Attention Chicago Condo Buyers: Be Smart, Buy Smart

Working with buyers and the feedback from the buyers agents on my listings has brought me to the conclusion that buyers need to get realistic. Not all of you but many of you. You are going about finding your home the wrong way. Chicago condominum buyers need to buy smart. The lowest price is not always the best value.

The buyer I am referring to is the typical condominium buyer looking for a place to live who is getting a mortgage and putting about 20% down. Not an investor,  not a cash buyer and not an FHA or VA home buyer. You have certain public transportation requirements.

So your lender has pre-qualified you for a specific price range with approximate taxes and monthly assessments. You start your search online. You read all the posts about what great deals there are out there. Some good information, some misinformation. You are now all caught up in getting a great deal in that you seem to be overlooking what is the most important thing about a home: Do you want to live there, does the space and location work for you, what is the health of the association and will the property qualify for a mortgage?

Buyer Be Rational

You tell me you want to be in a neighborhood where when prices rise, you will see a greater, faster increase. So what you are telling me is that you want to do something smart which is buy at the bottom of a top market. And then you say but I want to look at short sales and foreclosures. “I want a deal”. The Chicago neighborhoods where overall property values have always remained strong (Lakeview, Lincoln Park and Gold Coast) have been effected by lower property values as a result of the economy but not greatly impacted by distressed sales such as the South Loop, West Loop, Rogers Park and Albany Park. The faster the rise, the greater the fall, the harder the climb back up.

The Correct Way To Go About It

• Start looking at spaces that meet some of the criteria you have set fourth. Prioritize them.
• Once you have identified homes you would want to actually live in where the location works for you, start working through the value.
• Throughout the process it is the real estate professional’s job to help in determining  if the properties are both a good value and a condo association you want to become financially obligated to.

Defining Value

Work with me on this. I am working on behalf of your best interest. The good value of a home is not determined by if it is defined as a distressed property such as a short sale, foreclosure or estate sale. In the neighborhoods at the top of your list the deals are a result of the economy on  housing values, not sellers unable to afford to be in the home. They have to move. The reason could be a result of a growing family or relocation.  They have equity in the property or the ability to bring a check to closing to cover the shortfall of value since they purchased.

You have about 20% to put down. In your mind you are saving thousands of dollars on the purchase price which the majority is being amortized over thirty years in a condo you may only own for 5-10 by focusing on distressed properties. Make your money work best. Think smart. Many of these condos are not in move in condition. Are you better off spending $375,000-$400,000 on something that is move in ready or buying something in the $275,000-$325,000 that needs a new kitchen, 2 new baths and lots of odds and ends work . At the end of the day at mortgage rates where they are what is a better investment?

Look At the Numbers Typical Buyer

20% down on a $400,000 move in ready condo is $80,000.

20% down on a $300,000 distressed property is $60,000 plus the $50,000-$75,000 you would need to make it habitable on the typical 2 bedroom, 2 bath condo. On top of the work, in buildings that have a lot of  distressed properties you have to be concerned about making it through the lender’s condo questionnaire. What then happens to your assessments when there is not enough to cover the expenses of running the building because of all the owners in arrears on their assessments. You better have your chestnuts stored for this one.

No market is immune from short sales but you need to look at the building as a whole. In some buildings and local markets they are rare and there is less long term risk. That is when the experience of an active REALTOR® comes in. It is more than just the particular unit that needs to be evaluated. It is the association, the building and the local market and knowing what is happening on a day to day basis. It is a full time job.

Every condo building needs to be looked at on its own merits. But if you are buying at the bottom of the bottom, you will be selling at the bottom.