religiously studying and other websites to identify new properties coming on the market. If something in their price range comes on the market, they pounce, study it, drive by the house, call their agent, etc. and either consider the house or eliminate it. If they think it's priced fairly they will act quickly. If they think its price is out of whack with market values, then they either watch it until the price is dropped or eliminate it all together.

At times, unfortunately, a seller's ego goes into pricing a property. One time I had a client tell me, "I’m not going to sell my house for less than $2M,” so he priced the house to meet that expectation. As the clock started ticking away, they had few showings and eventually realized the price needed to be lowered. Six months later they found themselves accepting an offer for less than $1,825,000. To this day, in my heart of hearts, I think they could have sold it for considerably more if they had priced the house properly at the get go. Why? The best buyers are the ones who are the most motivated. If your house is overpriced, they will compare it to others in the same price point and your house will be perceived as lacking... those buyers will just go ahead and purchase something that is viewed as providing better value.

One way to tell if the house is priced correctly is to analyze the showings. If as a seller, your property is having lots of showings and second showings, then both the agents and the buyers are perceiving value. If you are getting showings but few second showings, then the agents feel it's priced OK, but the buyers simply don't see the value. If you're getting no showings, then the agents basically don't want upset their clients by wasting their time looking at a house that is clearly overpriced. There are exceptions, of course, but this barometer is pretty accurate.

On a final note, the other thing I like my clients to consider is net versus gross profit on the sale of their home. This is especially true for people who find themselves owning two homes or for sellers who want to downsize. I recommend that a seller calculate the average daily rate of running the property – this would include (but not limited to) mortgage interest, maintenance, taxes, landscaping, utilities, etc. For every day the seller needs to carry those costs, the less they will net on the sale of the house. In cases lke this, a quick sale is, more often than not, a more profitable sale!

So if you're thinking about selling your home... price your house to sell and be delighted if the first showing is the last one.

Friday, September 11, 2009

How important is a home inspection?

Should a buyer have the property inspected for a home they are buying? Should a seller order a home inspection prior to putting the property on the market? In our market, it’s pretty standard that buyers have an inspector come in to inspect the house – not so common for the sellers.

As most of you know, a home inspection is a visual examination of both the physical structure and major systems of the entire home including: walls, ceilings, floors, decks, exterior covering, the roof, foundation, insulation and ventilation, plumbing, electrical, heating and air conditioning. It is not an appraisal to validate the value of a home, nor a pass/fail exam. A third-party inspector will give a report on the physical condition and will often make suggestions for repairs. Illinois requires that home inspectors be licensed, so if you are buying your house, while having “Uncle Fred” or “Dad” come through the house may bring you some peace of mind, if they aren’t licensed, their opinion is not considered a "licensed third party.”

For buyers, a home inspection clause in the written offer makes the purchase contingent upon the findings. If a serious problem is found, it allows room to possibly renegotiate the purchase price, ask for a credit at close or "opt-out" of buying the home altogether. The contract that we use in our market is very specific about what a buyer can consider as part of the home inspection contingency clause:

“Buyer agrees that minor repairs and routine maintenance items of the Real Estate do not constitute defects and are not a part of this contingency. The fact that a functioning major component may be at the end of its useful life shall not render such component defective… The home inspection shall cover only the major components of the Real Estate, including but not limited to central heating system(s), central cooling system(s), plumbing and well system, electrical system, roof, walls, windows, ceilings, floors, appliances and foundation. A major component shall be deemed to be in operating condition if it performs the function for which it is intended, regardless of age, and does not constitute a threat to health or safety.”

Usually inspections reveal less serious defects that rarely warrant backing out of the transaction. With that said, one of my least favorite parts of being an agent is the exchange of letters and reports after an inspection. Sellers are often feeling like their house is perfect and not in need of any repairs – buyers are often expecting every little item to be addressed by the sellers. I’ve seen it cause some very hard feelings between both the buyers and sellers.

What I advise my sellers is to agree to anything that appears like a health and safety issue. (For example, if the inspector says the bathroom outlet needs to be replaced with a GFCI outlet (ground-fault circuit interrupter) or the house needs a carbon monoxide detector, those are health and safety issues and should be addressed.) What I tell my buyers is if they see a routine maintenance issue before they make an offer, then they should ask for it before the inspection. (For example, a door is jamming or shutters are broken would probably appear on an inspection report, but would be considered routine maintenance.) I feel both parties need to be reasonable and look for the "win-win" in every situation.

To me the biggest advantage to having a home inspection is it offers buyers an opportunity to become familiar with their new home and learn about maintenance to help in its upkeep. Although not required, I always recommend to my buyers that they follow the inspector around and be present; to ask a lot of questions, and find out how their new house works.

