Keeping up with Chicago's North Shore Real Estate Market!

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Sunday, June 27, 2010

Re-fi's - playing hard to get : SearchChicago Homes : Don DeBat

Buyers Beware!
Re-fi's - playing hard to get : SearchChicago Homes : Don DeBat

What does it take to get my house sold? Part 6: Marketing

Buyers can’t buy properties when they don’t know they are for sale. That’s when marketing plays a role. That said, sometimes houses get sold without ever being marketed. Some properties sell themselves. I’ve heard stories where someone has attended a party at a home and was so enchanted with the property that they ask the host if they can buy it; and the owners have agreed. Or we all have heard at one time or another, “When you’re ready to sell, call me…” But these situations happen fairly infrequently.

Marketing comes in all shapes and sizes. For example, my mother sold our family home just by calling someone up and asking them if they wanted to buy the house – and they did. The marketing consisted of one phone call. I sold two of my condos by word of mouth. No advertisements; no agent involved.

Some people choose to sell by owner (FSBO), but with our North Shore market the vast majority of sellers use a real estate brokerage with a dedicated agent to market their home.

When I first started looking at condos back in 1978, the only viable source of information about properties available for sale was either print advertisements or through a realtor. The Chicago Tribune was my main source of information, but it would only contain a fraction of the available apartments that might be available. It was pretty hard to get a handle on what properties were available without working through a realtor. The Multiple Listing Service has allowed agents to promote their listings to other brokerages. In the past the Multiple Listing Service would publish a bi-weekly book that looked something like a phone book which contained all the properties that were currently available. I remember pouring over these books with my realtor in 1992 when I was purchasing my Pearson Street condo.

It was hard for my realtor to preview all the units for sale, so often we would view properties based on the room dimensions and other information listed in this MLS directory, look at maps and try to figure out whether it was a good neighborhood or not. After extensive touring, it took us almost six months to find the condo that I eventually purchased. In retrospect, it was a pretty inefficient system.

Today the MLS is automated and online. The books are no longer published – the information is instantaneous and available to licensed realtors who pay for their membership in the Multiple Listing service. However most of the information in our local NSBAR (North Shore Barrington) MLS is available to consumers through The MLS is and continues to be the single most important tool for marketing a home. Listing in the MLS provides information either directly or indirectly to all the potential buyers of homes.

There’s a huge misconception by sellers that marketing with print advertisements will bring in the buyers. Many sellers get frustrated with their agents, when they haven’t placed beautiful ads in the Pioneer Press or the Chicago Tribune. The reality is, a pretty ad in the Pioneer Press has yet to sell a house. At most, all the ad can do is to provide awareness.

Perhaps 25 years ago, advertisements could have made a difference. However -- even then -- more often than not, buyers learned about the properties through their agents or by “for sale” signs. Today print media is struggling to survive. According to the Annual Report of American Journalism,

Circulation losses at daily papers seem to have peaked at 10.6% year-to-year in the six-month period ended September 2009. Big declines are almost certain to continue in 2010. To put this in perspective, newspapers have lost 16.9% circulation in three years and 25.6% since 2ooo.

Nationally many newspapers have folded over the last 10 years. Readership with the Pioneer Press has gone down as well. More importantly, according to the National Association of Realtors 2009 Profile of Buyers and Sellers (NAR Study), only 3% of the buyers located the home they purchased in newspapers or advertisements and 84% considered the information in print media less than useful.

With that said, I do think that print advertisements serve a purpose. I think casual buyers do take a look at things that are advertised in the Pioneer Press or other publications. They provide awareness and answer people’s curiosity. But today’s serious buyers look elsewhere for their information – According according to the NAL study about 72% of the buyers find their homes from their real estate agents or from the Internet. The next highest source for buyers is when they see the property with yard signs. Print ads are barely considered.

The Internet has changed rules of the game. There are literally thousands of sites that provide detailed information about properties that are being marketed. According to the NAR Study, only 1% of the buyers considered the Internet information less than useful. The change in Internet usage by buyers has increased annually. In 2003, 71% of potential buyers used Internet. Today that number is 90%.

It has been my experience, that when a buyer learns about a property, the first place they go is to either their agent or to the Internet for more information. How the property is presented on the Internet is critical to whether a prospective buyer would purchase the home. Getting them in the front door, may involve how they perceive the property online.

