Federal Judge Dismisses Lawsuit Accusing Zillow of Conducting Appraisal Without License

This is a follow up to my post last week about some of the controversies surrounding the real estate website Zillow.  To bring yourself up to speed, click here

Welcome back to the post!  At the time of publication a lawsuit was pending against Zillow accusing the website of violating Illinois law by conducting appraisals without a license.  The Plaintiff in the lawsuit sought an injunction stopping Zillow from publishing its Zestimates in Illinois, as well as unspecified compensatory and punitive damages.

In what could be called a big win for Zillow, Judge Amy St. Eve held today that Zillow is not violating Illinois law, because Zestimates fall into an exception in the Illinois Real Estate Appraiser Licensing Act (the Act).  The exception provides that non-licensees may “procure an automated valuation model” from publicly available data without obtaining an appraisal license.  Judge St. Eve found that development of Zestimates by Zillow are clearly the procurement of an automated valuation model.  As such, Zillow does not need to be licensed.

The Court’s holding is significant, there was a substantive determination that Zillow is not breaking the law.  Had the Court simply based its holding on a technicality, it would leave the door open for further attack.  As such, the ruling provides a significant precedent for Zillow to rely upon should it be sued again, or if the State of Illinois were to bring an action against Zillow to enforce the Act.

So, it looks like Zillow is, in fact, here to stay.  Moreover, Zillow continues to expand its offerings with its “Instant Offers” pilot program.  (Hat tip to Cleo Aquino of Superior Realty for the heads up on this.)  The program launched in May 2017 in the Las Vegas and Orlando markets and allows sellers to make their property available for cash offers from 15 select large private investors with closing in as little as one week.  The program will expand to Phoenix next month.  Whether Zillow will see success with the program is anyone’s guess (it looks a bit predatory to me, to be honest…), but it certainly looks like Zillow is looking to take a more active role in the market.

As always, please do not hesitate to contact me at 773-632-8330 or patrick@loftus-law.com.  And finally, as always, I am honored by your referrals.  To learn more about my practice, please contact me!  And if you are looking to buy or sell property, I would love to set you up with one of my fantastic real estate brokers.

Is Zillow Helpful or Harmful?

Zillow is a real estate listing website with a twist — each listing has an estimate of the value of the real estate, which Zillow calls a “Zestimate.”  That twist has been controversial among homeowners, especially when the Zestimate is lower than expected. In April of this year, a homeowner (and lawyer) in Glenview filed suit against Zillow alleging that the Zestimate for her property is unfairly low and prevented her from selling her property for the market value.  The case has since been dismissed, but another lawsuit filed shortly after remains pending in Federal Court, and the larger debate about Zestimates continues to swirl.

For its part, Zillow takes the position that a Zestimates is a “prediction of sales price” and is not a substitute for a professional appraisal.  According to Zillow, although Buyers and Sellers can use the Zestimate as a starting point, they should work with a licensed broker and appraiser to determine an accurate price for real estate.  Does Zillow unfairly downplay the potentially negative effects of publishing Zestimates?

The controversy poses some interesting questions.  For instance, is there anything inherently wrong with Zillow taking publicly available data and publishing its opinion as to the value of real estate?  My knee jerk reaction is that, like all Americans, Zillow has the right to publish its opinions.  However, right to publish an opinion is not absolute, and opinions about the value of real estate (i.e. a real estate appraisal) are regulated by the State of Illinois.  If a Zestimate is an appraisal, Zillow must be licensed (which it is not and has no intention of becoming licensed).

The Illinois Real Estate Appraiser Licensing Act of 2002 (225 ILCS 458/1-1, et seq.) is the relevant authority, and it defines an appraisal as “the act or process of developing an opinion on value,” and the Act requires a license to “develop a real estate appraisal.”  Seemingly, Zillow may have an issue, a Zestimate is an opinion on value, the development of which seems to require a license.  Zillow takes the position that it is not subject to the Act, because it is not performing opinions of value in exchange for money for a particular client like a traditional real estate appraiser.

