So you believe the home you’re selling is haunted. Or maybe a death occurred on the property…do you have to disclose it in Chicago, or in Illinois for that matter? Or just as important, should you disclose?

The legal answer is quite simple: in the State of Illinois you do not need to disclose if you believe a home is haunted or if the property is stigmatized (death in the property, murder, etc.). All you need to disclose in Illinois are physical defects to the property and if the home was ever used for the manufacturing of methamphetameme (thank you Walter White!). The main reason for this is because things such as hauntings / ghosts are subjective versus a physical defect such as a leaking basement or bad electrical wiring can be seen and truly known.

In some states, ANYTHING affecting value must be disclosed. California for instance, known for their extremely tough consumer protection laws is one of those states. If a home is haunted or had a death it must be disclosed. Should Illinois have these laws? In my opinion, absolutely not. In my opinion these laws do not at all protect consumers they only protect the legal industry and increase frivolous litigation. Furthermore, if a law like this were sporadically enacted it would negatively affect homebuyers who bought under the presumption that disclosure was not needed. It would mean going forward they’d have to disclose and potentially affect their property value. The law would in essence create a value issue in a state where there really wasn’t one before. Disclosure for physical issues make sense since these issues affect the property physically and will need to be fixed. The fact that someone died in a property has no material affect on the property, only in people’s minds.

Now there are some circumstances that one could argue disclosure needs to take place. For instance the John Wayne Gacy house. Now information about this property is well known and can easily be found on google. While the acts that took place on the property don’t material change the property, the new owners may have an issue with quiet enjoyment. Imagine living there and having random people coming up to take photos of your home or selfies on your front porch. An argument could be made that disclosure in these instances are warranted because they could disturb the ownership rights of the property (quiet enjoyment). But this could easily turn into a slippery slope…would “ghosts” be the next thing to block quiet enjoyment? Then how do you prove a ghost exists? Do we call up Ed and Lorraine Warren?

Thankfully we are in a state where these disclosures do not need to take place so we don’t have to worry about it. But, if you are someone who believes in ghosts or does not want to live in a home where someone died…you better start doing some research!

Paul Blackburn is an Illinois licensed real estate broker and Realtor with @properties in Chicago’s Gold Coast neighborhood. He can be reached anytime via e-mail at Paul@PKBlackburn.com

Discount brokers are not new. They’ve been around for a while. Many of you probably know who the largest discount broker is…don’t you? They have ads up all over advertising low listing fees. They have a sleek cool app and website to bring in business for their agents. They offer to give you money back at closing if you’re a buyer. On the surface this may seem pretty cool. But buyer (and seller) beware, it is not what it seems.

My career is made up of two facets. I work with buyers, sellers, and renters. I also mentor, train, and manage new agents. The other day one of our top agents on our team forwarded me communication on a deal that fell apart. The communication was text message conversation between himself who represented the seller and a discount broker who represented the buyer. The issue centered around the end of attorney review where the buyer and seller were negotiating inspection items and credits / repair requests relating to these inspection items. The agent who works for our team was reaching out to the buyers agent to inquire if the buyers agent had spoken with his client regarding a few items. The buyer’s agent said no, he was too busy during the day but said he would reach out right away. The next day my agent still hadn’t heard anything back. So he reaches out again. Again, he receives a similar response that the agent is swamped, out all day with clients, and hasn’t had time to talk with his client. My agent presses more, but again the response is the same. This goes on for a few days with the buyer’s agent saying how busy they are, how many other offers they need to write for clients and that they will do their best to talk to their client….until the deal eventually dies. When my agent comes up with a potential solution that the buyer may be happy with the buyers agent simply says his client has made up his mind to not move forward with the deal.

At the end of the day we all live in the same world. More specifically we’re in the same state and typically in the same city. We all pay taxes, we all have some basic expenses, etc. So when a broker has to work for half or even less than an average broker that means they have to work more to make the same amount of money. Instead of working 40 to 50 hours a week they’re working 80 to 100. Or they simply work the same amount but devote less time to each client. This is basic economics and when someone works for much less they typically will not strive to work as hard for each individual deal. Instead they will focus on quantity instead of quality and the clients all around get less service.