The most important information that buyers look at are photographs. Properties without photographs are often skipped over and not considered. The quality of the photographs is critical. Let me share two personal experiences that relate to this.

Several years ago I was working with a couple who wanted to buy a house on the North Shore. They were very tech savvy, and had studied the listings on the Internet and were familiar with every house available within their price range. They gave me a list of homes they wanted to view. We didn’t drive around… they were very specific about what they wanted to see. I had previewed a wonderful house that I thought they might like. They went online, studied the photographs, and rejected it. They had no interest in seeing the house. Regardless, I added it to their list anyway; which sort of annoyed them. They really didn’t want waste their time looking at a house where they had no interest. I had to persuade them to humor me and take a look at it. As I thought, they liked it and eventually bought it. Had I been less persuasive, they never would have seen the house at all. They had rejected it strictly based on the Internet photographs.

Another story… I was marketing a unique property and while it was somewhat dated, it was a terrific house. I hired a professional, high-end, real estate photographer at great personal expense to come in and photograph the house. His photographs were spectacular and looked amazing on the Internet. It turned out that I had more phone calls direct from consumers about that house, then any other house I have ever listed. Buyers would come in and frankly be a little disappointed with the house when they saw it in person. My job was to get them in the door – and the Internet photographs accomplished that.

There was a recent article in the New York Times that sheds some light on this topic.

Given this trend in real estate marketing, proper placement of information on the Internet is critical. The first question a prospective seller should ask when interviewing agents is, “What is your Internet marketing strategy?”

The Internet is a real time reflection of the marketplace. A print ad is dated the minute that it goes to press. Personally, I have invested the bulk of my marketing expenditures on a robust Internet presence – I see this as an imperative for my sellers.

With all that said, it’s my opinion that 98% of marketing is getting the list price correct when the property first comes on the market. Why? The three main parameters that buyers search on are zip code (location), Bedrooms/Baths and price. While the house may be in the right zip code with the right number of bedrooms and baths, frequently buyers won’t even take the time to look at properties that are out of their price range. They only hone in on properties that they can afford. Price is even more important on the internet, because homes can be eliminated strictly through search parameters and never presented based on a search.

When the price is right, it will attract the appropriate buyers who will evaluate the home and either like it or not. If the price is wrong, all the brochures, print ads, beautiful photographs and magazine articles may market the property to wrong buyers. Marketing needs to be strategic and pricing correctly is essential to that strategy.

So what does it take to get a home sold?

List the house at the right price based on the location and condition of the home. Price the house based on current market conditions. When there is an offer, make sure the buyer has the financial capability to purchase the home. Make sure your house is marketed with an effective strategy that involves agents (through the MLS) and use of the Internet.

Hopefully with all these factors in alignment, you too can get your house sold!

Wednesday, June 23, 2010

Summer on the Shore - June 26-27

Garden Conservancy Open Days program on the North Shore
Sunday, June 27 - beginning at 10:00

The Garden Conservancy Open Days program offers self-guided tours through distinctive local gardens. This year there will be seven gardens along the North Shore (specifically in Highland Park, Lake Bluff, Lake Forest and Winnetka). The tours begin at 10:00 on June 27.
Read about the Garden Conservancy Open Days program and this year's specific gardens on their website.

Lake Forest

Nature By Design: A Tour of Four Historic Gardens
Saturday, June 26 10am - 2pm

The Lake Forest-Lake Bluff Historical Society is presenting a garden tour. The tour highlights four gardens that still contain remnants of their original design, or have been thoughtfully restored: Covin Tree (the former Walter and Katherine Brewster estate), Fairlawn (the former Farwell-McGann estate), House of the Four Winds (the former Hugh and Mary McBirney estate), and Villa Turicum (the former Harold and Edith R. McCormick estate). For Reservations call (847) 234-5253 or learn more at Lake Forest Lake Bluff Historical Society.

Small Dance for a Big Cause: It Takes Two! The Argentina Tango
Saturday, June 26 10am - 2pm

The Friends of Gorton invite you back in time to celebrate the 37th Annual SMALL DANCE FOR A BIG CAUSE. This year’s event is being held at the historical, Howard Van Doren Shaw designed, lakefront home of Ron and Karena Garriques. It promises to be a beautiful evening. Learn more at Gorton.

