Selling your multi-family property can be a complicated process. It requires knowledge of the property’s zoning history and of how to list and show units occupied by tenants. Without guided expertise, a seller can suffer financial loss and delays in the sale of their property or can even become subject to liability.
Throughout our years of experience, we’ve seen a lot of mistakes made when selling residential multi-family properties. Thankfully, you can easily avoid these pitfalls by working with an experienced agent and making careful decisions. Here are the three top issues to watch out for when selling your multi-family home.
1. Number of legal apartments
The number of occupied or finished units in your property isn’t always the same as the number of legal units. Many finished basement or attic apartments are rented out in addition to the other units without having legal status with the city.
Whether you’re looking to sell or to buy a multi-family home, don’t take the property at face value. A unit might be rentable, but that doesn’t ensure that it is legal, and the property’s legal status makes a difference of thousands of dollars in mortgage payments and property costs.
Say a property owner has a building with two legal units and a newly renovated basement apartment. They list their property as a 3-flat. A buyer puts in an offer and they go under contract for about three weeks. When the buyer applies for a loan, the lender contacts the city to obtain the official record of the property. If that building is only zoned as a two-flat, all negotiations will fall through. This costs the seller a month of their time and potential interest from other buyers.
Find an agent who knows how to list your property correctly. It’s not always easy to tell how your building is zoned. If your home is a legal 3-flat but is listed incorrectly as a 2-flat, you could lose between 10% and 20% in value. Listing your home correctly ensures that you will sell at the right price and that the selling process will move efficiently without any unexpected mishaps.
2. Leases
One of the biggest twists to selling a multi-family is the added complication that comes with tenants. While it’s great to have fully rented units in a multi-family, it can actually make the property more difficult to sell.
Most buyers who are looking into residential multi-family homes (2-4 units) are looking to live in one of the units to claim it as their primary residence, which allows them to use a loan with a much lower down payment, such as an FHA loan. To claim owner occupancy, a buyer is required to move into a property within sixty days of the closing date. If your property’s tenants have leases that run longer than a few months out, a buyer won’t be able to move in and use this loan option.
If you’re looking into selling a rented multi-family, it’s important to make sure that at least one of the units has a lease that will expire relatively soon. If this doesn’t happen, you might sign a contract and wait for a month only to learn that the interested buyer can’t move forward without a vacant unit. Since most potential buyers of residential multi-family homes want to claim owner occupancy on their new property, a soon-to-be-vacant unit is key to gaining interest in your home.
3. Hiring an inexperienced real estate agent
Although any licensed agent can sell your home for you, someone who is experienced in your neighborhood and with your type of property will be able to anticipate the ins-and-outs of selling your home efficiently and for its best value.
Each agent has their own area of expertise. A realtor in the city won’t be able to provide as much guidance to a family looking to buy a home in the suburbs as they will to someone who wants to buy a 2-flat close to downtown to help generate additional income. Likewise, someone from the suburbs won’t be as familiar with condos in the city as they are with single-families outside the Chicago area. Hiring an agent for a home outside their field of experience could result in an incorrectly-listed property or in a listing price that doesn’t reflect the actual value of the home.
A realtor who specializes in multi-family properties will know how to price and show your home in a way that attracts interest from investors and other interested buyers. They can also provide guidance concerning leases and will know how to navigate the selling process without exposing the seller to liability from tenants.
Finding the best realtor for your multi-family home
When looking for a real estate agent, take note of what kind of properties they represent and what neighborhoods they are most familiar with. Do they sell luxury condos or two- and three-flats? Have they worked mostly downtown, or in the northwest side neighborhoods like Logan Square or Avondale? Look at client testimonials and try to find out how long the agent has been in business in their area.
The more similar your agent’s experience is to your needs as a seller, the more they will be able to guide your process of selling a residential multi-family home. Here at Chicago Real Estate Source, we put our years of experience in the Chicago neighborhoods to work for our clients to provide a local, hands-on approach to buying or selling their property. Contact us with any questions on how to begin the selling process for your home.