The Condo Association: Management Company v. Self-Management

Neighbors meet to discuss their common future.

If you own a condominium in the city of Chicago, you probably are fortunate enough to have a condominium association. Some associations hire a management company for day-to-day operations while others are self-managed by an organized group of homeowners.  In both cases, association dues are collected and those in the management company or in your self-managed group must oversee the budget, provide for a number of city services, and properly maintain the building.

Many buildings in Chicago that have twelve or fewer units are self-managed. If you live in such a condominium building, you will understand the question: “To self-manage or not to self-manage??

Proper Management Means Better Home Values

Lately, I have heard several horror stories where condominium owners fail to maintain the building or better yet, are nosey and fail to get along with one another.  Many disputes have arisen from being angry at neighbors who play their music too loud or stomp around on hard wood floors in high heels, to a third floor unit owner letting their dog use their back deck as a bathroom (letting the waste seep down to the units below), to a top floor unit having roof problems that the rest of the condo owners oppose fixing through additional assessments.  I have also heard of associations not maintaining their bank accounts or having their association charter revoked by the state of Illinois.

When you choose to self-manage, you and your neighbors no longer have to pay those association assessment fees to a third party.  When setting up a self-managed condo association, make sure that you have a president as well as a treasurer. These two positions should never be the same person. Once the association is set up, from first ensuring  condo owner participation to filing the proper legal documents, make sure you budget enough money for the following:

• New roof (some day down the road the roof will need to be replaced)
• Water Service
• Scavenger (if you have over four units in the building)
• Common building insurance
• General maintenance items (painting, tuck-pointing, etc)

This simple list is for smaller buildings that do not require much maintenance.  Remember, potential buyers will appreciate a robust and active association that has properly maintained the building and has a decent amount of cash reserves.

When to Hire a Management Company

You might consider a management company when you find that you are arguing with your neighbors too much or you feel that the association board is treating you unfair. A management company may be able to step in and act as a mediator to your situation – but keep in mind that with a management company comes higher association dues.

We thank nateOne for sharing his photo for this story through the Creative Commons license.

14 September 2009 ? As Chicago awaits the October 2, 2009 announcement of the decision of the International Olympic Committee, 2nd Ward Alderman Robert Fioretti addressed  the Chicago Association of Realtors Government Affairs Committee on Friday. Alderman Fioretti spoke about the unique opportunity the 2016 Olympic games would present for the City of Chicago: 300,000 jobs expected to be created, more than $22 billion generated, and a boost to the City’s transit infrastructure. The City Council voted last week on an ordinance that will provide transparency and openness for the entire process. The impact of the upcoming decision will dictate many factors going forward for the City including what will be done with the 37 acres of the former Michael Reese Hospital as well much of the budgets and infrastructure in the coming years.

Chicago-area home sales are slightly up in July compared to July ’08, the first year-over-year increase in over 3 years, as reported by the Illinois Association of Realtors. The graph below more accurately shows the details.

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Price Disconnect Between Buyers & Sellers

Uniquely Chicago sunrise...hopefully a sunrise in the home market is also taking place.

The stats are indicative of how the market is responding. August has been an incredibly busy month for myself and my team. We have increased showings by 50% on most of our listings, ranging over all price points: from the low $200,000s up to the $1 million+ homes. It’s a great sign and we are more confident in the market now than we have been in several months. That said, there is still a disconnect on price between buyers and sellers. The market is still in a less favorable state for sellers, but with realistic and educated sellers, deals can be made and homes can be sold.

Below is a monthly year-over-year comparison of home sales (single-family and condo) in the nine-county Chicago area.  “It’s significant that we are seeing break-even or better sales levels compared to last year at this time on top of the month-to-month increases since January,? Pat Callan, president of the association and owner of Realty Executives Premiere in Wheaton, said in the release by Illinois Association of Realtors^®.

Chicago Not as Strong as Greater Chicagoland

Chicago-area sales also increased by 4% in June 2009 compared with June 2008, the sixth consecutive month that an increase has been reported. This said, sales volume still fell year-over-year in the city, with 1,975 sales in July, down 11.3% from July 2008. In Chicago proper, the median price was $245,000 in July 2009, down 18.3% from July 2008.

