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Greenview Drive, Crystal Lake, IL 60014
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Monday, July 16, 2012
The Lure of Flipping Foreclosures
11:28 am cdt
From today's Chicago Tribune:
A year after purchasing their Richmond,
Va., fixer-upper for $290,000 in 2010, Sherry and John Petersik rolled up their sleeves and tackled the outdated kitchen.
They dragged the refrigerator and microwave out of the way, set up a dishwashing station at the bathroom sink and
plunged into do-it-yourself mode, installing a new countertop, refinishing cabinets and replacing appliances.
"We knew to expect the chaos," said Sherry Petersik, 30. That's because it's the second home the Petersiks have
renovated for fun and the promise of profit.
They lost money on their first handyman's
special, buying a home for $190,000 at the height of the real estate bubble in 2006, pouring $30,000 into it and then selling
it for $195,000.
"But we lost tens of thousands of dollars less than our neighbors
did," Sherry Petersik said. Plus, they unloaded the house in days.
is older and wiser but still hooked on the dust, noise and profit potential of home renovation.
"We got comfortable with that lifestyle of sweat equity," she said.
They have added window treatments and a cobblestone patio and modernized a fireplace in their new home, and after the
kitchen is done they expect to have spent a total of $10,000. She expects that will give them a nicer house than they could
have afforded to buy and to add $50,000 to the home's value.
The DIY strategy is
gaining traction these days as energetic homeowners try to build equity in a still-depressed housing market, with a growing
number of foreclosures filling the multiple listing services with run-down homes.
According to RealtyTrac, a foreclosure listing service, 26 percent of homes sold in the first quarter of 2012 were foreclosed
properties, an increase of 8 percent from 2011. Short sales of properties accounted for 12 percent of national sales in
the first quarter, up from 9 percent last year.
This glut of properties means a
great need for renovation, say industry experts like Eric Sussman, a senior lecturer in real estate at the University of
California at Los Angeles Anderson School of Management. As property values have decreased and families deferred maintenance
work, many of the most affordable homes need significant renovations, he said.
Foreclosures can be especially problematic, as many people have been trashing foreclosures and carrying away appliances,
said Bruce Graf, a general contractor in Grand Prairie, Texas.
are losing their homes, it sometimes makes them feel better to destroy things on the way out," he said.
Costs vs. benefits
Last year, homeowners spent $107
billion remodeling owner-occupied units, a 3.5 percent increase from 2010. This year, remodeling spending is expected to
grow 12 percent, to $120 billion, according to the National Association of Home Builders, a trade association.
A craze with all things DIY has helped make the glut of fixer-upper properties more alluring,
said Liza Hausman, vice president of marketing at Houzz.com, an online remodeling community. The site gets 5 million unique
hits per month, up from 2 million in December 2011.
"People are buying things
that they think they can turn into a dream home," she said.
But many buyers
don't realize that it's easy to lose money on fixer-uppers, Sussman said. People who buy a foreclosure at auction may not
get solid information about the condition of the house until after they've made their bid.
Weighing the costs and benefits of what to renovate is key, especially for homeowners looking to fix and flip. Replacing
the front or garage door, creating an attic bedroom and minor kitchen remodeling give homeowners the most financial gains,
according to a Cost Versus Value survey from Remodeling magazine conducted in 2011.
toughest costs to recoup are building a sunroom, installing a backup power generator and remodeling the home office, because
they aren't universally valued, according the report.
As a general rule, "renovating the kitchen and bathrooms
is always going to help you with retail value," said Adrienne Francis, a real estate agent in Bernardsville, N.J.,
with Keller Williams Realty.
She tells people who want
to renovate a home to sell that they should purchase modern appliances and forgo any permanent decor that's too nontraditional.
But foremost, keep costs in mind: $10,350 for a wood deck addition, $57,494 for a kitchen remodel and $16,652 for a bathroom
remodel are the average national prices of midrange projects, according to Remodeling Magazine's survey. Estimate the home's eventual selling price before committing to repairs by looking at comparable properties
in the area, said Paul Wyman, a real estate agent in Kokomo, Ind.
make the mistake of doing so many renovations that they "price themselves out of the market," he said.
