PTR: What are some examples of how the expo has helped Chicagoans with their real estate experience?

Warren: On the South Side, the majority of folks who attended had credit issues, and did not have a clear understanding on how to get past those issues. In the past, an agent could not recommend their client go to credit repair, because we cannot work with anyone who is not licensed. Lately, though, there are more and more licensed credit repair specialists, so consumers now have a place to go to address their credit issues. That was one huge benefit.

Another was when folks found out there was another option to a loan modification or a foreclosure – that they were able to renovate their homes through a Value After Renovation, or VAR.

PTR: On that note, your website, ChicagoHousingExpo.com, strongly emphasizes the role of renovation as a revitalizing tool for Chicago’s communities. Can you explain that concept?

Warren: There are so many existing homeowners who wish they could tap into the higher-value market that home flipping has created. That consumer renovation market is absolutely massive, but as agents, we are always so focused on buyers. If you ever watch the show “Love it or List It,” if that agent was successful in convincing the show’s consumer to buy another property, then he got a new listing – their renovated property – along with a sale. In his market, that was a buyer who was not in the position to sell, because their home needed substantial work, but now they can sell their home for much more money.

So think about all the homeowners in today’s market who cannot sell because for one, they are upside down on their mortgages, or two, their property needs considerable work to bring it up to par for the market, but have no equity in the home to tap into. They are stuck, but LaShawn and I explain to them that there is an option besides a loan modification or a foreclosure – that is consumer renovation loan products, such as the FHA 203k or FNMA HomeStyle (conventional) mortgages. Those products can substantially increase the property value with real improvements, such as updated kitchen, bathrooms, finished basements, adding A/C etc. Couple that with today’s low interest rates, and it is a major win for the homeowner. Homebuyers can use the same mortgage products to buy and renovate.

Those programs have been around for decades, but most people have never heard of them There is an exception with those programs that allows appraisers to value the home based not on its value now, but on what it will be worth after the renovations are complete. That exception is huge, but oddly enough, when that loan closes, that value is tossed and not utilized anywhere. For example, a consumer wants to tap into the new value of their neighbor’s property, one that was bought for $50,000 and improved with a consumer renovation loan for an additional $200,000. The appraiser will use the $50,000 purchase price for value without regard to the $250,000 that it was appraised for,  because post-renovation value is not the “sale price” and cannot be used as a comparable. That make no sense.

The owner of the renovated property has a loan based on the value after renovation.  That inconsistency makes renovation loans not good for the overall community. They only benefit the homeowner and the funding bank, and can actually lower property values. We advocate that the consumer renovation loans should be comparables and the exception to the “sales” rule. We push for two new fields to be added to the MLS: “Value After Renovation” (VAR) and “Work Completed ‘Yes’ or ‘NO.’” We call this the “VAR Initiative.”

Comps are the lifeblood of the real estate industry, because they literally have a shelf life, and are only good for six to 12 months. You have to keep them coming, otherwise, without them lenders cannot fund loans. More of them will greatly aid areas that have still not recovered from the market crash. If consumer renovations were comps, then mortgage lenders that offer those programs will really be offering neighborhood revitalization, so every time a consumer takes advantage of it, they add more higher-value comps – and they know they are doing their part to aid the overall community.

Consumer renovations programs would also be the perfect complement to Neighborhood Stabilization programs (NSP), which is a comp creator. NSP by itself does not have enough funds to revitalize an entire community. Imagine what would happen if we merely informed surrounding residents that a higher value comp is available to tap into, like NSP or investor flip; many would gladly do so. Allowing consumer renovation programs to be comps would be transformative not only here in Chicago, but across the country. The end result is neighborhood revitalization, focusing on the homestead and using funds from the private sector banks – the perfect marriage.