The problem a discount broker faces is most of them make a fraction of what a full service broker does. They get business that is funneled in off of a website and lots of it. Therefore, they get a smaller piece of the pie from the head brokerage. They also then kick back a chunk of commission to their client or discount the listing fee substantially. This means that the average discount broker must close twice or three times the amount of deals to make what I make on one deal. At the end of the day it is near impossible for a discount broker to offer the same level of service that I can.

At the end of the day there is nothing wrong with discounts right? We all love them. I’m the first person to go to Nordstrom Rack to try and find some great deals on shoes. I’ll pick around down the aisles looking for a great deal and a good amount of savings. That is perfectly fine when you’re buying a pair of shoes or a blazer but should you be using this method of thinking when you’re looking for a home? When you’re looking to make a major financial decision do you want someone that gets business for the sole fact that they’re discounting their services? Think about what you do for a living. If you overnight had to take a pay cut and then double your workload could you provide the same level of service you currently provide in your profession?

As the spring market heats up we will all be very busy. If you’re a buyer or seller in the middle of a transaction beware of that broker who might be extremely overwhelmed and not able to perform his or her duties correctly. Keep this mind when you’re in the middle of attorney review. The long wait times or incorrect responses might not be the fault of the buyer or seller but instead the fault of the other broker.

PAUL BLACKBURN IS A LICENSED REALTOR WITH @PROPERTIES IN CHICAGO. HE CAN BE REACHED VIA E-MAIL ANYTIME AT PAUL@PKBLACKBURN.COM

Will mortgage rates rise because the fed raised the federal funds rate? If you’re speaking to a real estate broker who is completely inept when it comes to the bond market, then their answer will likely be a resounding YES! However, the true answer is much more complicated than that. The truth of the matter is that the “fed funds rate” that the FOMC (Federal Open Market Committee) influences actually has very little affect on mortgage rates and they are most definitely NOT directly correlated.

I will try to keep this as simple as possible, since this material can definitely get quite dry,  but it is important to understand a few basics. The “federal funds rate” is simply the overnight rate that banks charge each other. Why do banks do this? Well, the law says that each bank must keep a certain percentage of deposits on reserve at all times. Obviously each bank wants to put their money to use so they try to keep their reserve deposits to the absolute minimum. Well, at the end of each day some banks may be a bit short and some may have excess reserves. The bank with excess reserves will simply lend “overnight” to the bank with a reserve shortfall. The fed funds rate is essentially the “overnight rate.”

There are some interest rates that consumers experience that are directly correlated with the fed funds rate but these are typically the shortest term loans / credit. For instance credit card interest rates for instance are typically tied the “prime rate” which typically hovers a few percentage points above the fed funds rate. These are considered short term loans. Car loans typically range from 3 to 6 years and therefore can be exposed to greater influence by the fed funds rate.

But what about mortgage rates? If you really want to follow mortgage rates then you need to follow the bond market. The bond market is an interesting animal and while it may react in the short term to a fed funds hike the bond market is much more interested in what the fed has to SAY versus what they do. Mortgage rates are tied to what bond investors need, versus what the fed’s target rate is. Let me give you an example and I’ll thank Bankrate.com for providing the following information in such a simple manner. “Starting in June 2004, the Fed raised the federal funds rate 17 times in two years. And what happened at first? Mortgage rates fell during the summer and fall of 2004. Back then, the Fed’s rate hikes caused investors to become less concerned about inflation, so mortgage rates fell.”

Now, let us think back to 2017. In 2017 we had three fed rate hikes, but what happened? Rates remained relatively flat. It wasn’t until the start of this year that we saw an increase.

What does all this mean? Am I saying that rates are not going to go up? No, I am not saying that. All I am saying is that there is not a direct correlation between the fed funds rate and mortgage rates. The answer is a bit more complicated than that. The fed may exert some influence over mortgage rates, but that influence can work in either direction!

The reasoning for writing this blog post is because when I opened my Facebook app this evening I saw almost a dozen posts from fellow real estate brokers shouting about how the time is NOW to buy because rates will SPIKE! Some even called for 7% interest rates by the end of the year! To those consumers reading this, I apologize on behalf of these brokers for they do not know what they are talking about and are only using fear mongering in order to obtain your business. That is wrong.

