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"What's the difference between a short sale and a foreclosure?"
Answer - Big subject lately. Let's use the example of a homeowner that owes $200,000 on his / her home. Once the home owner defaults on his / her mortgage payment, the bank will sue the homeowner for the full amount of the mortgage owed on the home. Obviously if the homeowner can not come up with the $1,500 payment, they are more than likely not going to come up with the $200,000 that is owed on the home. After thirty days or so from receiving this large bill and if the homeowner does not pay the full balance, the bank will set up an auction date at the county court house where the home will be auctioned off. This is usually 6 months from the date the bank files for the auction date.

Now, a smart homeowner will call the bank and explain to the bank that they can probably sell the home for $200,000, but after they pay everything (realtors, taxes, title, survey), they'll be $20,000 short of the balance owed. The bank will probably agree to this, but they will have the sign off of the final purchase price. If no one buys the home, it will go to auction. At the actual auction, the bank will only bid what is owed on the home and if no one bids higher (usually investors with cash), the bank forecloses on the home and takes possession. A vast majority of banks utilize Realtors and these homes are placed in the MLS. Now this is a bank owned property.

So here's the difference between the two. The bank owned property is just that - bank owned. The short sale property is still owned by the home owner, but the bank has the final say on the price. The main difference is the cycle time. The bank doesn't want the home on their books. If it's bank owned, you'll hear a response on your first offer within a couple days. When it's a short sale, it could be up to 60 - 90 days before you hear back. Why? Before the foreclosure, the home is not on the banks books yet and they are swamped with these short sale offers. Now, if you find a short sale where the seller is utilizing a sharp attorney and there's a predetermined price that the bank will accept, it could only be three weeks IF you pay what the bank will accept. Short sales are tricky, bank owned properties a little easier, but both require a strong stomach.

“True or False. Banks who own properties (post foreclosure) will not help with closing costs.”
Answer - False. We have several clients who have received closing costs from REO's (sellers who are banks). Two to three years ago, this would never happen. Today, it can be an option.

“True or False. There are no 100% financing programs out there.”
Answer - VA and USDA loans are the only loans that we know of that are true 100% financing loans.  Although you can get an FHA loan today with as little as 3.5% down.  There are a lot of people out there that believe you must have 20% to put down to buy a home.  That's is not true at all.

“The market is totally dead and you’ll find a great deal right.”
Answer - True and false. Yes, there is a lot of supply right now and there are several opportunites to find great deals. However, from our own observation, homes in popular neighborhoods that are priced right are moving quickly. Two examples: one client slimmed down their selection between an Addison townhome and a Carol Stream townhome. They wanted to think about it for a couple days. The next day, the Addison townhome sold. One more example: A client in Chicago made an offer on a condo that is owned by a bank and priced about $10,000 under value. Our clients offer was $3,000 under list price and he lost out in a multi-offer situation.

"When looking at a condo or townhome, should I be skeptical of monthly assessments that are too low?"
Answer - This was an EXCELLENT question brought up at our last seminar. The answers are 'yes', 'absolutely', and 'without a doubt'. But how are you, the potential first time homebuyer, going to know when an assessment is too low or too high. There are several factors, but the main issue surrounds what the assessment actually covers. This can also vary by location. For instance, in the city many condos have radiant heat that is run off a common boiler in the basement. The boiler runs hot water through each unit's radiator during the winter months. It's nearly impossible to separate the usage for each unit, so everyone chips in for the cost to run the boiler in their monthly assessment.

Here's a monthly assessment sample of a few one bedroom condos in Lincoln Square with radiant heat:

Washtenaw - $222
Leland - $255
Carmen - $252

Here's a sample of one bedroom condos in Lincoln Square with gas heat (heat generated by your own individual furnace, you pay your own individual gas bill):

Giddings - $163
Ainslie - $128
Wolcott - $226

All of these properties have associations that have been running on their own for at least a few years. With the exception of Wolcott, all are similar sized buildings. Wolcott is different in that the building has 147 units (the others had less that 15) and it has a tremendous amount of green space. The green space is beautiful, but it needs to be professionally maintained. Also, the larger the building, the more maintenance it needs. Roof, tuckpointing, snow removal, carpet for hallways, paint, etc. Everything is a big job and usually the assessments are higher.

So, if you walk into a condo conversion and it has radiant heat and the developer tells you the monthly assessments will run around $100, don't believe it. Your assessments will go up. If you walk into a high rise on LSD and a one bedroom condo has an assessment of $200 with the carpet ripping in the hallways and the elevators jolting you around so much you feel like you're going to be sick; yes, your assessments will raise considerably. As I've written several times in this newsletter, you will receive the official disclosures and financials of the building before you close and if you see something that concerns you (and your REALTOR®/attorney), you either work it out with the seller or walk away from the deal.

"After the terms of the offer are negotiated and a contract is executed, what happens if issues arise from the home inspection?"
Answer - If you are using a MultiBoard 4.0 contract (the contract most northern Illinois real estate agents use), your contract will be contingent on the home inspection. You make an offer, negotiate it and come to terms, and then you’ll have a signed contract. Within 48 hours or so after the contract is signed, you should always hire a home inspector to go through the home and they will provide you with a report outlining all the deficiencies of the home. It’s important to understand that if you are using the 4.0 contract, this inspection contingency states that the inspection will only cover major components of the home: electricity, roof, foundation, etc. If something is wrong or if something is not working the way it should, you can ask the seller to fix it or give you money so you can fix it. Remember, this will be negotiated. Here’s a recent example:

My client asked for $1200 (my client wanted to shoot high, not a bad strategy) or for everything to be fixed by a professional. The seller came back at $300. My buyer came back at $900. We settled on $600. Had my client not come to terms with the seller, the contract would have been cancelled and my client’s earnest money would have been refunded. Often times, the negotiation of the inspection issues gets more emotional than the original negotiation. Remember, especially in this market, if you (and your agent) negotiate a good deal, you should take that into consideration when negotiating the inspection issues. If you get a home for $250,000 when the comparables are at $275,000, you need to think twice before letting the home go over a few hundred dollars (or even a thousand or two). The opposite is also true. If you’re paying on the high side of the market, you should get more out of the inspection. Look at the whole picture, and don’t get emotional.

If you are buying a condo, expect to pay a home inspector $250 - $300. A single family home can range anywhere from $400 - $600.