Especially when renovating a primary residence, think about long-term costs, suggests Kate Battle,
a graphic designer from Milwaukee. When Battle and her husband bought their 1960s home two years ago, she called the utility
company to get an estimate of the energy bill to plan her budget.
don't have much insulation," said Battle, and the couple eventually installed more energy-efficient windows.
Battle said she also got help estimating the cost of repairs by talking to contractors and visiting
home-improvement stores. She also suggests that prospective buyers hire a home inspector to give them information about
what kinds of repairs might be needed and how much they would cost.
CostEstimator.com and RemodelOrMove.com provide calculators that homeowners can use to guesstimate the price of the projects
they are considering.
Hire help or DIY?
A rule of thumb is that materials cost about 40 percent of most projects, with labor making up the rest, so qualified homeowners
can save significantly by swinging their own hammers.
Just plan ahead for dust
and differing opinions with your spouse, said Sherry Petersik, who recommends that most people leave any structural work
to the pros.
While most homebuyers tend to finance their remodeling from savings,
there are different ways to borrow money to cover a major renovation, said Frank Donnelly, a certified financial planner.
Some new homeowners can qualify for the Federal Housing Authority's 203(k) or streamlined
203(k) programs, which allow loans with only 3.5 percent down payments and can be bundled with the mortgage. Fannie Mae's
Homestyle renovation loan is another popular option and allows financing of up to 50 percent of completed value.
The easiest way to refinance is through a home equity line of credit, said Donnelly. Discuss
financing with your lender before buying to make sure you qualify.
Wednesday, July 11, 2012
Zillow Names Chicago the Best Buyer's Market
1:47 pm cdt
Thanks to John Troiani for pointing out this story to me in today's Chicago Tribune! :)
Chicago may be the Second City but it's No. 1 for bargain-hunting homebuyers.
Of the 50 largest
metropolitan markets, the Chicago area is the top buyer's market, according to real estate site Zillow, meaning buyers have
negotiating power because there are plenty of properties for sale that haven't moved, prompting steep price cuts.
The local statistics in Zillow's index that gave Chicago its top ranking should
buoy potential homebuyers in their pursuit of the American dream. But the numbers also provide a wake-up call for sellers
who've heard reports of a generally improving housing market and may expect a higher price for their home.
Zillow found that in May, 48 percent of homes in the Chicago area sold for less than their previous selling price,
and the median number of days those homes were listed on Zillow was 182 days. About 40 percent of homes listed in May had
seen at least one price cut, and the median cut was 6.92 percent. The average discount on homes sold in May was 5 percent
less than their most recent asking price.
In the Chicago market, Downers Grove,
Northbrook, Palatine, Buffalo Grove and Orland Park were considered the top five communities for buyers.
Which communities in the Chicago area were the best for sellers? Of the top five, three -- Crown Point, Valparaiso
and Munster -- are in Indiana. Bolingbrook and Aurora round out the list.
calculations looked at sale-to-list-price ratios, the number of days a property spent on Zillow and the percentage of homes
on the market with a price cut.
Other buyer's markets nationally were Milwaukee,
Cleveland, New York, Philadelphia, Jacksonville, Fla., Providence, R.I., Cincinnati, Hartford, Conn., and Houston.
The top seller's market was San Jose, Calif., followed by San Francisco, Las Vegas, Sacramento,
Calif., Phoenix, Riverside, Calif., Washington, Los Angeles, Salt Lake City and Austin, Texas. Some of the interest in those
markets is driven by investors buying properties in bulk and turning them into rentals, Zillow said.
"This is really saying who has the negotiating advantage," said Zillow chief economist Stan Humphries.
"Homes are hanging around for a long period of time (in Chicago). It's really the supply-demand balance in the market.
In the Phoenix, San Francisco, San Jose markets, what's being indicated there is there's more demand than supply. In Chicago,
there's more supply than demand. Some of that supply issue is foreclosures."
Overall, recent reports do show a local housing market ever-so-slowly on the mend. In May, the median price of a home
sold in the Chicago area rose, by only $100, but it was the first positive movement in that indicator in 50 months. Still,
as the Zillow report indicates, it very much remains a buyer's market and the recovery will come one community at a time.
Foreclosures remain a key hindrance. Last month, RealtyTrac reported that foreclosure
activity in Illinois in May rose 54 percent from the year earlier, giving Illinois the fifth-highest foreclosure rate in
the nation, just behind California and just ahead of Florida.