“Chicago continues to show a leveling of the marketplace as we see distressed properties being absorbed. With that said, we are a long way from seeing a stable real estate market in Chicago, and we face challenges surrounding lending that do not take into account real local market conditions,” said David Hanna, president of the Chicago Association of Realtors^® in the release. “Policy changes are still needed before Chicago can have a healthy real estate market, and a full economic recovery.” HVCC is one policy that most real estate agents would like to see changed. This government mandated reform is intended to protect buyers from changes in price by an 1/8 of a percent on their loan three days prior to closing. The lender must disclose the final figures three business days prior to closing to the buyer. If the final figures change by 1/8 point up or down at closing, then all parties must walk away from the closing table & wait three additional business days for the lender to recalculate the costs and disclose to the buyer before they can return to the closing table. This is a recipe for disaster, especially with the nature of closings and transitions for people who are moving from another home or a rental and are obligated to be out by a certain date. If the closing is pushed back on their purchase, presumably they will be homeless for a few days incurring additional temporary housing costs in the interim of closing.

The Realtors^® group’s sales figures include new and existing homes. The nine-county Chicago Primary Metropolitan Statistical Area consists of Cook, DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry and Will.

The Market is Picking Up in Chicago

The market is picking up with increased showings, but it’s still a long row to hoe from contract to close; the financing piece is always the last piece of the puzzle and that’s proven to be the most unpredictable piece at present. Finding a good, knowledgeable lender and providing as much documentation up front to the lender with your application is key. It’s a must to know your true ability to obtain financing in this market.

We would like to thank John Picken for kindly sharing today’s photo via the Creative Commons License.

Chicago's Centenial Fountain on The Chicago River

Finally Home, a mortgage program designed to help Illinois residents buy a home or keep their existing homes from going into foreclosure, changed a key guideline that will allow more Chicago home buyers and home owners to take advantage this state program. The program raised the qualifying average median income (AMI) from 115% to 150%. In Chicago, a single person who earns $ $79,200 or a family of 4 earning $113,100 now can qualify. This program helps borrowers who cannot obtain conventional, sustainable mortgages from credible lenders because of factors such as bruised credit or a high debt-to-income ratio.

Officials Listening to the Realtor^® Voice

This change resulted from when Ben Noven, a representative from Illinois Treasurer Alexi Giannoulias?s, attended the Chicago Association of Realtors® Government Affairs meeting as one of its monthly guests. He spoke and then listened to concerns of the committee. The way the guidelines were written, the program was ineffective for Chicago due to income levels and property values. By raising the qualifying AMI, many more Chicago residents will be able to take advantage of this program and keep people in their homes as well as creating more new homebuyers.

?Over the past year we have had the opportunity to have several guest speakers at the C.A.R. GA meetings, primarily public officials and civic thought leaders who are listening to REALTORS® about their issues and real sharing is taking place,? said Brian Bernardoni, C.A.R. Government Affairs Director, “Providing opportunities for sharing of ideas beyond just practitioners but to decision makers was something leadership and Chairman Bob Floss asked of us. I am happy that our input is respected and these important efforts are making a difference.?

As the upcoming chairperson of the C.A.R. government affairs committee I look forward to participating in continuing efforts to create opportunities that result in helping our members and the communities they service.

We’d like to thank Payton Chung for sharing today’s photo via the Creative Common’s License.

The gloom over Chicago's real estate market may be coming to an end.

June marked the fifth consecutive month-on-month increase in home sales statewide, including Chicago. It was the fourth monthly increase in the statewide median home sale price. In a release issued by the Illinois Association of Realtors^®, association President Pat Callen says, “We are moving through inventories and that?s a good sign for the Illinois housing market. Year-over-year sales are still lower, but one promising trend is the rate of decline has slowed in recent months and is now at a pace last seen in the third quarter of 2007. More first-time buyers are taking advantage of the federal tax credit while distressed properties prolong the downward pressure on prices.”