To my fellow real estate brokers posting that the FOMCs decision today will immediately hike mortgage rates, I implore you to educate yourself on how the bond markets work. You look stupid and do a disservice to your clients and your industry with your blatant ignorance. As real estate brokers it is our responsibility to properly understand market dynamics and inform our clients with such knowledge so they can make an informed decision. Anything less is the equivalent of malpractice.

Paul Blackburn is an Illinois licensed Real Estate Broker and Realtor with @properties in Chicago, IL. He can be reached anytime via e-mail at Paul@PKBlackburn.com

To learn more about FOMC and Mortgage rates here are a couple helpful links.

Bankrate.Com’s 7 Ways A Federal Reserve Decision On Interest Rates Affects You

The Mortgage Reports: How Mortgage Rates Connect to the Fed Funds Rate

A few weeks ago on a Sunday morning I woke up and went about my morning routine. I made some coffee, grabbed my laptop, and crawled into bed and turned on the news. On the news this morning was a segment with two real estate agents speaking about the 2018 real estate market in the Chicagoland area and what we can expect the market to look like throughout the year. Naturally I was curious if their views would align with mine so I made sure to put aside my laptop and phone when the segment began to give it my full attention.

The talking points were the usual talking points you’ve probably seen on social media recently “Inventory is low” “The market is hot!” “Prices are up 5 to 7% year over year” “We are still far from peak prices during the boom. The market has more room to grow”

It was those last two statements that made my head hurt and quite frankly embarrassed to call myself a Realtor. What was upsetting was not the fact that the brokers were stating these “stats” but they were using them as justification for why now is a wonderful time to buy and why you should buy instead of rent.

I’m sure many of you are friends with multiple brokers on social media. If you’re reading this chances are you follow me as well. Being in the industry I follow many, probably near a hundred in total. After hearing the above statements on the news it also had me thinking about the amount of times I’ve seen other brokers make these statements on Facebook, Instagram and the like. Sharing of articles from random real estate groups, posting outlooks from brokerages, posting random statistics that make you feel like you’ve lost out on an opportunity so you better jump into the market now. All these statistics, while factual, are being distorted and not explained properly. There is a difference between a broker being a salesman (or saleswoman) and being your consultant. A good broker is not in sales, but instead is in consulting. They are there to guide and advise you. Once your home is listed for sale, then they turn into a salesman on your behalf. So without further delay let me quickly explain why I despise fellow brokers who spew the last two stats as justification for buying that I saw on the news.

“The Chicago market is up 5 to 7% year over year.”

First off I would have loved to have known where this information was gathered. Lets ignore the fact that there is a 40% variance in the above range, but lets talk about the word market.  What market is up 5 to 7%? Chicago market? OK….where in Chicago? Gold Coast? Lincoln Park? Englewood? Roseland? What types of properties…Single Family homes, Condos…Two flats? What about land? What about new construction condos? Is this year over year average / median price data derived from total sales or are we only comparing exactly like units such as taking a sampling of the same buildings, same blocks, etc in certain areas? Now I know what you’re thinking…Paul this data is only meant to give you an idea of the market trajectory. I would agree with you. But if you’re making a large investment in a condo in the Gold Coast, wouldn’t you want stats that specifically focus on what you’re buying? Wouldn’t you like to know that market times and prices for higher end 1 bedrooms for instance is actually down year over year versus two bedrooms? And if we are going to talk about the entire Chicago market being up or down…shouldn’t you have a specific number? Why such a wide range?

“We are still far from peak prices of the 2006/2007 market. The market has much more room to grow”

This literally made me nauseous; I could feel my morning coffee start to come up as I listened to this comment. Why? Because it’s generalized statements like this made by either 1) Completely ignorant and stupid people in my industry or 2) People who are purposely trying to deceive consumers (I’m not sure which is worse) which is what contributed to the real estate bubble and crash we saw a decade ago.