Lake Bluff

Sunday, June 26, 3-7:30pm

Support the C.O.O.L Food Drive and enjoy great music by the Bruce Williams Band, Crossroads, the Class of '68 and Big Red Sky. Read more...


Illinois African Violet Society Show & Sale
June 26, noon – 4:30 p.m. & June 27, 10 a.m. – 4:30 p.m.
The seven African Violet Societies within the state of Illinois have their annual state show and sale.

Bromeliad Society of Greater Chicago Show & Sale
June 26 & 27, 9:30 a.m. – 4:30 p.m.
The Bromeliad Society of Greater Chicago show and sale features plants such as pineapples and Spanish moss. Learn more at Chicago Botanic Gardens

Monday, June 21, 2010

Stamp out identity theft

There will be a FREE shredding event at the United Center on June 26th. Learn more at Chicago Shreds.

Sunday, June 20, 2010

What does it take to get my house sold? Part 5: Buyer Financing

OK, what is the next hurdle that needs to be crossed to get to the closing table? Your house has got a great price for its location and condition. It is priced to sell within current market conditions. So you’ve hooked a ready, willing and able buyer… or so you think.

Buyers are able if they can come to the closing table with necessary funds to purchase the home. Funds can either come from the buyers or from a lender. A cash deal, is just that. The buyer comes to the closing table with the funds in cash.

However, more often than not, the buyers will secure a mortgage and borrow to pay for a home.
Mortgages are of two types: conforming and jumbo loans. A conforming loan is one that conforms to the underwriting conforming guidelines set by Fannie Mae or Freddie Mac. Mortgages meeting these guidelines are securitized on Wall Street as mortgage-backed bonds. The guidelines for our zip codes are any loans that is at $417,000 or less.

A jumbo loan is anything above $417,000. Jumbo loans are securitized by institutions other than Fannie Mae or Freddie Mac. These securities carry more credit risk than those issued by Fannie Mae or Freddie Mac, and therefore, trade at a yield premium which translates into slightly higher interest rates. In our market, jumbo loans are more prevalent than conforming loans.

Lenders will generally make loans when the buyer has a good credit rating, a responsible history of borrowing money, and has sufficient income to make the loan payments and when the lender believes that the property can be used as collateral for the loan amount. In other words, if the property needs to be sold, the value of the property will cover the loan amount. The securing of the loan is a two part process: assessing the credit worthiness of the buyer and appraising the value of the property.

In the earlier part of this decade, buyer financing was rarely an issue. It was fairly common to have “clean offers” on homes -- offers without a mortgage contingency. It was not unusual to have offers from buyers who hadn’t even listed their own home on the market yet. While some buyers were cautious, many didn’t really worry about financing or getting their houses sold. The attitude was, “my house will sell – if it doesn’t, I’ll just get bridge financing.”

With the recent collapse of the housing market, everything has changed. Specifically,