Chicago’s Home Sales Numbers Up for Fifth Consecutive Month

In the city of Chicago the median price of a home was up 7.0 percent in the second quarter of 2009 to $230,000 compared to $215,000 in the first quarter of 2009; it was down 25.8 percent from $310,000 in the second quarter of 2008. Total home sales (single-family, condominiums, and town homes) jumped 65.2 percent to 4,947 homes sold in the second quarter of 2009 compared 2,995 home sales in the first quarter; sales were down 21.3 percent from 6,287 homes sold in the second quarter of 2008.

In a world of supply and demand, experts are saying now is the time to buy. As inventory depletes, housing prices will begin to stabilize and the rise again in the upcoming years. Buyers are now taking advantage of favorable rates, inventory, pricing, and incentives. For those shoppers who continue to sit back waiting to see if rates will get lower and prices will drop more will have probably missed the best opportunity.

We’d like to thank cikaga jamie for sharing today’s photo via the Creative Common’s License.

20 July 2009 ? This week the incoming leadership of regional chapters of the National Association of Realtors will be meeting in Oak Brook, Illinois. Presenters will include Stefan Swanepoel recognized as the leading visionary on real estate trends and John Tuccillo, John Tuccillo & Associates, one of the foremost real estate economists in the United States. Among the issues the local associations are facing are declining membership and how to best serve their broker and agent members in the ever changing market. The boards participating in this week?s meetings are The Chicago Association of Realtors (C.A.R.), the Mainstreet Organization of Realtors (MORe), the North-Shore Barrington Assn. of Realtors (NSBAR) and the Realtors Association of Northwest Chicagoland (RANWC).

The Up

Home Sales are Up and Down

We are seeing the continuation of a trend that seems hopeful. According the Illinois Association of Realtors® home sales in Chicago for April 2009 were up when compared to March 2009 by 16.7 percent. There were 1,378 home sold in April as compared to 1,181 in March. This seems to reflect the time of year (sales are usually strongest in the spring of the year). Hopefully this also represent some evidence that, at a minimum, the downward spiral of real estate sales is declining. It would be nice if it signaled even more?that the bottom has been reached. However, it’s difficult to find any credible analyst willing to say that.

Most analysts attribute the three month to price drops (see below) and purchasing of foreclosures. First-time buyers are figuring heavily in this as well because of the $8,000 tax credit being extended to them.

The Down

The 16.7 percent month-on-month increase is only part of the story. When we compare to 2008, sales are down a whopping 26.9 percent. This means in April of 2008, 1,886 homes were sold in Chicago.

The Price

Median home prices in Chicago did not change month-on-month; prices held steady at $220,000 in April. This is down 26.7 percent from $300,000 in April 2008.

The Illinois Association of Realtors® web site quotes David Hanna, president of the Chicago Association of REALTORS® saying,

?We continue to see homes in foreclosure and short sales driving prices lower in many areas of the city. Policy changes such as allowing first-time homebuyers to use the $8,000 tax credit at closing and a streamlined process for short sales will help, but the critical issues are the rising numbers of foreclosures and restrictive lending guidelines not crafted for our urban market. The federal loan modification program has not yet slowed the pace of foreclosures, a must for turning housing around in the Chicago metropolitan area. Regulators and lenders need guidance and latitude in creating a lending environment that addresses regional and in particular urban housing differences. That is not happening right now, and our numbers reflect the result.?

We would like to thank TheTruthAbout once again sharing today’s photo via the Creative Common’s License.

Hope Pours In When Positive Change Occurs

At a dinner On May 21, the Chicago Association of Realtors presented the 2009 Good Neighbor Award winners. As I saw the recipients walk to the podium to receive their awards, the words of the evening?s emcee kept running through my head.

In his remarks, Brian Bernardoni the Government Affairs Director for the Association said, “There is a yin and yang; there is a balance the concepts of HOPE and CHANGE present ? they need to work together. Without the inspiration of HOPE people will not find resources for CHANGE. And without prospects of CHANGE there is no HOPE. Developers and REALTORS® in the room know these words all too well.”

Hope and Change

They are words we heard through the presidential election as a Chicagoan worked to create hope that change will happen. Locally those words define the work, dedication and partnerships of the developers, banks, Realtors®, and in many cases the City of Chicago through its Department of Community Development. The award winning projects where scattered throughout Chicago, from North to South East to West. They were residential, commercial and mixed use renovations and new construction. Working together their work filled vacant lots, abandoned buildings, and in some cases the starting point for hope there will be change for an entire community.

