Home Buying in Chicago>Question Details

Kelly, Home Buyer in Chicago, IL

The current state of the market in downtown Chicago....

Asked by Kelly, Chicago, IL Fri Dec 14, 2007

What is it? I understand that this area is relatively stable, and was not hit like certain suburbs, and definitely not as badly as CA / FL / Las Vegas areas... but what can I expect from sellers in this market? Are they willing to accept lower offers?

The condo I am interested (South Loop) in is overpriced, in my opinion. They are asking 20% more than they paid for it at the peak of the market - March/April 2005. It has been sitting on the market for nearly 60 days with no offers & very few showings (probably 2). What do you think I should offer in this case? I think it's unreasonable for them to expect their property to have appreciated much in the past 2-3 years. I was planning to take about 15% off of asking price, so they would come out just a bit ahead of what they purchased it for. They are about to lower the price soon, probably, according to the realtor.

Any advice would be appreciated.

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8
Hi Kelly,

I would forget what they paid for it. It's really irrelevant. And, really, so is what they are asking.

Rather than guesstimate how much it SHOULD have appreciated, are there reliable recent (I mean, within the last 3-6 months) comps in the same building that can be your guide in formulating an offer? Because condo buildings house many identical units, In the end, it will be your best defense to back up an offer. After all, how could they possibly expect to get $400,000 when unit 305 sold for $350,000 last month?

If there has been no activity in the building on which to base an offer, it becomes a little more difficult -- for both the seller and the buyer -- because it becomes a matter of perceived value.

In the end, it's only worth what you're willing to pay for it, and what they are willing to accept. Hopefully a little solid research and some flexibility on both parts will equal a win-win in the end.
3 votes Thank Flag Link Fri Dec 14, 2007
Patti Pereyra, Real Estate Pro in Chicago, IL
MVP'08
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Kelly, when I counsel clients in preparing an offer, I always use recent sales data to best determine value in the current market. In general, Chicago has consistently appreciated in the range of 2% to 5% each year. In preparing an offer, I suggest using real data to backup your price - it lends credibility to your offer and it allows the sellers to realign expectations.

While many units all appear the same, it is important to understand what features the current property may have versus CLOSED sales. What I find in this market is the motivation of the seller plays heavily into the price negotiation. The more motivated the seller, the more likely you will see movement in price. Some sellers want to step up, but don't have a time pressure - some sellers are in financial distress and need a quick sale - it is important to know that you have a truly motivated seller.

Regardless of what sellers may think, the ultimate price of a property is determined by what a motivated, well qualified buyer(s) will pay - it must be put it in writing. Price may not always be the key factor in negotiating as well - often times it is important for sellers to understand what they will net after the transaction. Closing costs include transfer taxes, title fees, attorney fees etc - all are negotiable in terms of who can/should pay. Sometimes assuming some closing fees - which are tax deductible - may allow the seller to net more, therefore allowing them to be less focused on price and more focused on net proceeds.

Interestingly enough, when the National Association of Realtors surveyed sellers as to what sellers want out of their real estate transaction, sellers stated that they wanted confidence that their sale was going to close ON TIME - getting THEIR price wasn't even in the top three.
Web Reference: http://www.thomasjhall.com
2 votes Thank Flag Link Sat Dec 15, 2007
Thanks to all for the responses! I guess I should have clarified what "my opinion" was. I checked the comps for that building, and the most recent sale (in early November 2007) was around what I was planning on offering. But that unit had was slightly bigger/nicer/better view, etc., so I figured I'd drop my offer slightly below that one. The next-closest comparable sale (in terms of date) was in the summer of 2006, so I discounted that one because it really is irrelevant in today's market. But I do believe that is the sale that prompted the sellers to set their price so ridiculously high, since the sellers' asking price was in the ballpark of that June 2006 sale, and also because the November one was not completed until after the sellers put their condo on the market.

