New construction condos to quickly disappear

Do you have your heart set on all new wood flooring, stainless steel appliances, dark granite counters, and unbeatable views?  If you’re interested in purchasing a new construction condo in the Chicago area, now may be your last chance.  The availability of these condos is quickly coming to a standstill. 

According to this Chicago Tribune column, there are only 2 new buildings planned to go up in 2011: the 86-unit Ritz-Carlton Residences and the 198-unit Lincoln Park 2520.  In 2012, there are no condo projects planned at all.  This is all according to Appraisal Research Counselors’ report, which surveys the area bordered by North Avenue, Cermak Road, the Chicago River/Ashland Avenue and Lake Michigan.

In the past, on average, about 2400 new condo units are available for sale each year.  So next year we’ll see a total of 284 and in 2012 nothing?  That’s highly unusual for a city that sells thousands upon thousands of units each year. 

This information is good news for current condo owners who are hoping to sell and won’t have to compete with the amenities that new construction brings or the lower pre-construction/early construction pricing. 

It should also help stabilize the market a bit.  If all that’s available is condos for resale, those will end up selling (people need to buy), and we won’t have such a huge inventory of new, new, new … more units available than people looking.

I’ve actually been surprised at the number of new construction subdivisions I still see going up in the suburbs when I drive through.  A lot of that construction looks like it’s stopped midway, possibly because the builders have run out of money or just choose not to work in the cold.  The builders are stuck because they need to build to turn a profit but the number of people buying in this housing market has really dropped. 

If buyers can concentrate on purchasing resale condos and homes, it will help the market pick back up.  It will lessen the inventory until the market gets back on its feet and can start building new construction again. 

What are your thoughts?  Do you think it’s right that there’s nothing new planned for the city in the upcoming years?  Would you like to see inventory go down?  Please leave me a comment or visit me online.

Should death prevent your purchase?

I read an extremely interesting real estate story that poses a lot of questions regarding real estate contracts.  In 2005 a New York woman signed a contract to purchase a co-op for $2.3 million in an 89-unit building in Manhattan.  She put 10% down, or $230,000.  Unfortunately, before she closed on the home, she suffered a stroke and died.  Her heirs asked the sellers for the return of the deposit and they said no.  They said that the estate needed to go through with the purchase or they would be in default of the contract.

The heirs went to court and after a few appeals, the New York Supreme Court ruled that the heirs were indeed in default.  The Court ruled in favor of the sellers and the case was dismissed.  That $230,000 was long gone.

I was appalled when I read this.  Especially considering the sellers sold the unit to another couple for $2.125 million.  So it wasn’t a money issue – well, it will be now after all their attorneys’ fees and court costs.  So I’m thinking, “Well, at least that’s not an issue in Illinois.”

 So I went through the real estate contract that I use here in Illinois and I was wrong!  Nowhere is there a clause that states that in the event of death the buyer is not obligated to go through with the contract.  There is a mortgage contingency where if you can’t obtain a mortgage by the deadline and you serve proper notice to the sellers, the contract becomes null and void and you’ll get your deposit (earnest money) back. 

There is an attorney review contingency where within 5 days of signing the contract by the buyer and seller you can disapprove the contract for any reason except the purchase price.

But nowhere does it say you don’t have to go through the sale if you become incapacitated, ill, or die.  You’d just have to hope it happens within 5 days of signing.  Neil Garfinkel, a New York attorney, suggests adding this clause to real estate contracts: “In the event of the death of Purchaser before closing, then the executor or administrator of Purchaser’s estate, shall have the sole right to terminate this Contract provided written notice of termination is sent within thirty (30) days after the occurrence of such death. All respective obligations of the parties under the Contract shall thereupon cease and be of no further force and effect and Purchaser’s estate(s) shall immediately obtain a full refund of the Contract Deposit.”

I think this language should be added to contracts.  Just be sure to always read the fine print before signing anything.  Obviously, in most cases, death isn’t something you know about or plan ahead for.  So this clause can help your heirs and your estate from losing money.