Affordable Housing Without Displacement

This year?s Bruce Abrams Award winner?the program?s highest honor?was awarded to Benjamin Van Horne of Greenline Development for the Greenline Condos in the Woodlawn Neighborhood. With this 37 unit project, Mr. Van Horne achieved his goal of quality affordable housing without displacement. He was able to do this in cooperation with the City of Chicago?s Department of Community Development.

Saving a Historically Significant Building

Another winner that stuck out in my mind was one of a colleague of mine at Sudler Sotheby?s International Realty, Ron Meadows. In the Lincoln Square neighborhood where even in this current real estate market, developers are still tearing down and building new condos and single family homes, Ron saved a building built in 1893 with historical significance from a developer who was going to tear it down. He took this structure, known as the Alley House of Lincoln Square, did a total renovation and is maintaining it as a rental property in an area where there is very little rental inventory left.

Every award recipient has their own passionate story about their project. They all faced challenges. But they saw through them?all to make a difference. Project by project, partnerships bring about change throughout the entire city and hope in many neighborhoods where it did not exist before.

Mr. Bernardoni went on to say ?When you INSPIRE HOPE and bring about CHANGE ? you build this city. You are all winners and great Chicagoans. Thanks for doing your part.?

We would like to thank Kwerfeldein for kindly sharing his photo entitled Hope and Pain via the Creative Commons License.

Agent? Broker? Brokerage? Associate Broker? Managing Broker? REALTOR®?

One of the most common questions I get from people (or at least I get a quizzical look) is what?s the difference between an agent, a broker, and a REALTOR®. This usually happens when they realize I?m using the words differently. For example, ?The agent?s broker told her she had to be a Realtor® in order to keep her license with the brokerage.? Huh?

It?s not that hard. The differences come from both state license law and a registered trademark. Here?s a few brief explanations that don?t get into too much of the legal finery:

What?s a Real Estate Agent?

A real estate agent is a person who has met the requirements set by state law to act as an agent in real estate transactions. In Illinois, the Illinois Department of Financial & Professional Regulation (IDFPR) is the agency that deals with this law and makes sure everyone follows the rules.

It isn?t very hard to become an agent. You have to be 21 years old and have a high school diploma. You take a 45-hour course from an IDFPR-approved school and pass the school?s test. You then have to pass the state?s test and pay your fees to the state to get your license. Every two years you have to take continuing education from an approved school and pay for a new license. Most people find these courses and test quite easy.

An important point is agents can?t work for themselves. An agent can?t use that license unless they ?park? their license with a real estate broker. They are somewhat like an apprentice. Basically, agents have to have a boss who is a broker. Brokers act as agents? bosses and are legally responsible for what agents do.

What?s a Real Estate Broker?

Becoming a broker takes more classes and more tests. Before you can become a broker you have to have taken and passed the agent classes and exam. You then have to take another 75 hours of class from an IDFPR-approved school, pass the school?s test, and then pass the state?s test. You then apply to the state for your broker?s license.

Only brokers are allowed to charge for their services?agents are not. This is one of the reasons an agent must work for a broker. Also, only brokers can enter into contracts?again, agents can?t. This is why when you list your home with an agent, they don?t sign the contract, their broker does.

What?s a Managing Broker?

Unlike agents, brokers can work for themselves; they don?t have to have a boss. They can ?hold their own license? and don?t have to park it under anyone else. They also have the right to have agents work for them. If they do have agents working for them, they are called a managing broker. Every real estate office has to have one managing broker who is legally responsible for nearly all the actions of the agents in that office. If those agents get into trouble, it?s the managing broker who ultimately is responsible for the problems.

What?s an Associate Broker?

A lot of agents decide they want the additional prestige of the broker title, so they go through the courses and take the tests. However, they don?t want to be managing brokers; they don?t want to be the boss. They simply want the additional education and the title, but to act as an agent but have the broker title. These people are often called associate brokers by their brokerage.

What?s a Brokerage?

A brokerage is a company that has a broker?s license. Basically for a company to have a broker?s license, the owners have to be brokers and then apply for the company to get a broker?s license.

What?s a REALTOR®?

