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?

The Tax Bills Are Here!

The 2015 Second installment real estate tax bills for Cook County have been released as of 10:00am this morning.  For Chicago residents, this bill has been highly anticipated (dreaded) since the 2015 re-assessments were announced.  As I wrote earlier this year, may of you expect to get dinged pretty hard.

To see how bad the damage is, head over to the Cook County Treasurer’s website by clicking here.  Once there, click “continue” and enter your PIN.  If you do not know your PIN, head over to the Cook County Assessor’s website here.  Click “Dont know your PIN?” and enter your address.

LIFE PRO TIP!!!

If you are an owner occupant, and you do not receive a homeowner exemption, you are paying too much tax!!!!  The property tax information on the Treasurer’s website will indicate whether you have the exemption.  If you do not receive the exemption, and you qualify, please contact me immediately!  I will help you find the forms you need to submit to save hundreds immediately, and I will not charge you!

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 or on my oh page.  Cheers!

City closes $500M redevelopment deal for Old Main Post Office

“This project will create thousands of jobs and generate new economic opportunities for residents in our neighborhoods,” Mayor Rahm Emanuel said.

Source: City closes $500M redevelopment deal for Old Main Post Office

Hat tip to the Sun Times for this article on the Old Post Office.  This is exciting news for the South and West Loop neighborhoods!

Closing Costs Part 2 – Title Charges

In the second installment of my series on closing costs, I will tackle title charges.  Generally speaking, when you buy or sell a home, the closing of the transaction takes place at a title company.  The title company has two main roles: 1. escrowee and 2. issuing title insurance.  As escrowee, the title company receives funds from the buyer and lender and disburses the money at the end of the closing based on the parties instructions.  Title insurance insures the buyer’s clear title to the property.    Title companies don’t work for free, so there are some costs associated with the services they provide.

Escrow/Settlement Fee

This fee is for the title company’s escrow services, and if there is a lender involved, for the closer to be the eyes and ears of the lender at the closing table.  The amount of the fee depends on the purchase price of the property, and it generally runs between $1,100 and $1,900.  The buyer pays this charge unless it is a cash transaction, in which case the parties split the charge.

Owner’s Title Policy

The owner’s title insurance policy is purchased by the seller. To produce a title insurance policy, the title company first conducts a title search to determine any title defects in the public record.  Things such as mortgages, easements, mechanics liens, outstanding judgments, etc., are considered unpermitted title defects and must be removed by the seller prior to or at closing to pass clear title to the buyer.  In other words, if after the closing someone knocks on the buyer’s door claiming that the property is really theirs, the buyer has insurance to cover the costs of defending the claim and any losses sufferred as a result.  The cost of the policy is based upon the purchase price, and it ranges from $1,200 to $3,000.  The title company will also perform a second search on the day of the closing, for which it charges each side approximately $125.

Loan Policy

The loan policy is similar to the owner’s title insurance policy, except that it is insures the buyer’s lender from losses suffered as a result of title defects.  The buyer pays the cost of this policy, which generally costs around $500.  The lender may request coverage in addition to the standard loan policy in the form of endorsements, which generally cost an additional $150-$200 each.

Closing Protection Letters

Illinois law requires that the title company issue a closing protection letter to the buyer, seller and lender.  The letter offers protections to the parties in addition to those offered in the owner’s title policy and loan policy.  Specifically, if the closing funds or documents are lost due to fraud or negligence, the parties have a financially solvent entity (the title compay) from whom to recover.  The cost of this letter is $25 for the buyer and lender (both paid by the buyer) and $50 for the seller.

Chain of Title

The lender requires a 24-month “chain of title” report from the title company.  The purpose is to determine how many times the property has been conveyed over the preceding two years.  Several conveyances for steadily increasing amounts in a short period of time is one indication of mortgage fraud, and the lender may not fund the loan if it sees that kind of pattern.  The cost of the chain of title is $250 and is paid by the buyer.

“Junk Fees”

This is my description, not the title company’s.  The title company receives and sends a number of wire transfers, for which it charges roughly $40 each.  In addition, the title company will receive a loan package via email, which the closer will print for the buyer’s signature.  For this service, the title company will charge approximately $40.

There are additional costs which appear on the title invoice, which are collected by the title company, such as transfer taxes, recorder’s fees, etc.  Those are not what I would consider “title charges,” and I will cover those in a couple weeks.