The blanket statement is right, over the entire Chicagoland area we are not near the peaks of 2006/2007. However, in many areas and buildings we are BEYOND the peaks of those years. This “data” is contrived by looking at the entire area. During the peaks areas on the south and west side of Chicago along with a handful of suburbs were rampant with fraud. I saw it first hand. Burned out three-flats selling for $300k two days after selling for $200k. This propped up pricing in many low income areas of the city. What are these properties doing today? They’re less than 50 to 75% of those prices. We also need to factor in other areas that saw massive spikes due to random “investors” buying that drove up prices. These areas will take well over another decade and in some cases multiple decades to return to 2006 numbers.

Many areas of the city are at the peak or above the peaks. There is nothing wrong with this. Many areas are seeing tremendous growth and for very good reason. There are multiple areas that I believe will continue to grow very well and will be excellent investments. But I’m sorry, the continued spread of “we’re still far from 2006/7 peaks” is by far the worst data you could use as a reason to buy. The Chicago market is highly localized. It is localized down to neighborhood, down to certain blocks in that neighborhood and even certain buildings.

What data should you look at and listen to?

First off, find yourself a broker that you trust and that when you talk to them they have some basic understanding of the Chicago market as a whole. If they start spewing some of the generalized stats above of why it’s a great time to buy…run! Run like Forest Gump or like you just saw a clown in the woods in the middle of the night. Find yourself someone who is not going to sell you. Find someone who is going to listen to you and truly wants what is best for you. Find someone who truly understands the market place.

Your Realtor should be able to sit down with you and explain the market stats in the areas you’re looking and in the price point / size range you’re looking in. There is nothing wrong with buying a home that is selling for more than it did last year or selling for more than it did during the boom. But you want to make sure you have all the information so you can make a truly informed decision. Avoid generalizations that some brokers give you. Avoid generalizations that websites such as Zillow and Trulia give you. Get down to specifics and focus. You’re about to make a massive investment don’t you owe it to yourself to work with someone who is not only intelligent about the market place but also has your best interests at heart?

PAUL BLACKBURN IS A REAL ESTATE BROKER WITH @PROPERTIES IN CHICAGO. HE CAN BE REACHED VIA E-MAIL AT PAUL@PKBLACKBURN.COM

Since the passage of the new tax bill for 2018 I have had a handful of clients reach out to me concerned about how the market here in Chicago will be affected by the new tax laws, specifically the tax laws pertaining to home ownership. In the months running up to the new tax bill you may have seen posts on social media or even received e-mails from Realtor friends and the National Association of Realtors (plus local associations) speaking of the detriments of the 2018 tax bill. I thought this would be a good time to have a quick, clear, and honest write up about my personal thoughts on how the tax bill will affect the Chicago real estate market. Please note that I am not an accountant or a tax attorney and you should ALWAYS seek professional advice when it comes to any tax obligation or deduction.

I can only speak to how the tax bill will affect the Chicago market, specifically the downtown, near west, near north, and north side markets. These are the areas I specialize in and the areas where I have the most intimate knowledge of the market and the mindset of the homeowners, buyers, sellers, and renters.

First let us quickly outline the changes in the 2018 tax bill as it pertains to home ownership.

Mortgage Deduction Changes

For NEW home purchases the limit on deducting interest on a mortgage has changed from a mortgage value of $1 million to $750,000. Homeowners with existing mortgages over $750,000 up to $1 million can still deduct their interest up to $1 million. Furthermore, those homeowners can refinance and still deduct interest up to the old $1 million provided that the new mortgage is not greater than the refinance amount. The above holds true for 1st and 2nd homes.

The 2nd home interest deduction is NOT going away. First proposals of the bill had this provision but they were removed. If you are looking to purchase a second home the mortgage deduction may still apply to you provided that the combined amount of the mortgages on your 1st and 2nd home does not exceed $750,000. If you already own two homes with mortgages then you’re grandfathered in up to the old $1 million amount.

Home Equity Loan interest is no longer tax deductible. Previously this was deductible for a home equity loan / line of credit up to $100,000 in value. This is going away for both new AND existing home owners. HOWEVER, the interest of a home equity loan MAY still be tax deductible if the proceeds are used to “substantially” improve the home.