I’m curious to hear what you think.  Would you have sided with the New York Supreme Court?  Or do you agree with the buyer’s heirs?  Please leave me a comment or visit me online.

Evanston receives grant money to rebuild/rehab

Ahh, a subject near and dear to my heart.  The town of Evanston.  With 267 foreclosures in 2008, Evanston has one of the highest foreclosure numbers in the Illinois suburbs.  Because of this, legislators found out last week that they would receive $18 million to help address the issue.

Last year they filed an application with the Department of Housing and Urban Development (HUD) to receive funds as part of a neighborhood stimulation program.  They competed with other communities around the country to receive money out of a possible pool of $2 billion.

So what do they plan to do with the money?  They have it broken down into a few different areas:

1. Create a new neighborhood of 8 homes and 6 condos to sell to buyers

2. Create 86 rental units as part of an affordable housing program made available to those earning 60% or less than the median area income

3. Acquire and rehab foreclosed properties to resell

4. Focus on an area just north of Howard Street and south of Oakton and running from Asbury on the west to the rail tracks on the east to rehab foreclosures

Aldermen and reps from Evanston are ecstatic over the news and think it’s a great thing for the area.  They’re hoping to purchase vacant and foreclosed homes to resell them back at market value. 

But is this a good thing?  One comment from the newspaper article mentions that the city doesn’t know who the ultimate purchaser of the properties will be.  And what’s to keep this from happening all over again?  A new buyer buys the rehabbed home, defaults on their mortgage, and the property gets foreclosed on again … all to start a new cycle.  What can we do to prevent that?

I’d love to hear your comments on the subject.  Please leave me a comment or visit me online.

Tips for buying new construction

There are many advantages to buying a home that is new construction.  Most importantly is that you are the first owner and no one’s lived in it before.  You can generally pick out all the finishes you prefer, the flooring, colors of the walls, layout, etc.  However, it’s important to know a few things before you sign any paperwork.  Here are some tips if you’re going to purchase a new construction home.

1. Use a Realtor.  This way you’ll have someone protecting your interests.  When you buy direct from the builder, they will help you out but they’re still representing yourself.  By using a buyer’s agent (free for you), you can get someone to help you negotiate a price (they’re not set in stone) and work to represent you in case anything should go wrong. 

2.  Don’t automatically agree to use the builder’s lender.  Oftentimes, the builder will make it a stipulation that you have to use their lender to finance your mortgage.  This means a lot more money in their pocket and a lot more coming out of yours.  Plus, if you use their lender, they’ll be able to keep track of your progress as you get closer to closing.  Generally, your closing costs will be higher and you could end up with a higher interest rate.  Make sure you choose a lender that you are comfortable with.  Make sure it’s part of the deal that you are not required to use their lender if you don’t want to.

3. Be wary of upgrades.  Builders make most of their money by selling you the upgrades to the home.  Most new construction homes don’t come with central air conditioning.  That’s an upgrade you have to pay for.  Want a finished basement?  That, too.  Find out if you can get those items done by a contractor for a smaller price.  If you can, don’t pay for the builder to do it for you.  Although, you will want to remember that some upgrades are easier to do before construction is completed, such as security wiring inside walls.

4. Hire a home inspector.  I’ve had clients who thought that they didn’t need a home inspection because the home was new construction.  What could go wrong?  They moved into the home and found out the air conditioning didn’t work.  The water faucet was backwards and let out hot water when you turned it to cold and vice versa.  Builders are humans, too.  Everyone makes mistakes.  Just because it’s new construction doesn’t mean that it will be perfect when you move in.  Make sure your home inspector finds any problems before closing so you can get them fixed before you move in.

Always have an attorney look over any paperwork prior to signing it so you know what your rights are as a buyer.  You might also want to check out the builder’s reputation to make sure they’re known for building quality construction. 

If you need a Realtor to help you find your next home, please visit me online. I’m happy to help!