Another question is whether there is any harm done to homeowners as a result of the publication of Zestimates.  In other words, are Zestimate actually hurting people?  This is a difficult question to answer.  Among real estate professionals, Zestimates are not considered to be reliable.  I am comfortable in saying that Zestimates have almost no effect valuations made by real estate brokers or appraisers.  The more difficult question to answer is what effect, if any, do Zestimates have on the general public.  To the extent that there are brokers involved in the transaction, probably not much.  As for those not working with brokers, I would be interested to hear your opinion, because I am too far inside the industry to know!

Perhaps there is room for compromise.  Perhaps there is a need for an appeal process whereby an owner could request a manual review of the valuation.  Zillow could allow for homeowners to voluntarily opt out of publishing valuation entirely.  Maybe new laws or regulations are needed to provide legitimacy and oversight for this relatively new aspect of the real estate market.

Interestingly, other sites, such as Redfin and Trulia, have joined Zillow in publishing opinions on the value of real estate.  Even the National Association of Realtors publishes value estimates at Realtor.com.  In other words, potentially inaccurate internet values are probably here to stay.  Buyers and sellers can avoid the possible pitfalls by working with an experienced broker, who will be able to sniff out bad information and give good advice.

As always, please do not hesitate to contact me at 773-632-8330 or patrick@loftus-law.com.  And finally, as always, I am honored by your referrals.  To learn more about my practice, please contact me!  And if you are looking to buy or sell property, I would love to set you up with one of my fantastic real estate brokers.

Condo Rental Caps – How The Board Can Prevent You From Renting Your Place

Most condo owners prefer that their neighbors are owner-occupants.  As a result, many condo boards enact rental restrictions or even outright ban rentals.  If validly done, the condo board can levy fines and file lawsuit to stop you from renting your unit.  Here is how to determine whether your board’s restrictions are enforceable.

Most buildings don’t start off with rental restrictions.  Developers want to cast the widest net possible for buyers, which means they want to be able to sell the new units to both owner-occupants and investors.  Rental restrictions tend to scare off investors.  As a result, rental restrictions tend to be enacted only after the condo board has been turned over to the unit owners.

On its face, rental restrictions seem counterintuitive.  Why would anyone voluntarily give up that right?  One reason is that it is a way to maintain unit values.  Most buyers cannot qualify for a purchase loan if a condo is less than 50% owner-occupied, which severely restricts the pool of potential buyers.  Property that is difficult to sell tends not to be particularly valuable.  In addition, renters tend to be less invested in the quality of a building long term and can be rather transient.  This can have the effect of lowering the quality of life for owner-occupants.

Restricting or banning rentals in a building is not a simple matter.  In order to be valid and enforceable, such a restriction requires an amendment to the condominium declaration.  Amending the declaration requires the vote of at least 2/3 of the ownership interests to pass.  Obtaining a super-majority in favor of a rental restriction can be quite a difficult task, and many initiatives to institute rental restrictions fail.  Interestingly, until recently, it was an open question whether a rental restriction could be enacted  by the board as a condominium rule rather than an amendment to the declaration.  About a year ago, the appellate court in Illinois made it clear that a rule without an amendment is not an enforceable rental restriction. Stobe v. 842-848 West Bradley Place Condo. Ass’n, 2016 IL App (1st) 141427.

The consequences of an enforceable rental restriction can be significant.  Renting a unit in violation of a restriction will probably at least get you fined.  Worse, the board will probably also sue you for possession of the unit or an injunction against renting it.  If your tenant is evicted, they will probably sue you for breach of contract.  The whole thing quickly becomes expensive and messy.  Before that happens, it is crucial to understand whether your association has a valid rental restriction, and what your rights are to rent your unit.  Before you buy a condominium that you intend to rent out, make sure you review the board’s rental policies before making a costly mistake.

As always, please do not hesitate to contact me at 773-632-8330 or patrick@loftus-law.com.  And finally, as always, I am honored by your referrals.  To learn more about my practice, please contact me!

 

In Defense of Real Estate Broker Commissions

I hear it all the time from home sellers.  “Why do Realtors make so much money?”  I’ve heard a few variants on the sentiment, ranging from the more diplomatic, “Realtors don’t seem to do much work to earn their commission,” to the more direct, “this commission is horse s**t!”   I submit to you, however, that Realtors more than earn every penny of their commissions.