  • Buyers are, at a minimum, asking for home close contingencies with their offers and are usually putting in mortgage contingencies. And while we are seeing an increase in the number of home sale contingencies, we’re finding that buyers aren’t even looking for a new home until their own property is under contract.
  • Lenders are extremely conservative. They have elevated the requirements for credit scores and financial capability. They want to make sure that the buyers are qualified to purchase the homes that they are buying. This is actually a good thing… standards had become relaxed and many unqualified buyers were purchasing homes they really couldn’t afford.
  • After the credit crisis Jumbo loans have been less forthcoming, because of a lack of interest on Wall Street to buy these loans. There is some indication that mortgage investors from throughout the world -- including rich individuals, central banks and pension funds -- are once again willing to give the American home loan a chance. But as investors come back, they are demanding much stricter underwriting.
  • Appraisals are far more stringent and difficult. Even seemingly low appraisals are being questioned by lenders, who have been affected by the mortgage crisis and are now scrutinizing loan applications with much more attention.
With all these changes, buyer financing has taken on a new importance that we hadn’t seen earlier in the decade. Sales have fallen apart at the last minute, because the appraisals are coming in less than the purchase price or loans being denied for one reason or another.
What steps can a seller take?
  • Qualify your buyer to the best of your capability. Ask for mortgage approval letters and statements of financial capability. Stay involved with the buyer to make sure they have secured a mortgage commitment letter long before the close.
  • When the appraiser comes, prepare a list of the all the improvements you have made to the house: show why your house is worth its purchase price.
  • Make sure to provide the appraiser relevant comparable sales that support the sales price of your home. Your agent should put together a list and an explanation as to why the sales price is justified.
  • If the appraisal comes in too low, challenge it…. ask for another appraisal.
  • If the appraisal stands, then be prepared to renegotiate a new purchase price with the buyer. Any future appraisals may come in even lower, thus repeating this situation.
  • Offer to pay for discount points on the loan. Maybe the buyer can afford your home, if they can lock in a lower interest rate. Or if you have the resources, consider seller financing if you believe this buyer to be a responsible buyer and good risk.
What steps can a buyer take?
As frustrating as this process can be for a seller, it is also very frustrating for a buyer. Responsible buyers are finding that they are being challenged by their lenders every step of the way to rationalize why they are a qualified buyers. So what’s a buyer to do?
  • Consider making a higher down payment. The lender might be more inclined to feel better about making the loan if the loan-to-value is less than 80%. Bring more cash to the table.
  • Shop around for lenders. Years ago, I had a long term relationship with a bank. I was really shocked when some bank clerk denied me a mortgage because, “he didn’t want to lend money on condos.” In retrospect, I probably should have made an issue about it – I had “friends” in the bank. But I was so annoyed that I just took my business elsewhere.
  • Keep in mind, you often get what you pay for. If the deal sounds too good to be true, make sure you’re dealing with a responsible lender. There are disreputable lenders.
  • Protect your credit score.
  • Gather your paperwork before you meet with a lender. If you suspect interest rates are going to rise before you close, pay to lock your rate in place.
  • Just because an appraisal might come in lower than the purchase price, it doesn’t mean that this is not the home of your dreams. Be willing to renegotiate the purchase price of the home with the seller.
  • Secure a mortgage commitment letter from your lender. While these are not necessarily fool-proof, they are certainly a good indication that the financing is going to go through.
  • Lending rates are still phenomenal. Shop around for a good rate. While I recommend Wells Fargo because of Prudential Rubloff’s relationship with them, I encourage my buyers to talk to multiple sources. They should feel that they are getting the best service and great rates.
Buyer financing is important in today’s market. Sellers make sure you have qualified buyers making an offer on your home. Buyers, make sure you have your finances in good shape before making an offer. You want to make sure before you get to the closing table that the financing is there and the deal will go through.

Friday, June 4, 2010

What does it take to get my house sold? Part 4: Market Conditions

In March, I asked the question, “What does it take to get a home sold?” To refresh your memory, there are six elements that need to come together in order to get a buyer to the closing table:

1. Price – What is the list price of the home?
2. Location of the Property – Where is the property located?
3. Condition of the home – What is the condition of the property?
4. Market Conditions – What kind of market is it?
5. Buyer financing – Is the buyer qualified to buy the property and what kind of financing can they get?
6. Marketing – Buyers need to know about the home in order to make an offer… marketing provides the buying community information about the property.

I’ve covered the extreme importance of price, location and condition. Let’s talk about the 4th most important element: Market Conditions.

Probably the number one question I get asked from people is, “How is the Market?” It’s an interesting question and a lot of thought needs to go into providing the answer.

Realtors measure the condition of the market in terms of housing inventory: the number of available houses at this point in time compared to what has sold in the last 12 months. For example:
  • Assume there are currently 120 houses for sale and 60 houses sold in the last 12 months. That means that houses are selling at average of 5 houses per month (absorption rate). 120 houses divided 5 means that we have 24 months (2 years) of inventory. Not a pretty picture for the sellers – there are not enough buyers to absorb the current inventory. (Buyer’s Market)
  • Now assume there are 120 houses for sale and 240 houses sold in the last 12 months. That means that in 6 months time all of the current inventory would be absorbed…not a pretty picture for the buyers (Seller’s Market).

How does that effect the housing prices? Back to Economics 101 – excess supply means lower prices; excess demand means higher prices. A balanced market is about 8-10 months of inventory. When the inventory drops below 8 months, it becomes a seller’s market; over 10 months, it becomes a buyer’s market. Since properties move on and off the market daily, the inventory is also a moving target.

The housing inventory is also measured by type of housing (houses, condos, townhouses, etc.) and by the price of the housing ($500-$600K, $2M- 2.5M, etc.) within a specific location (East Lake Forest, Indian Hill Estates, etc.).

