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Wednesday, December 16, 2009


I live in a ranch house. In the best of all worlds, I would have a laundry room on the main level. Sadly, whoever designed my house thought the basement a more appropriate place to do laundry. I hated doing my laundry because the room was so dismal and ugly. I would put it off until I had baskets of things needing to be washed.

While my basement had sort of been finished by previous owners, I had found the experience of going into my basement somewhat depressing – it was dark and uninviting. So recently I had the basement repaired and repainted, replaced a few windows, and updated my laundry room with new machines, flooring, etc. Having gone through this process, I find that basements are on my mind. Like so many others, I really don’t use my basement often, but I do want it finished nicely anyway. While I question whether I have added much to the market value of my home, I do know that I have made my home more marketable, because my basement looks great right now.

For most of history, the basement had one of two forms: a cellar or it was a section of a building containing rooms and spaces similar to those of the rest of the structure (i.e., basement flats and offices). Two images come to mind: Dorothy in The Wizard of Oz scurrying down to the cellar to escape a tornado; or that wonderful PBS series, Upstairs, Downstairs set in Edwardian London with the Belamy family living upstairs and Hudson, Rose and Mrs. Bridges working and living downstairs.

While you can imagine both of these types of basements on the North Shore, cellars are less common. Historically I don’t think basements were not particularly significant. If you wander through the older homes in Wilmette and Evanston, it’s pretty clear that the basement was a place for people to work and not live. With their low ceilings, unfinished spaces, laundry rooms and other storage they made for rather unviting spaces. These older homes usually had basement space that was under the full footprint of the house. Newer houses built during the latter half of the 20th century had the house built over basement and crawl space (aka, partial basement). What I’ve noticed with the newer construction, the basements are full again and are often amazing living spaces.

As a kid, our basement was pretty big but somewhat of a dungeon. It was series of rooms where we kept the ping pong table, laundry area, furnace and boiler; had storage for luggage, Christmas decorations, wine, old magazines and then there was a workroom with hammers and other tools. We even had a functioning toilet in our basement. I can’t imagine how depressing laundry day must have been for my mother: with the ugly old concrete sinks and dismal lighting. But there was also natural light with very big window wells. I had never even heard of a sump pump until I was adult – I have no idea when they became a standard fixture in most homes. Every time there was a major rain storm, the water might back up in our basement and we would scurry downstairs to take things off the floor. I think my folks had only one or two major flooding situations in the basement in over a 40 year period. When that happened everyone worried about getting electrocuted in the basement as you pumped out the water and cleaned up the mess.

Beginning with the development of large, mid-priced suburban homes in the 1950s, the basement, as a space in its own right, gradually took hold. Initially, it was typically a large, concrete-floored space, accessed by indoor stairs, and with exposed columns and beams along the walls and ceilings, or sometimes, walls of poured concrete. Things were dry walled and finished with new living space added for the family. You can find post war homes in Kenilworth Gardens, for example, that there are little family rooms with little fireplaces. The basement became real living space to accommodate growing families.

Often my clients ask me about their basements. I have definite opinions but no facts… I’ll share with you my thoughts. Are you in need of more space? The basement is a logical place to begin, because you are not changing the footprint of the house and the cost of finishing a basement is generally quite a bit less than adding on to a house. A nicely finished basement up to code, with proper building permits is probably much more valuable from a resale point of view than an unfinished basement. However, I think a DIY basement with really cheap materials is probably less valuable to most buyers than an unfinished basement. Another question I get is about putting a bathroom in the basement. Ask yourself, how do you plan to use the basement? Are you going to go down there and hang out for long periods of time and/or is the only guest room in the house in the basement? Then yes, a bathroom might make sense. I question whether you will gain much by having a bathroom in the basement, unless you plan to frequently use the basement.

Some of the basements I see today – particularly in the newer homes – are amazing with temperature controlled wine cellars, home movie theatres, fitness and workout rooms, guest bedrooms and baths, full kitchens and living areas. I’ve seen a basketball court and a golf driving area in the basement. I find that a lot of people make these incredible basements and then never use them. It’s like they are for show, but little else.

Personally, I have no interest in hanging out in the basement, as such the improvements I made were not terribly grandiose or extravagant. A nicely finished basement in the Midwest probably recovers about 70% of its cost. Is it worth it to you to know that about 30% of what you spend, you’ll never recover? I believe if you really are going to use the basement a lot, then do a nice job and finish it… otherwise think twice before investing a lot of capital improvement dollars into space you use infrequently. I found a nice series of articles in that you might want to read before tackling a basement project. Basement Remodeling

So now, I’m off to do my laundry – it’s a lot more fun these days.