My first point is quite simple — You don’t realize how much work a Realtor actually does.  If your Realtor friend goes for spa treatments every day, they are not closing deals — it’s that simple.  Prospecting and networking for clients takes a lot of time.  Once those clients are found, if they are buyers locating properties and setting up showings takes time and effort.  If they are sellers, preparing presentations to homeowners who may or may not list with you takes time and effort.  They prepare and present offers.  They negotiate.  They work with their clients all the way through to closing, often on a daily basis.  Realtors work weekends and holidays, because the rest of us aren’t available to look at property during normal working hours.  A successful Realtor is someone who works extremely hard.

The next point is also fairly easy to understand — Realtors are sales professionals, which means their compensation is tied to results, rather than the amount of time spent.  Let’s face it, most sales jobs are not salaried positions.  It’s all about value added.

A good agent adds value by using their expertise to help you find good properties in the right neighborhood at the right price.  Or if you are seller, they can pinpoint the right price so that the property will move quickly.  They use their experience in sales and negotiation tactics to the table to cut the best deal possible once you’ve started negotiating.  Once you are under contract, a good agent will make sure the appraiser has the right comps to do an accurate appraisal.   These are just examples of some of the numerous things that Realtors do that add real value to the process.

Not convinced?

My next point is a little more nuanced.  You might ask why we need real estate brokers at all (you might be a amused to know that one of the first Google autofills when you type ‘why do real estate agents’ is ‘exist’).  The answer to the question gets into the reason agents of all sorts exist in the first place.  For example, why do actors and athletes have agents negotiate their contracts?  Most of us have never needed someone else to negotiate the price of goods or our salary for us.  Part of the answer is that the more complicated and nuanced the negotiation, the better you will do having an expert negotiate with you.  And let me assure you, negotiating a 6 or 7 figure real estate transaction is as complicated and nuanced as it gets.

Take the example of NFL player Russell Okung, who defiantly announced in 2015 that he would enter free agency without an agent.  Of course, most of us know that athletes and entertainers regularly use agents to negotiate salaries and endorsements.  Okung proceeded to sign a five-year deal worth approximately $10.6 million per year with the Denver Broncos.  Not too bad, considering that he doesn’t owe a cut to an agent, which can be up to 3% ($318,000 per year in this instance)!  In fact, the amount he saved alone would put him in the top 3% of all earners in the US according to CNN Money.

Sadly, Okung only earned $8 million from that contract.  You see, NFL contracts are voidable by the team at any time.  The only money a player is guaranteed is the up front signing bonus, which is why you so frequently such large bonuses for players.  No agent would have let him jeopardize his future by signing such a risky contract.  Especially given the well know effects that playing in the NFL has on the human body and brain.  Okung essentially gave up millions to save $318K.

It is well accepted that athletes and artists who represent themselves tend to get emotionally involved.  It’s not easy to hear that you are not the best at your craft anymore or that you are not the box office draw you once were.  Likewise, home buyer and sellers tend to have difficulty keeping their emotions out of the mix.  It is not easy to hear that your kitchen is dated or the school district is sub-par.  Suffice to say, you do not want to end up making a Russell Okung-like mistake when selling or buying the most expensive thing you may ever own.  The best way to avoid such a mistake is by hiring a Realtor.

Finally, if you don’t buy some of my more squishy reasoning above, you will be happy to find out that the numbers support the fact that, in most cases Realtors add more value than they take away from a real estate transaction.  For example, according to the National Association of Realtors (NAR) in 2015 the typical for sale by owner (FSBO) home sold for $185,000, while the typical agent assisted transaction had a sale price of $240,000.  Granted, this is a very general statistic, but it is striking, nonetheless.

Setting a listing price for your home is difficult to do objectively.  It is easy to fall into the trap of setting a high price just in case someone falls in love with the home and just has to over pay.  In 2015, 18% of FSBO sellers found setting the sale price to be the most difficult aspect of selling their home.  Overpriced homes sit on the market longer than necessary, which increases carrying costs and stress.  The longer a home is on the market, the less attractive it is to buyers who begin to wonder what must be wrong with it.  These sellers typically end up accepting lower prices in the long run, and a good agent won’t let you fall into that trap.

