Real estate tax proration

Had a good reminder given to me when I met with our accountant to finish up our tax filings for fiscal 2005. My wife and I had bought a condo at the end of '04 and were given the typical real estate tax credit at closing. But upon presenting our accountant with our actual taxes paid, the credit had been too low! Granted, that overage is still a tax deduction but it's not the same as getting the correct amount of cash up front at closing.

I know the lawyer who handled our closing pretty well (it was me) and I know we dropped our proration percentage to 105% after an initial offer we made was rejected rather than upping the sales price...so these were things personal to us. But just know that everyone you're representing as lawyer or realtor are going to their accountant's just like me and seeing that overage on property taxes and they should know that a higher proration should have been in the contract!

Real estate tax proration

Had a good reminder given to me when I met with our accountant to finish up our tax filings for fiscal 2005. My wife and I had bought a condo at the end of '04 and were given the typical real estate tax credit at closing. But upon presenting our accountant with our actual taxes paid, the credit had been too low! Granted, that overage is still a tax deduction but it's not the same as getting the correct amount of cash up front at closing.

I know the lawyer who handled our closing pretty well (it was me) and I know we dropped our proration percentage to 105% after an initial offer we made was rejected rather than upping the sales price...so these were things personal to us. But just know that everyone you're representing as lawyer or realtor are going to their accountant's just like me and seeing that overage on property taxes and they should know that a higher proration should have been in the contract!

7% property tax cap set to expire

See this article from March 29, 2006 Chicago Sun-Times regarding the log-jam in Springfield and the expectation that the 7% cap we've had over the last three years will expire this year. So on the residential side of things, expect big reassessments next year and protect your clients!

Construction loans

Informative article about construction loans from the March 26, 2006 NY Times. Pretty good overview for the novice home builder.

Construction loans

Informative article about construction loans from the March 26, 2006 NY Times. Pretty good overview for the novice home builder.

NY Times' real estate blog

I've been reading the Times' real estate blog of late entitled The Walk-Through. Not sure how useful it is, but there's the occasional helpful nugget particularly on some financing issues.

Special service area and special assessment areas

Does everyone know about these?

They're tricky and you need to be aware of them...particularly in the outlying, new growth areas. I remember running into one on a deal in Bolingbrook not too long ago. And in this post, I'm going to wear my residential real estate attorney hat.

Here's the gist of the special service or assessment area, a developer finances their new development (roads, sewers, sidewalks, ect.) through tax-exempt bonds. Then, these bonds actually get re-paid by the benefited properties. Why are they important? They can carry a pretty large price tag for the undiscerning buyer in these new developments over many years.

What to know:

• Look closely at your title committment...the ordinance creating the service area must be recorded against the properties.
• Most municipalities require the developer to provide a disclosure rider to the sales contract of the initial buyer.
• Be particularly wary of secondary transactions...does the assessment have to be paid off by the Seller?
• Has the Buyer's acceptance of the assessment been accurately reflected in the purchase price?

These can be tricky. Get proper disclosures up front and make sure you/your client is getting compensated appropriately.

Earnest money

Saw a piece in The Washington Post recently that was supposedly about young home buyers, but actually the article was more about earnest money. What is the correct amount or percentage of earnest money to put down on a potential real estate purchase?

There are obviously many different angles to view this from. However, as a frequent Seller's attorney I'm amazed at the tiny amounts of earnest money that I see being allowed on signed contracts. If I'm Seller/Seller's counsel I think issue one when I see an offer is, I'm assuming this deal will not close and what's Seller's remedy? There's not going to be protracted litigation with a residential real estate closing in all but 1 out of 100 deals. But if that Buyer screws up I want a pot of money sitting there to pay me for my 1-2 months off the market.

The above piece talked about 5% to 10% as a good guideline for earnest money. I think that sounds high, desirable but perhaps not realistic. I always think a minimum of $1,000 per $50,000 of purchase price. I think in Chicago proper the form contract is typically using 5%.

I'm just amazed at how often I see $1,000.00 earnest money down on a $300k to $400k type properties. Also, even worse, when the real estate agents aren't collecting earnest money often times after the earnest money increases after the attorney approval period.

What's the correct earnest money guideline?

Plant some green

Did anyone see Lew Sichelman's pience in the March 12, 2006 Chicago Tribune Real Estate section regarding landscaping and home values. He suggests that landscaping done correstly can increase the value of a property by 20% instantly. He constrasted this with the common landscaping done by home builders (what landscaping?).

The article quotes the American Society of Landscape Architects as saying one should invest 5% to 10% of a home's value on landscaping. The article also talks about negotiating with home-builders regarding how to spend your landscaping budget.

Or you can do like I do and abhor the new subdivisions and only live in the old-style leafy suburbs!

Chicago assessments

The Chicago Tribune had a bit here about Chicago property tax assessments that all need to be aware of. The article is somewhat about Mayor Daley's lobbying to get the 7% cap on assessments, which is set to expire this year, extended beyond this year. But the article notes that the citywide median for assessment increases is 41% and in many of "hot" areas of the South Loop the assessment increases are in the 90% range.

How to deal with it in a real estate transaction?

You better be getting a nice proration credit and not be accepting 105 or 110%. Also, obviously the fairest move is simply the reproration agreement route, if the parties don't mind waiting a year to see what the actual taxes will be.

Buyer incentives

Just wondering, what's the best incentive to provide a Buyer in a real estate transaction?

Options:

• Cut sales price
  
• Closing credit to Buyer
  
• Seller providing points to Buyer

I'm not advocating one of them I always stuggle with which is most effective. I think providing point(s) to a Buyer clearly gives the best value to the Buyer. I've always viewed the cut in sales price versus a closing credit as a wash and often just a question of what a lender is comfortable with showing on the HUD-1. Of course if the credits get too big I certainly worry about a RESPA violation.

Chicago foreclosures down in January

Saw a blurb in Crain's regarding foreclosures in the Chicago area being down in January. Seems that there was only a .7% increase in foreclosures from December to January. This after a 47% jump in December. Just another tidbit supporting the fact that the Chicago real estate market should be solid '06.

My commentary, why are the different monthly housing reports front-page news?