Friday, December 4, 2009

My life in real estate: FSBO - Part 2

OK, so my attempt to buy a "FSBO property" was a costly and painful experience. How about selling my own place as a FSBO? Potential clients ask me all the time what I think about FSBO. This is my standard answer. I think it’s a great idea – if you already have a buyer lined up and you're willing to commit to the time and activities that are necessary to getting a house sold. Otherwise, I’m not so sure it’s a great idea.
I’ve owned four homes and have sold two of them without the benefit of a real estate agent. In both cases, the buyer approached me and asked if they could buy my home. How could I say no? Regardless, I can’t say that I actually sold my places as effectively as I could have. I didn’t know what I was doing with the first sale. The second time around, I think I managed it a lot better.

Wrong way:
While the sale of my first apartment to a neighbor was actually easy and straightforward, I have no idea if I sold it for the correct price. I looked strictly at the apartment as what it financially meant to me. How much did I pay for it? How much did I put into it? I made that the sale’s price. Pretty myopic thinking – but I was young and inexperienced and didn’t consider the most important factor … the market.

A property is rarely sold in a vacuum -- it is sold in the context of the local real estate market. I think this is a concept that many of today's sellers are grappling with; they are looking at their homes with the formula of Cost + Improvements = Value. WRONG. The value of a property is what a buyer is willing to pay for it. When a buyer has a plethora of homes to choose from, they are more than likely going to buy the house that has the best perceived value. Getting the price right is key. FSBO's are not necessary objective in pricing their own homes. I've seen many FSBO sellers eventually list with a realtor, because they either don't price their homes correctly or they get overwhelmed by the process of marketing and showing their own property.

Right way:
I think my second FSBO experience was done correctly. I had a realtor neighbor, who had a lot of listings in my condo building. I pulled together all the information about the capital improvements I had made to my unit and asked her to stop by and take a look at my apartment. She gave me the comparables of all the units that had sold in my building and she brought several colleagues over to see my unit. Together they gave me a ball park figure about what the price I could both list and sell my unit. While it was only an estimate – it was educated estimate. I had a better understanding of the market value of my unit. I suggested a price to the person who had approached me and she accepted my price.

The next step was we put in writing our “understanding of the terms of sale.” We both signed the letter of understanding and then turned it over to our respective attorneys to hammer out the contract. It couldn’t have gone more smoothly. Why? I knew the buyer and I knew she was pre-qualified to purchase the unit…. And we put everything in writing before we got the lawyers involved.

Selling your own home is not as easy as it appears particularly when you DON’T know the buyer. In fact, many FSBO sales fall apart because the buyers are often financially unqualified. Sellers can waste a lot of time with people who don’t have the appropriate credit rating or financial capability to purchase their home.

Second, you can be inviting strangers into your home. With a realtor involved you know that buyer has been pre-screened and should be qualified to purchase your property. I recommend that if you’re determined to sell it as a FSBO, be prepared to pay a buyer’s broker fee (typically 2-3% of the sales price) to any agent who presents a qualified buyer. It can save you a lot of frustration.

According to the National Association of Realtors, FSBOs accounted for 13% of home sales in 2008. The typical FSBO home sold for $153,000 compared to $211,000 for agent-assisted home sales. FSBO not only include a transfer of property between distinct homeowners, but also transfer between family members and trusts. It’s estimated that the number of FSBOs where they are private sales between people who know each other to be about 5% of the time.

Most Difficult Tasks for FSBO Sellers:
· Selling within the planned length of time: 13%
· Getting the right price: 12%
· Preparing/fixing up home for sale: 11%
· Understanding and performing paperwork: 10%
· Having enough time to devote to all aspects of the sale: 8%
Source: 2008 National Association of REALTORS® Profile of Home Buyers and Sellers

People often watch what they see Realtors do and have the idea that the job doesn’t require much effort. I have to be honest, before I started this work, I felt the same way. I couldn’t have been more wrong. To be an effective realtor, you work 7 days a week – often doing work that is not visible to others. It’s work that requires a great deal of studying and analyzing the market, touring and evaluating properties, reading tremendous amounts of information, and developing creative solutions to some unusual situations. Selling a home – particularly in this market -- is not easy work. So unless you’re prepared to focus on the job full time, I would suggest hiring a realtor.

So do I believe that FSBO is a good idea for sellers? Sure, why not? If you’re willing to commit yourself to the time, the work and the process then by all means sell your own home. But, as said before, it sure helps if you already have the buyer lined up.