Regulatory challenges facing suburban agents and developers

by Andrew Morrell

Real estate professionals anywhere in the U.S. often cite regulations as a key source of uncertainty for their business operations. But unlike many other industries, where federal laws and statutes set the standards, real estate regulations in the U.S. take a more bottom-up approach and give local officials significant influence. That means the rules that agents, builders and developers must adhere to in any given transaction can vary significantly from county to county.

In the Chicago suburbs, that means juggling the demands of countless different municipal codes related to building, buying and selling.

“The short answer is ‘yes,’” said Tom Joseph, government affairs director for the Mainstreet Organization of Realtors (MORe), when asked whether or not there are specific local codes that prove challenging to agents and brokers operating in the suburbs.

In as many as 200 different municipalities throughout Illinois, including several in MORe’s jurisdiction, point-of-sale inspections mandated by local officials present one hurdle that agents from the city of Chicago may be unfamiliar with. Point-of-sale inspections, required by Chicagoland municipalities like Lyons, Bellwood and Park Forest, may prevent a title transfer from occurring until certain issues are addressed, either by the seller offering concessions or the buyer acknowledging the problems and accepting them “as-is.”

According to Joseph, these inspections often focus on health and safety risks that may present in the home, like electrical, plumbing, HVAC or other code infractions. But some may be more aesthetic or cosmetic in nature, like requiring new paint or carpet cleaning before occupancy can be granted. A webpage from Homeownership Matters, which advocates on behalf of the National Association of Realtors, specifically cited the Village of Lyons for its point-of-sale inspections that can prove contentious: Cracks in a driveway may require the entire surface to be repaved, for example, and “follow-up inspections typically result in the discovery of new items not found on the first inspection. This can trigger delays in closings.”

“We normally encourage the seller to address as many issues that may arise in the municipal inspection as possible,” Joseph said. Still, “the buyer may have to assume a few items that would possibly lead to a negotiated settlement, but that is still separate from what the village requires.”

Pain points for builders and developers

According to local experts who spoke with Chicago Agent, arbitrary building ordinances in some suburban cities and towns effectively limit the supply of new homes for sale, or make it difficult to update existing homes in hopes of increasing their resale value. That could be exacerbating the inventory shortage in certain areas while leaving promising development opportunities untapped — frustrating not only developers but also real estate agents and homeowners.

Like some municipal point-of-sale inspection requirements, local building codes that create the most consternation among developers are those that deal with aesthetics. These also tend to be more cumbersome for attached housing projects like townhomes. The Village of Arlington Heights, for instance, requires townhomes to have a second means of egress in all units to make it easier for residents to exit in an emergency, such as a fire. This second emergency exit also cannot be the garage of the home. That means builders must often include a staircase leading from the rear porch or deck down to the ground. In addition to added costs, this often strikes buyers as odd, according to one local expert who spoke with Chicago Agent, not only for aesthetic reasons but also because it could pose a security risk.

For their part, local municipalities including Arlington Heights have been recognized recently for their successes in easing developers’ pain. The Chicago Tribune reported last year that the village was undergoing a concerted effort to support more flexibility in local code approvals and implementation. Other fast-growing suburbs like Des Plaines have been applauded for their efforts at revitalizing their downtown and commercial districts, in part by allowing residential developers to exceed typical limits on density, height or parking requirements. Real estate developers say it’s crucial for more municipalities to allow for this kind of relief from codes on a case-by-case basis if they want to encourage builders and attract more investment, from businesses and homebuyers alike.

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