Likewise, it is easy for a buyer to fall into the trap of throwing a lowball offer out there to see if you can get the seller to bite.  A lowball offer is just going to piss off the seller, who will probably not engage in negotiations with someone who does not seem serious.  A good agent will steer you away from this tactical mistake that could cost you the home of your dreams.

This blog post is not long enough to be an exhaustive analysis of the value that Realtors add to real estate transactions or give all the reason they are worth it.  I don’t expect everyone to be moved to change their opinions on the matter.  However, I hope that I have given you some things to consider when thinking about Realtor commissions.  I maintain that real estate brokers earn every penny they make.  To be honest, they may suffer more from bad PR than anything else.  Sometimes they make it look a little too easy.  In this instance, looks are deceiving.  I will leave you with a final musing — if a real estate license is a license to print money, why aren’t you selling real estate?  Wouldn’t you like to have a job where you make too much money?

Closing Costs Part 4 – Miscellaneous Charges

In the first three installments of my series on closing costs, I addressed real estate tax credits, title charges and lender costs.  This fourth, and final, last installment will address the last category of closing costs – everything else.  As you review your closing costs with your attorney at the closing table, it may feel like everyone is taking their pound of flesh from the transaction.  That is because it is essentially true.

Transfer Taxes

Whenever you buy or sell real estate, the government sticks its hand in your pocket.  The amount of the tax depends largely upon the location of the parcel.  The State of Illinois always gets $1 per $1,000 of the purchase price and the county gets half of that.  Municipalities have the authority to set their own individual taxes.  Some have none at all (eg. Palatine), and some are fairly hefty (eg. Chicago – $7.50 per $1,000 of the purchase price for the buyer and $3.00 per $1,000 of the purchase price for the seller!).  Unfortunately, in most instances these taxes are unavoidable.

Real Estate Broker Commissions

The brokers are paid from the Seller proceeds.  The amount they are paid is determined by the terms the listing agreement.  The brokers’ commission is usually 5% or 6% of the purchase price.  Regardless of the total commission, the listing broker gets a broker co-op commission of 2.5% of the purchase price paid by the listing broker from the total commission.

Recording Fees

The title company will record the deed and mortgage at the county recorder’s office to let the whole world know that you now own the property (and a mortgage on said property).  Of course, the buyer is expected to pay the recorder’s for this.  The cost is usually between $120 and $130 total.

Survey

If the property is a single-family, detached residence, the seller is required to provide the buyer and title company with a survey.  The cost of a survey is roughly $450.  If the property is a condominium, no survey is necessary.

Attorney Fee

Obviously, this is the most important cost of all!  It is crucial to have a good attorney (like me) to protect you when hundreds of thousands of dollars are at stake.  Attorneys, such as myself, who handle residential real estate transactions charge a flat fee paid at closing.  At the time of publication, LoftusLaw charges $500.  What a bargain!

Thus concludes my series on closing costs.  Your experience may vary, as each transaction is unique.  If you have questions about closing costs, or any other real estate matter, as always, you can contact me at patrick@loftus-law.com or 773-632-8330.  To see what my clients have to say about me, please visit me at avvo.com or on my Google + page.

New IHDA Program Offers Up To $50,000 In Assistance To Under Water Homeowners

The painful memories of the housing bubble are quickly fading amidst the red-hot real estate market here in the Chicago area.  However, the good news is not universal.  Some homeowners live in sort of a limbo where they can just afford their mortgage payment, but they cannot possibly sell their home due to the fact that they owe more than the property is worth.

There may be hope for some of you.  The Illinois Housing Development Authority (IHDA) has introduced a program for qualifying homeowners to receive up to $50,0o0 toward the balance due on their mortgage and refinance into a more affordable loan based on the market value of their home.  The following eligibility requirements must be met:

  • Current on your mortgage for at least 12 months
  • Live in the home as your primary residence
  • Credit qualify for a new IHDA mortgage through a participating lender
  • Be within IHDA’s income and home price limits 
  • Credit score must be at or above 640
    • 640 for Conventional, VA and USDA
    • 660 for FHA
  • Pre-assistance combined loan-to-value must be greater than 110%
  • Post-assistance loan-to-value will be 90-97%

The income and home price limits for the Chicago area vary depending on the number of people in your household and whether your home is new construction, existing or multi-unit.