Have you noticed that there?s a ® every time I use the word REALTOR®? Have you noticed that the word is in all caps? That?s because it?s a registered trade mark of the National Association of REALTORS® (NAR) and that?s how they require it be used. I suspect you, like most non-REALTORS®, thought that the word was just a word. However, like Kleenex®, it?s a brand name. And, like Kleenex®, NAR is very protective of their trademark for fear that it will be taken away from them because of its ubiquity.

REALTORS® must be either a licensed agent or a broker and they must join the National Association of REALTORS®. Furthermore, REALTORS® have to agree to a strict code of ethics, which often holds them to a higher standards than the state law. In nearly all places in the US (including Chicago), an agent needs to be a REALTOR® in order to have access to the Multiple Listing Service (MLS), which is the database of properties that have been and are on the market.

So, that?s it, all you ever wanted to know about the lingo of the real estate world.

We’d like to thank Chris Griffith for kindly sharing today’s photo via the Creative Commons License. Thank you Chris!

We all know that the major type of property changing hands and being built in the city of Chicago is Property Type-2.  The formal term is Single Family Attached and what most people call a condominium or townhouse.  With condominiums you will more than likely find a condominium association.  Condominium associations are set up to maintain the building and therefore maintain or improve property values. With the association comes fees which are called assessments. They are usually a monthly bill the owners have to pay so the association can pay for the exterior building insurance, building exterior maintenance, grounds upkeep, water, common area electricity use, and possibly trash removal.  (In Chicago, if the building has four or less units, trash removal is payed by the city.) Other possible expenses that would be covered by the assessment include door people, management company fees, maintenance person, elevator service, etc.

Decs & Bylaws, Rules & Regs

The typical association is set up by the original developer of the building, whether it be new construction or gut rehab. With the condo association there should be formal legal document called the condominium declarations (often called decs & bylaws), which describe the property, percentage of ownership, limited common elements such as hallways, parking, etc.  There will also be another formal legal document called the rules and regulations (commonly called rules & regs); they lay out what can and cannot be done in and around the building.  Examples of rules and regs are pets rules, pet weight limits, use of common areas, and even restrictions on smoking to name just a few.

Condominium Associations can be self managed or run by a management company.  Typically a smaller association will run itself.  This means each unit owner will more than likely take a roll in the management of the building. Electing a president, secretary, and most importantly the treasurer.  The treasurer is the person responsible for book keeping, paying bills, and making sure everyone turns in their monthly assessment on time. 

Small vs. Large Buildings and Associations

Smaller associations tend to have lower assessments.  This is great for the cash strapped buyer.  However, the buyer beware! If the association is not putting enough money away to adequately pay for regular expenses and even worse, the occasional problem, there is a high probability the building will see a special assessment.  A special assessment may be levied against a unit for many items. A common one is having to put on a new roof.  This can be quite costly.  If the unit owner does not pay the assessment a lien can be placed on unit.  The lein will prohibit the owner from selling or refinancing the unit.  There is something to be said for strength in numbers.

With a larger association the buyer will run into higher monthly assessments.  This can be a good thing or a bad thing.  In a full amenity building the assessments can run to $1,500 per month or even higher.  This is especially true in older and vintage buildings that require relatively more maintenance than newer buildings. With larger buildings, the association will be run by a management company.  Depending on the management company, their fees can add quite a bit to the monthly assessment.  But, if you want a well run building you have to be willing to pay for it.  If the building is not well run, you at risk of your asset (home) depreciating.

Eight Questions to Ask Before Buying a Condo

My advice when out condo shopping is simple: ask as many questions as possible.  Here are my top questions:

1. What are the assessments?
2. What do the assessments pay for? What don’t they pay for?
3. Is the building self-managed?
4. If the building is managed by a property management company, what is the company? (Do some research and find out if they are reputable.)
5. How much money is in reserves?
6. Are there any special assessments now or expected?
7. Has there been any updating to the building, and if so, did the association do a special assessment or did they use funds from reserves?
8. Are there any pending lawsuits against the association?

Many first-time condo and townhouse buyers don’t completely understand what they’re getting into. It’s not bad, but it is something that should be understood completely before signing the mountain of papers at the closing!

Photo by Lucius Kwok