3 Negotiaton Strategies Sellers Can Use To Walk Away From Closing With More Money

Once you receive a decent offer for your home, you and the potential buyer will probably make the price the main focus of your negotiations.  As important as the price is, it is not the only contract term that determines how much money the Seller will walk away with from the deal.  Because the Buyer will likely be so singularly focused on the price, you may be able to gain valuable concessions from the Buyer along the way without much argument.  Here are three strategies you can use increase your bottom line without making a change to the purchase price.

Tip #1 – Tax Credit Percentage

A frequently overlooked contact term that directly affects the seller’s bottom line is the real estate tax credit. In Illinois, owners of real estate always pay the prior year’s tax bill.  As a result, a seller gives the buyer a credit at closing for unbilled taxes.  The credit is typically 105%-110% (the Proration Rate) of the the last tax bill, prorated through the date of closing.  A savvy buyer’s agent will make the offer with a 110% (or more) Proration Rate.  Your counter-offer should modify the Proration Rate to 105%, thereby reducing the credit given to the buyer at closing and putting more money in your pocket.  For example, 5% of a $10,000 is $500.  As they say, that’s not nothin’.  (For a more in-depth discussion of real estate tax credits, click here.)

Tip #2 – “As Is”

Another way a seller can negotiate some value is to include an “as is” provision in the contract. Although the buyer will still be allowed to have their professional inspection, the buyer is precluded from requesting repairs or credits based on the insepctor’s report.  Let’s face it, regardless of how immaculately you have maintained your home; the inspector will find “issues” to include in his report.  He needs to justify his fee, after all.  Every transaction is unique; however, I generally see sellers giving anywhere from $250 to $2,000 in credits or repairs for sometimes dubious inspection items just to keep the transaction moving forward.  By making the sale “as is” you can maintain your bottom line by cutting off the buyer’s leverage to request costly repairs to the property or monetary concessions based on the inspection.  This strategy is particularly useful in a sellers market, which is the case currently.  (For a more detailed discussion of ‘As Is’ contract provisions, click here.)

Tip #3 – Hire the Right Attorney

Come on.  You saw this coming, didn’t you.  Simply stated, real estate transactions involving the exchange of hundreds of thousands of dollars are not simple matters. These bits of advice are but the tip of the iceberg in terms of what an experienced advocate brings to the table for you.  LoftusLaw is a firm with its primary focus on residential real estate transactions. Our mission is to provide clients with personal, hands-on service, so that each client feels like they understand every aspect of their transaction. Attorney Patrick Loftus has handled residential real estate transactions in the Chicagoland area for 13 years. He is a member of the Illinois Real Estate Lawyers Association. Experience and personal touch are what sets LoftusLaw apart from the rest.

As always, I welcome your comments and questions, and especially your referrrals!  I can be reached at patrick@loftus-law.com or 773-632-8330.  I look foward to hearing from you!

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.

Estimate Your Closing Costs – Part 1

If you have ever bought or sold a home, you know that there are all sorts of charges that you incur in addition to the purchase price, which are known to most as “closing costs.”  We all know about them, but estimating the final number can be elusive if you are not familiar with the process.  In the next four emails, I am going to shed some light on calculating the closing costs, so that you can better understand what the home is really going to cost you as a buyer or what you can expect to walk away with as a seller.

Real Estate Taxes

The real estate tax credits at closing are only two, maybe three, line items on the settlement statement, but they are so significant that they deserve to be discussed all by themselves.

In Cook and the collar counties, real estate taxes are paid in arrears.  That means you are always paying last year’s tax bill.  On the closing date, there will always be taxes owed by the seller that have not yet been billed by the county.  Once the sale closes, the buyer will be responsible for paying those future tax bills.  The customary way to handle this problem is for the seller to give the buyer a credit at closing to cover those tax bills.  It is more secure that asking the seller for a reimbursement when the bills are issues and less cumbersome than putting money in an escrow to pay the bills.

The real estate tax credit is generally based off of the last known tax bill, which is then increased by 5%-10%.  The credit is prorated through the closing date.

As an example, let’s say that you close the sale of you home on February 15, 2016, which is the 46th day of 2016, and your 2014 tax bill was $5,000.  The 2015 bills are not out yet, so this is the last known tax bill.  If the tax credit is based on 105% of the last tax bill, your tax credit looks like this:

2015 – $5,000 x 1.05 = $5,250

2016 – $5,000 x 1.05 / 366 * 46 = $659.83

If the closing is a little later in the year, and the first installment taxes have been paid, the credit is reduced by the amount already paid by the seller.