If you qualify, I would strongly encourage you to reach out to one of the participating lenders.  Free money, after all!

If you have questions about this program, or any other real estate matter, as always, you can contact me at patrick@loftus-law.com or 773-632-8330.  To see what my clients have to say about me, please visit me at avvo.com or on my Google + page.

Closing Costs Part 3 – Lender Charges

The third installment of my posts on closing costs focuses on charges you may incur at closing from your lender.  The vast majority of buyers do not have the cash to plunk down a few hundred thousand dollars to buy a home.  As a result, most real estate transactions involve a loan through a mortgage broker.  Not surprisingly, lenders do not work for free, and there are a number of costs you can expect to incur in connection with borrowing their money.

Unlike title charges and real estate tax credits, lender charges vary quite a bit depending on the lender and loan product you choose.  However, there are some charges and costs that you can generally expect to see on the closing statement.

Origination Fee

Lenders often charge an origination fee for a new loan.  Ostensibly, this is the charge for the work necessary to vet you as a borrower and process the loan.  This charge is typically in the range of $1,000, although it varies from lender to lender.

It is worth mentioning, that the lender is making much more than just the origination fee in terms of profit from originating the loan.  Mortgage brokers make the bulk of their money on something called the yield spread premium.  The yield spread premium is the difference between the interest rate at which the broker can borrow money from the end lender and the interest rate at which you borrow the money from the broker.  That may sound a little unfair; however, it is important to understand that, as a borrower, you do not have access to end lenders who provide the funds.  In addition, banks the fund loans from their own money do not offer better rates than mortgage brokers.

Appraisal Fee

Whenever you borrow money to be secured as collateral for repayment of the loan, the lender wants to know that the collateral has enough value to repay the lender if you cannot.  Fair enough.  As such, part of the loan process involves having an appraiser determine the value of the property.  Typically, this costs somewhere between $300 and $500.

Miscellanous Fees

There are several fees you may see on the settlement statement of a relatively small amount, which I typically characterize as “junk” fees.  For example, there may be a credit certification fee ($10-$100).  This is the fee from the service used by the lender to obtain transcripts of your tax returns from the IRS.  Sometimes you will see a flood certification fee (usually around $10).  The lender wants to see whether the property is in a FEMA flood zone, and determine whether to make you pay for flood insurance.  You may also see a fee for obtaining your credit report (between $10 and $50).

Prepaid Interest

When you make a mortgage payment, you pay interest for the preceding month.  As a new borrower, your first mortgage payment will not be due until the beginning of the second full month after the closing date.  This leaves interest for the month of closing unaccounted for in the loan payments.  Since interest accrues daily, it is customary to pay the interest for the remaining day in the month of closing at closing.  This is not exactly a loan charge, but it is something you will need to pay at closing.  The amount varies depending on the amount you borrow, the interest rate and the time of the month you close.

Impounds

In most cases, the lender will set up an escrow account for the borrower to handle payment of property taxes and insurance.  Every month, the borrower pays some money into the escrow, and when the bills are issued, they are paid from the funds in escrow.  At closing the borrower puts some money into the escrow to get it started.  As with prepaid interest, it is not a charge, insomuch as the money still belongs to the borrower and will be used to pay the borrower’s property tax and insurance bills.  The amount that goes into the escrow varies depending on the amount of the annual tax and insurance bills and the time of year the closing occurs.

As mentioned above, the lender costs can vary quite a bit depending on the lender and loan product.  Do not necessarily be concerned if your settlement statement has additional costs or is missing some of these charges.  What you should do to make sure you are not taken to the cleaners is to hire a good real estate attorney, like me, to make sure the charges are accurate!

If you have questions about real estate closings, or any other real estate matter, as always, you can contact me at patrick@loftus-law.com or 773-632-8330.  To see what my clients have to say about me, please visit me at avvo.com or on my Google + page.

Chicago Property Tax Rebates End Tomorrow

Many of us were caught by surprise when the second installment of the 2015 real estate tax bills arrived in the mail this past July.  Steep increases were the norm, especially for homeowners in parts of town that experienced healthy increases in property values over the past few years.  That’s the bad news.

The good news is that the City is offering many of us rebates of up to $200.  The amount can be more if you are eligible for a senior or enhanced grant.