That said, the number of qualified buyers is directly related to the broader economic picture of a local market. So for example, if a new business moves into a community and jobs are created, the demand for housing will go up. Did you see the New York Times article in April about the “homelessness” problem in North Dakota, because there are simply not enough homes to support the local business development? People are living in hotel rooms -- clearly a seller’s market!!!

Market conditions are also often a reflection of how people feel about the economy. If they feel uneasy and uncertain, they are less likely to embark on purchasing a new home. I always like to hear what the Conference Board puts out every month in terms of consumer confidence… the higher the rating, the more likely people will feel inclined to move. Good news: the Conference Board Consumer Confidence Index® increased in May, its third consecutive monthly gain. The Index now stands at 63.3 (1985=100), up from 57.7 in April. Read more at The Conference Board.

But all markets are local, so while all this national and even state information is academically interesting; it can create both negative and positive perceptions about our own local market. Sometimes the data is on point; but some of it can be irrelevant to the upscale, high end housing market of the North Shore. To really understand our market, one needs to look at the data from our local real estate board, NSBAR (North Shore Barrington).

The first part of this decade until about 2005-2006 timeframe, we were experiencing a Seller’s Market on the North Shore – there were more buyers in the market place, thus prices were rising. Since 2006, the number of buyers has dwindled, so sales prices have been dropping.

On the North Shore, our housing market is directly tied to the economic health and business communities of Chicago, Cook and Lake Counties. When a local company decides to cut back operations, it will usually have a direct impact on our housing market and create an even deeper drag on the local housing market. Further, companies that choose to do less transferring of employees can also impact our market, since many of our buyers are folks relocating from other parts of the world to work in the Chicago area.

More recently, the other element that has been impacting the North Shore market is our demographics. As the Boomers enter their retirement years, our population is definitely aging. We are seeing more and more people who want to downsize from their bigger homes and move into maintenance-free housing. With less corporate relocations and less discretionary moves, it can be a challenge to find the buyers for these larger homes. Some of these big houses require substantial incomes to support them. Many of today’s Gen X & Y buyers are looking for newer construction and less maintenance – not more. It makes for an interesting housing market.

So how is the market?

Well, my pat answer is: “Well, that depends… are you buying or selling?”

If you are selling, today’s market is a bit challenging. If you’re a qualified buyer – whoa babyit’s fantastic!!!!

While sales are definitely up from 2009 and we are seeing an increase of purchases, the inventory levels are still very high. I have a favorite source that I look at on a monthly basis. Robert Headrick is an appraiser who puts out monthly reports that give you a picture of the inventory in the Chicago area.

To summarize his most recent inventory of houses (May):
Glencoe: 11.7 months of inventory
Kenilworth: 14.5 months
Lake Bluff: 13.5 months
Lake Forest: 16.8 months
Northfield: 13.6 months
Wilmette: 6.9 months
Winnetka: 12.4 months

While it appears that Wilmette is the place to sell right now, keep in mind that that is an aggregate number. There are over 16 months of inventory in the $2M - $3M range in Wilmette. Clearly we are still looking at a buyer’s market on the whole of the North Shore.

Understanding the market conditions is important for both buyers and sellers. For buyers: knowing that a particular inventory level is high (e.g., Lake Bluff houses priced over $2M) might provide an opportunity to negotiate a more favorable sales price; knowing a particularly inventory is low (e.g., Wilmette houses priced under $500K) might explain why a seller will demand a higher sales price.

It’s even more critical for sellers. Since price is the single most important element in getting a home sold, understanding the market conditions within a particular price point is critical. Understanding the competition will help determine the right price to position your house for achieving the highest possible sales price. It can also help determine when the appropriate time might be to list a home, if there is flexibility within the selling timeframes.

If you want to track the local market conditions, sign up for Premier Market Watch. It’s complementary; you’ll receive an email weekly that can give you a great picture of the market conditions within a particular housing category and zip code.

If you need a more in depth analysis, I can do various searches against our Multiple Listing Service that can show things like, “What are the market conditions for houses prices between $500K - $700K in Kenilworth Gardens?” or “What are the market conditions for 2 bedroom condominiums in East Lake Forest?” etc.

In a perfect world we would have just the right number of buyers and sellers at a given time – perhaps that day is around the corner, but for now we’re in a buyer's market and buyers are the ones in the driver's seat.