In Cook County, once the second installment tax bill is issued, usually in July, that amount is used to calculate the tax credit.  In collar counties, the full year tax bill is issued all at once, usually in May.  Additionally, if taxes are owed at time of closing, that amount will be paid directly from the closing proceeds, in which case the amount paid is deducted from the real estate tax credit.

Importantly, real estate taxes can be very complicated.  Your attorney must conduct research to ensure that the credit contemplated in the contract is appropriate.  If the property assessment has jumped significantly (which happened in Chicago in 2015), an alternate method of calculating the credit is necessary to arrive at a fair figure.  Likewise, if there has been a successful appeal of the assessment, the credit should be reduced accordingly.  Choosing the wrong real estate attorney who is not familiar with real estate tax related issues can cost you thousands!

It is crucial to have the right professionals in place to protect you from coming up short come real estate tax time.  If you have questions about real estate taxes, 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.

Chicago Real Estate Agents – How To Deal With The 2015 Property Re-Assessment

2016 01 17 Pay Taxes

The 2015 triennial re-assessment for City of Chicago property brings a huge increase to real estate assessments on the North and Northwest sides of the City. Although the median increase among the 184 city neighborhood areas is 10.4%, it would be a mistake to think that a 110% tax proration will provide a sufficient credit for all of your Buyers. Individually, the are some properties where the assessed value has increased nearly 50%!

If you have clients who are buying or selling real estate on the North or Northwest Side, especially in East Village, Ukranian Village, Streeterville, River North, Gold Coast, Bucktown, Wicker Park, Lake View, Logan Square, Lincoln Square or Lincoln Park, you need to know the impact of the increased assessments, which average more than 28%. Each property with an increased assessment can expect a similar increase in their property tax bill for 2015, payable in 2016. Missing this can cost your clients thousands when the 2015 and 2016 tax bills are issued (and cost you referrals and their future business)!

You can help protect your clients! First and foremost, you should refer your clients to an attorney that is familiar with and understands the impact of the new assessment. The very first thing your client’s attorney must do is obtain all assessment and exemption information for the property from the Cook County Assessor. This information provides crucial guidance for advising clients on the right tax credit to cover the 2015 and 2016 taxes. A Seller’s attorney must also be aware of any the changes, because he or she must be able to evaluate a request from a Buyer’s attorney for a larger than typical credit and advise the client accordingly. The issues get even more complicated where an assessment appeal is involved. Suffice to say, it is crucial for an attorney to be aware of and evaluate these issues, in order to pave the way for a smooth transaction.

Arm yourself with information! Undoubtedly, the question of real estate taxes comes up with most, if not all, of your clients before a contract is in place. Many clients may seem fixated on the issue of property taxes, and providing good advice on this issue will instill the client with confidence in your expertise. It is also important to set realistic expectations about this issue. Although having a reliable attorney available to answer difficult questions is an essential resource, you will find it handy to have additional resources on which to rely. The good news is that Cook County provides information online about real estate taxes and assessments that anyone can use!

There are two websites you can consult for information useful for property taxes:

http://www.cookcountyassessor.com

Using the property PIN, you can obtain information about the current assessment, the previous assessment, exemption history and appeal history. If a substantial increase in the assessment is indicated, it is a good clue that the next tax bill will increase similarly. It is also good to know whether there are any exemptions applicable to the property. A senior exemption or freeze will keep the property taxes low and must be evaluated when dealing with property tax credits.  You can use this information to better estimate the right proration for your contract.

http://www.cookcountypropertyinfo.com

This website aggregates information from several Cook County offices and provides a lot of good information for the real estate professional. In particular, the site shows the formula used for calculating the property tax bill for each property (assessment x state equalizer x tax rate – exemptions) and the numbers used for calculating the previous year’s bill. Using this formula, and the previous year’s figures, a relatively accurate estimate of the next tax bill can be determined by inserting replacing last year’s assessment with the new assessment.

As always, you can contact me at patrick@loftus-law.com or 773-632-8330 with any questions on this topic.  To see what my clients have to say about me, please visit me at avvo.com.