You may be thinking to yourself, “Gee, that’s all great, but how do I figure out the title costs with any specificity?”  The good news, is that I have a tool provided by my friends at Citywide Title that will give you a fairly precise breakdown of all of the closing costs.  Please contact me at patrick@loftus-law.com or at 773-632-8330 to request a breakdown!  To see what my clients have to say about me, please visit me at avvo.com.

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.

The Five Questions To Ask Your Real Estate Attorney First

  1. How much do you charge?

This seems like a no-brainer, but I am surprised at how often people do not ask me during the introduction phone call.  There is no reason to be shy!  No one expects the attorney to work for free, but you need to know that the cost is within your budget.  Is it a flat fee or hourly? Hint: it should be a flat fee for a standard real estate buy or sell.  Does the attorney front costs to be reimbursed at the closing, or do you have to pay as you go?  Do not leave the cost as a mystery to be solved at the closing table, or you may end up feeling burned.

  1. Will I be dealing with you or your assistant?

Most attorneys who handle a high volume real estate practice will have a trusted assistant who will handle many important aspects of the transaction.  This person is most likely very competent, but importantly, they will not be a licensed attorney.  You want to know that you will have access to you attorney’s ear and advise, not the assistant’s, when you need it.  You do not want to be speaking directly to your attorney for the first time on the closing date!

  1. Do you have any client reviews/testimonials?

In this day and age of yelp and avvo, any modern business has customer reviews available for potential customers to see.  This is a great way to crowd source your due diligence before pulling the trigger on your attorney hire.  Like any other service you shop for, you want to know that other customers like the product!

  1. Do you have a website?

It is 2016, and every reputable business has a website.  Not only do you want to see that the attorney has a website, you want to see that it doesn’t look like the attorney’s teenage daughter programmed it!  Is it a placeholder website gathering dust in some corner of the Internet? Is there useful content? Has it been updated?  The law changes constantly, and a vibrant website with good content is an indication that the attorney is up to date and keeps current with the trends.

  1. What can I expect the process to look like?

No one like surprises, and a good real estate attorney will give you a clear and concise description of the whole process from contract to closing.  For example, my real estate guides provide the steps in the process for both buyers and sellers.  Although no one can predict the future, the attorney should be able to provide an overview of the process and identify some common issues the come up during the typical transaction.  By providing you with this important information, the attorney arms you with information you can use to prepare yourself for issues that may arise along the way.

What questions do you have for your real estate attorney.  Feel free to leave them in the comments, and I will provide answers.

As always, I also welcome you to contact me at 773-632-8330 or patrick@loftus-law.com with any questions.  I am honored by your referrals! See what my clients have to say about my responsive service and fantastic results right here.

How To Hire A Real Estate Lawyer

My friends at avvo.com wrote a nice little guide for those of you who are in the market for a real estate lawyer.  Check out the guide here.  It’s definitely worth checking out if you want an anxiety free way to get some questions answered.

Another anxiety free way to get your real estate law questions answered is to email me at patrick@loftus-law.com or call me at 773-632-8330.  Telephone consultations are done free of charge!

See what my clients have to say about me!

Emanuel gets the go-ahead to seize Old Main Post Office

Things are getting interesting over at the Old Post Office again.  As I wrote back on February 29, the City is moving to take control of the property to sell it to someone who will develop it.  Mayor Emanuel’s plan received approval from the Community Development Commission.  The City will now seek bids from developers, which are due by June 8, 2016.

Meanwhile, the current owner, Bill Davies, claims that he is on the verge of sealing a deal with “a New York investor with ‘impeccable status and stature‘” to redevelop the property, and that the Mayor’s actions will jeopardize that plan.  Evidently, Emanuel is not interested in promises made by Davies.

For more, see the article linked below from the SunTimes.

Mayor Emanuel got the go-ahead Tuesday to seize control over the vacant Old Main Post Office and solicit bids to redevelop it.

Source: Emanuel gets the go-ahead to seize Old Main Post Office

What The Meaning of “As Is” Is

From time to time, I get a contract in the office where the property is being sold “as is.” Sellers rejoice when they accept an “as is” offer, because they feel secure knowing that the 18 year old roof and 15 year old furnace are not going to cost them during inspection. However, as Lee Corso is fond of saying, “Not so fast, my friend.” As simple a concept it seems to be, “as is” can be tricky. Experience suggests that, more often than not, “as is” buyers still make inspection request. Why do Buyers do it? What is the justification for it? How do we prepare our clients to handle the situation without losing their cool? Keep reading!