Property Tax Deduction 

The new bill limits state and local municipality tax deduction to a maximum of $10,000 per year. This is what concerned most people because it is not just your property taxes, but a combination of your property taxes AND state income taxes that you pay. No one is grandfathered into this tax law change. Previously this deduction was unlimited.

So as it pertains to real estate the above is a list of the most notable changes to the tax code for 2018. So the question on everyone’s mind in the real estate industry is how will the new tax plan affect home values.

The interest deduction changes do not concern me in the least. They grandfather in current homeowners and they still allow for a healthy deduction of up to $750k and they still include second homes. Our current market is fueled by primary home buyers. It is not fueled by investors like it was over a decade ago. We’re not seeing a bunch of condos going up targeting second home buyers that would push then over the $750k limit.

What does give me some pause for concern is the limit on state and local tax deductions of $10k, specifically because this is a TOTAL amount of tax which includes your state income tax as well.

The $10k limit will apply some slight downward pressure on the housing market, there is  no denying that. Limiting the amount of tax deduction, even if the overall bill ends up a net positive for your pocketbook, in theory does lessen the “reason” to purchase a home.

Will this downward pressure be enough to change home values in Chicago? No, I do not believe so. Keep in mind I’m discussing the markets I work in. I’m not talking about south suburbs, etc. I am talking about downtown Chicago, the north side, the west loop, etc. It has been my experience that those who own in these areas own because they believe in the neighborhoods and they love the neighborhoods. They have children in school and would not uproot them to save some money. More importantly, I don’t see many of these home owners and would be home buyers in a financial position where they would be drastically hurt by the $10k limit on state / local tax deduction.

With the above being said I do believe there are a couple other factors that we should discuss that could bring the property tax deduction into play. By itself I do not believe it is enough to move the market at all. However, I want to discuss two other items.

Multi-Family Overbuild 

We’re seeing a TREMENDOUS amount of building in Chicago of new luxury apartment buildings. In the past year we’ve seen occupancy rates decrease overall in class A luxury apartment buildings. Newer buildings are offering even more concessions and we will see these continue into the spring market as more buildings come on line and even more in 2019. With these concessions in BRAND NEW luxury buildings it is just one more obstacle to get first time home buyers to purchase as long as they don’t need to (having children for example might create a “need”). If they’re single or a couple with no plans for children the rent concessions of these beautiful buildings does provide downward pressure on the housing market. These are typically well to do individuals who pay a large amount of state tax and would be looking at homes, even if a one bedroom that have healthy property tax bills.

At the end of the day, I do not believe we will see any major market shifts across the board because of this. We may see it in certain areas of the market, One Beds priced from 400 to 550k for instance in the downtown market. But for the overall market I do not see much of an effect in Chicago. However, it is something to watch.

Fear Mongering 

Leading up to the passage of this bill and the many versions of it those in the Real Estate industry were posting on social media left and right about how you need to call your congressmen and congresswomen and urge them to vote down this bill. Posts would read “This will lower property values by over 10%” and the like. The National Association of Realtors and the Illinois Association sent me countless e-mails urging me to “take action!”

As much as I appreciate those in our industry looking out for the best interest of our clients and my profession, we sometimes do more harm then good. Think back to the crash. Enough said.

If this fear mongering continues it can be enough to unintentionally scare the market. It was posts like this which lead some of my clients to reach out to me worried. Most of these posts didn’t explain all the changes to the bill. When they did explain the changes they did so in a slanted way. I’m not trying to advocate for this bill, instead I’m just trying to give information and let cooler heads prevail. Frantic social media posting without giving consumers substance does no good and only confuses and panics people. What happens to markets when people are confused and panic?

In Summary…. 

At the end of the day the only way we will know how the market will adjust will be to watch it. From talking with clients and those in the industry, I do not see the Chicago market decreasing in home values. Our inventory is low. Buyers in recent years have been extremely well qualified and continue to be very well qualified. Those who want to buy are not changing their minds. Sure those on the fence may have some pause, but I don’t believe the tax bill will be enough to push them off the fence. If anything it will be other factors that may do so.

Paul Blackburn is an Illinois licensed Real Estate broker and Realtor with @properties in Chicago. He can be reached at Paul@PKBlackburn.com