I was only stating their purchase price as a touchpoint for THEM, since I figure they would probably not even want to entertain an offer for a price below what they paid for it (they're not super-desperate yet). I'm trying to dig into their psyche and make an offer I can feel comfortable with and that they can live with at the same time.
1 vote Thank Flag Link Tue Dec 18, 2007
Sounds like a really good strategy. VIEW can make a HUGE difference in price!!! I don't know what the dollar figures would be but you could have each higher floor command a higher price. It could be the 49th floor is worth X but the 60th floor is worth X + Y *11. I remember how confusing it was with Marina Towers because 4933 had a view of Miegs Field to Navy Pier. But if the condo was on the other side of the building, the view was cr*p aside from the occasional nice sunset with planes flying around O'Hare. So 4910 (made-up number) might be X - Z and 6010 would be X - Z + Y*11.

It's the same thing out here in the suburbs. I moved from Berwyn to Brookfield to LaGrange to Western Springs. I might have only move 1 to 2 miles away but for the exact same brick bungalow, the prices went up by $50K. Then after Hinsdale, the prices start going down by $50k.

LOCATION, LOCATION, LOCATION.

RUTH
0 votes Thank Flag Link Thu Dec 20, 2007
Ruthless, Other/Just Looking in 60558
MVP'08
Thomas, nicely said.

Kelly,
In re-reading your questions, and agreeing with Patti that what they paid is irrelevant, how do you know that the property appreciated 20% in the past 2-3 years? The property may have depreciated 20% but the buyers bought it at a 40% discount? Does that make sense to you?

Let's say there were a "Blue Book" for property values just like there is for cars. Ten people might have the exact same property and the average price at a given point in time is $100,000. If someone sold that same property at the same time for $60,000 and then the buyer turned around the next day and sold if $100,000, is that appreciation? Then 3 years later, the Blue Book says the property is worth $80,000. Does it matter if the person you are buying it from bought it at $60,000 3 years ago or yesterday? What matters is that you don't pay over $80,000.

Your goal as a buyer should be to not overpay. Some buyers have a goal of buying at a discount, others their goal is to buy a home that they want. You have to decide which is your motivation. If it is to buy at a discount, then you need to find sellers who are motivated to sell because of duress. In that case, you don't need credibility that your offer is inline with the comps, because it won't be, it will be low. But the comps are vital to know if the seller's price is credible.

I hope this helps.
Ruth
Web Reference: http://www.Oak-Park-IL.com
0 votes Thank Flag Link Mon Dec 17, 2007
Ruthless, Other/Just Looking in 60558
MVP'08
Statewide, housing prices have continued to INCREASE in IL. You worry because the media keeps saying the market is slowing. That is true. For the same time period that prices increased, the time it took to sell also increased. Taking longer to sell IS a slowing down market. However, it does NOT necessarily mean that prices are falling.

But it all comes down to motivation. How motivated are the sellers to sell and how motivated are you to buy. Offer what it is worth to you.

Ruth
Web Reference: http://www.Oak-Park-IL.com
0 votes Thank Flag Link Sat Dec 15, 2007
Ruthless, Other/Just Looking in 60558
MVP'08
One has to be careful, for from what you say it is "your opinion". As a Realtor, our opinions are based on facts such as actual sale price..what they paid is irrelevant...what it is worth is current market value.

What you think is unreasonable once again has no basis...this is why people hire buyers agents...so they have factual information to help them make decisions based on real numbers, not just how they feel.

So find yourself a buyers agent, look at the ACTUAL comps, and base your decision on that.

There are alot of really good deals downtown Chicago, in a market that does not have wide mood swings like Miami or Vegas, etc. Also consider your lifestyle...the proximity to work, running along the lakefront...and then the amenities that are offered...will you use them all? Mesh all that info together with the COMPS, and make an offer. The worst they could say is "no"....so go for it...for once you have the knowledge base, one can argue that your basis for an offer is justified, how ever it falls out...5% or 50% below asking...however the numbers fall through the hourglass have a basis from which to work from.

Happy hunting.
Web Reference: http://iansellsnola.com
0 votes Thank Flag Link Sat Dec 15, 2007
Kelly- you never know the seller's motivation unless you put your money where your mouth is so to speak so make that offer and see if you can get the deal together. If everyone is a little unhappy about it (they take a little less than what they want and you pay a little more than you want) it is usually a good deal all around. Good luck.
Web Reference: http://www.condochicago.com
0 votes Thank Flag Link Fri Dec 14, 2007
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