Why do “as is” buyers make inspection requests? Wouldn’t you know, it all begins with the inspection. Even though the buyer is buying the property “as is,” the buyer wants to make sure that the property is not a money pit. Fortunately, this is not the case with most properties. (Quite frankly, if the property is trashed, the buyer probably already knew it and is not bothered.) However, as always, the inspector will find defects in the property. The buyer begins to panic and is now concocting all sorts of narratives in her head about how the seller “hid” all of these “terrible defects” from her. She is now in full on freak out mode regarding her “as is” purchase.

Miraculously, the buyer somehow still wants to buy the property. However, in order to make up for the seller’s “deceptive” behavior, she wants the seller to make some repairs or maybe give a credit for the “hidden” “defects” that the inspector discovered. How does the buyer justify this? She threatens to walk. Most “as is” contracts allow the buyer to inspect the property. If they find something they don’t like, the buyer can terminate the contract, and get her earnest money back. She will use that as leverage by threatening to walk from the deal unless the seller addresses the defects she deems unacceptable. What is the seller to do? At this point the property has been off the market for almost 2 weeks, and other interested buyers have moved on. In some cases, the seller needs the proceeds from this transaction to buy their new home, and that purchase will fall through if this buyer walks away. If the seller was not prepared for this situation, he is extremely stressed!

The fact is that most sellers do not fully appreciate the nuance of “as is.” That is why it is critical to address this potential scenario with your seller as soon as an “as is” offer comes in. The seller will have a better understanding and can incorporate it into their negotiation strategy.  The seller will not feel as “burned” when the buyer makes requests. We all know what happens when the parties start taking things personally, and it ain’t pretty! A prepared seller keeps a level head and is far more likely to make a good, rational decision.  Good, rational decision making closes deals!

In the event the buyer in your next “as is” transaction makes inspection requests, there is no need to panic. You will have prepared your seller.  He will keep his cool and is ready to evaluate the requests with his attorney.  They will determine a good strategy to move the deal forward. The deal is going to close, and you are already working on the next one instead of talking a panicked seller off the ledge.

Have a good story about an “as is” contract? Post it in the comments! If you like my article, please share it!

As always, I welcome you to contact me at 773-632-8330 or patrick@loftus-law.com with any questions about the meaning of “as is.” I am honored by your referrals! See what my clients have to say about my responsive service and fantastic results right here.

Get Your Real Estate Tax Assessment Appeals Ready!

   You probably just received the first installment of your 2015 real estate tax bills, and once the panic over the upcoming second installment subsides, you want to know how to lower that bill. As I talked about a couple of weeks ago right here, some of the assessments went absolutely bananas for 2015, and you can expect the second installment of your tax bill to deliver a real sucker punch if you are not prepared. One way to combat the ever-increasing property tax bill is to appeal the assessment.

   Believe it or not, appealing your assessment can be relatively simple. Many people choose to use an attorney to appeal. The good news is that most attorneys who handle assessment appeals work on a contingency basis and charge a fee based upon how much they save you on your tax bill. In other words, if they don’t win, you don’t pay!

   It is crucial to know the appeal deadline for your township. Once the 30-day appeal window closes, you are stuck! The Assessor mails assessment notices throughout the year. In Cook County, you can find out when the Assessor expects to mail the notice for your township here. As of today, there are 2 townships in Cook County open for appeal, River Forest and Riverside. Importantly, those townships close for appeals on February 29, 2016. If your property is there, you have no time to waste! Other counties publish similar information on their assessor and treasurer websites. Appeals are accepted for 30 days after the date the notices are mailed.

   Owners of single-family detached homes can either contact an attorney or file an appeal themselves. Some people feel relatively comfortable with the process, and filing online is pretty easy. The link for filing an appeal online is here. Grab your comparables and have at it!

   For townhome and condominium owners, the process is a bit more complicated. You should reach out to your association board and suggest hiring an attorney to file an appeal for the whole building or community. The reason for this is that your community probably has many similar units, which are likely assessed equally. As a result, an individual appeal is likely to fail, because the law requires the assessor to assess properties uniformly. In other words, it does not make sense for you to have a lower assessment than your neighbor with an identical property, regardless of the fair market value of the units.

   This is a birds-eye view of the process, and everyone’s situation is unique. I encourage everyone to consult with an experienced assessment appeal attorney about the feasibility of an appeal.

   As always, I welcome you to contact me at 773-632-8330 or patrick@loftus-law.com with any questions about filing an assessment appeal. There is no good reason to pay more tax than absolutely necessary!

   Realtors, I am honored by your referrals! See what my clients have to say about my responsive service and fantastic results right here.