From the City’s website:

     Eligibility:

     In order to qualify for a City of Chicago property tax rebate, homeowners must meet      all the following eligibility requirements:

  • Chicago Resident and Homeowner;
  • Received the Cook County Homeowners’ Exemption in the most recent property tax year;
  • Household adjusted gross income of $75,000 or less in 2015;
  • City of Chicago portion of property taxes increased on most recent tax bill;
  • Current on the payment of property taxes;
  • Do not owe real estate taxes on other property located in Chicago; and
  • Do not have City debt (e.g. parking tickets, overdue water bills). In cases where City debt is owed, the rebate will be applied to the debt.

For more details on the City’s “free” money, visit this link.  You can apply at any one of 26 neighborhood locations around the city.

Time is running short on this program.  However, if you are one of the many people who took this week off, here’s the perfect way to spend your Friday morning…

Happy New Year to everyone!  Hat tip to Curbed Chicago for the heads up on this program.  As far as I know, it was not very well publicized.

Quick Reference Guide For Informed Judicial Voting

Another election day looms in less than one week, and I know you are racking your brain trying to answer one crucial question:  What judges should I vote for on Tuesday?

The Good news is that once again, I have some cheat sheets for all of you to print and bring to the polls:

  1. Illinois State Bar Association ratings for judicial candidates.  You can see the ISBA’s ratings by county here.  This site will help if you are outside of Cook County.
  2. Chicago Bar Association has a handy pocket guide for you Chicagoans headed to the polls on Tuesday.
  3. Chicago Council of Lawyers is a non-partisian public interest bar association, and they too evaluate judges.

Finally, for those of you who really have nothing better to do, voteforjudges.org has all sorts of great information about judicial elections.  Feel free to pop over if you are somehow curious about such things.

Good luck voting!

New Illinois Law Brings Common Sense Approach To DUI And Pot

This is not about real estate.  However, some of you (wink, wink, no judgment here) should be aware of an important change in the DUI laws, which provides a more common sense approach to the issue of pot use and driving.

Until Governor Rauner signed SB 2228 into law last week, pot smokers were at risk of a DUI conviction unless all traces of THC (the intoxicating compound in pot) had left the system.  Although the intoxicating effects of pot last a few hours at most, it can take weeks for all of the THC to flush from the system.  This unreasonable standard resulted in many unneccasary arrests and convictions, often putting otherwise good people in jail and unnecessarily ruining lives.

The case of Alia Bernard is a prime example of the absurd results produced by the old law. People v. Bernard, 2014 IL App (2d) 130924.  In 2009, Bernard was involved in a fatal car accident, which occured when she rear ended a vehicle while fishing around the car for her sunglasses.  Two days prior to the accident, she had used marijuana.  Although the proscutors freely admitted that Bernard’s use of pot played absolutely no role in the accident, they charged Bernard with reckless homicide and aggravated DUI, based solely on the trace amount of THC detected in her blood after the accident.  Facing an unwinable case under the old law, Bernard entered a guilty plea to the aggravated DUI charge.  The judge threw the book at Bernard, sentencing her to seven years in jail.  But for the trace amounts of THC in her blood, the worst she could have received was a traffic ticket.  The old law made so little sense that had the driver of the car that Bernard rear ended been found with any THC in his/her blood, they would also have been charged with DUI!

The new law provides a new standard whereby a person can have up to five nanograms of THC in their blood, or ten nanograms in their saliva, before they can be charged with DUI.  As unpopular as it is, and should be, to relax DUI laws, the new law provides a more common sense approach.  Let me be clear, no one shoud be driving around whilst stoned.  However, once the concentration of THC in your blood is less than five nanograms, there is no longer any intoxication present.  No one should be convicted of DUI when they are not driving impaired.

So, for those of you who like to occassionally puff, please, for the love of God, do not drive stoned.  However, once you come down, feel free to go pick up the kids without the fear of going to prison for seven years after someone t-bones you after they run a red light.

For more, please take a look at the article from the Chicago Reader linked below.

The state’s new marijuana law sets a benchmark for driving under the influence of weed, but attorneys say it’ll be hard to enforce.

Source: New Illinois law defines ‘stoned driving’