For sellers, while certainly not required, I think it’s great when they have an inspection before listing their homes. When the buyer’s inspection finds problems, it can impede negotiations and cost the seller more in repairs. By having a pre-listing inspection, the seller can help eliminate any surprise findings after an offer has been made. The seller can make repairs before placing the home on the market and possibly even increase the value of the home.

A pre-listing inspection can also serve as a great marketing tool. Sellers are required by law to disclose any known defects in the home. Having a pre-inspection report available for buyers tells them that the seller has nothing to hide. It also gives them a clearer picture of the condition of the home. If there are major problems found during the pre-listing inspection, it gives the seller an opportunity to disclose the condition up-front, making it less likely for the buyer to pull out of the deal or try to renegotiate a price.

Knowing the true condition of a home can bring peace of mind to both buyers and sellers; and be one less hurdle in the home buying and selling process. While there are many capable inspectors, I suggest inspectors who are affiliated with the American Society of Home Inspectors (ASHI).

As an aside note, I have had a home inspector come to my house every five years. In same way, one goes to the doctor to get an annual physical, I like to give my house an inspection so I can find out what preventative issues I may need to be addressing. Every house has issues – even new construction. Knowledge is power. The inspector’s report helps the homeowner schedule and prioritize maintenance.

Thursday, September 3, 2009

What's the value of my home?

One of the biggest confusions that I see in this job is how people (primarily sellers) misunderstand the “value” of their home. I think it’s because there are so many ways value is assigned to a property. In an effort to clear up the confusion, let me try to explain the differences between the three major ways we encounter value as real estate professionals.

What is Market Value?
Market value is like reality TV.
It’s a constantly moving picture in real time. The market value of the home is tied to current market conditions – just in the same way commodities and stocks are. Market value is subject to interest rates, available financing, unemployment, housing trends, demographics, and all the other factors that go into setting market conditions. One day the market value may be up – the next day down. Because with our North Shore real estate market we have been accustomed to seeing housing values go up, it's it's a bit hard to absorb the fact that values of homes can also go down.

Market value is based pretty much on supply and demand. When demand goes down, generally sales prices do as well. So even if you paid $900,000 for your house in 2005, put in a new kitchen and new bathrooms, you may still find out that your house is worth $850,000 in today’s market. It’s just like buying Google at $500 a share yesterday and finding out it is worth $450 a share today. As with stock, all housing "losses and gains" are just on paper until you actually sell your house. While your house may have been sell-able for $1,000,000 in 2006, that "gain" was just theoretical; not reality. Until you sell the house, you really won’t know what the market value is, because the market value is what a buyer is willing to pay for your house on a given day. It has nothing to do with what a seller wants or needs from the house. The buyer determines the market value – not the seller.

What is Appraised Value?
Appraised value is like a snapshot. When you look through a photo album, a woman can be depicted as a baby, a teenager, a mother, etc. She is still the same person, but at a different point in time. That’s what appraised value is: on this day, in this year, by this appraiser – the house was appraised at $850,000. While appraisals provide an objective opinion of value, it’s not an exact science so appraisals may differ. For buying and selling purposes, appraisals are usually based on market value — what the property could probably be sold for on that day. Other types of value include insurance value, replacement value, and assessed value for property tax purposes.

Appraised value is not a fixed number. Changes in market conditions can dramatically alter appraised value. So if you had your house appraised in 2007, the number would more than likely be very different today. Appraised value does not take into account special considerations, like the need to sell rapidly. Lenders usually use either the appraised value or the sale price, whichever is less, to determine the amount of the mortgage they will offer.

What is Assessed Value?
Assessed value is almost like a composite photo. This is what the theoretical market value of the house was in 2006, 2007 and 2008. So if we put that all together then this is a "photo-shopped" picture of the house – in retrospect. It feels a little backwards in some ways – when properties values are going up, then the assessed value often seems a little low; but today, when property values are going down, then the assessed value seems a little high.

I got a newsletter from the Shield’s Township assessor that I thought explained assessed value very well. If you would like to read further, go to

What does value mean to buyers and sellers?
If you are planning on selling your property, then the only way that it makes sense to price it is based on today's market value – you’re putting your house on the market. Buyers could care less about how your house may have been appraised in the past or even what it might have been worth 3 months ago -- it's all about today. Consider a house that was on the market on September 10, 2001 versus the very same house on September 12, 2001... the landscape of the market shifted radically due to no actions taken by the seller and yet sellers needed to adjust to the market.

Just as an investor might evaluate buying shares of Proctor & Gamble versus Kimberly Clark, home buyers are comparing your house to every other house on the market, therefore they need to "e-value-ate" it in that way. Hope this helps explain value.