Buying a Home and Keeping it Local
As home-grown market leaders like Marshall Fields and Montgomery Ward vanish from the scene, local businesses in Chicago have become a source of pride. Chambers of Commerce have mounted preservation efforts for our indie employers similar to those seen in nature specials for endangered species. Big corporations have a bad reputation for sending their income overseas, bending tax laws to minimize their expenses, and bribing the government through SuperPACs and lobbying to expand their own influence.
There's a big push to keep Chicago dollars in the hands of small, family-owned and local businesses, rather than allowing the stream of currency to continue flowing towards big business. It's visible in many facets of shopping, from farmer's markets to Chicago-based independent record labels and the slow rise of independent gaming through efforts like the Humble Indie Bundle. Local deal-mongers like Chicago-based Groupon, review sites like Yelp and online mega-shops for homemade stuff like Etsy make it easier for the buyer to find and shop with local businesses.
A lot of people stand to benefit from your purchase of a new home. While a certain amount of the purchase will go to the government directly in the form of transfer taxes, water certificates and capital gains, there are many portions of the purchase where you can have some say in how much of your money stays in the community. Buying a house can be scary and it's all to easy to fall back upon the security blanket of a big, national brand when you're in a time crunch and stressed from contract negotiations. Even so, with a little prior planning and research you can make sure that the lion's share of this very large purchase goes to independent businesses in your Chicago neighborhood.
Here are some places where you can keep it close to home:
- Source of the Loan. Over the life of a $200k loan at a very low interest rate of, say, 4%, you will pay another $143.7k in interest to whoever lends you the money. Needless to say, keeping these funds as local as possible is the first thing you should try to do if buying local is important to you.Talk with mortgage brokers and local lenders - credit unions and smaller banks. Ask about portfolio loans - this is money that's loaned out of a bank's own reserve, and frequently serviced by the bank itself instead of getting resold to the big corporations in the secondary mortgage market.
If your mortgage rate is 5.3% on a $200k loan, you will pay $200k back... and $200k in interest. WOW!You may wind up paying a higher interest rate and your options will be narrower - portfolio lenders are a rare breed in the residential real estate market right now. However, even a smaller local lender who resells your mortgage will gain some income from your choice to borrow from them at the outset, so even if the brass ring of a portfolio loan is out of your reach you can still help your community by doing some research and sourcing your loan locally.
- Your Mortgage Broker. This is not the same thing as the actual lender. Think of the mortgage market like a grocery store. The mortgage lender is like a farmer, bringing the raw resources - in this case, money - to the store. A mortgage broker is like the grocery store itself: picking the best of the farmer's produce and assembling it all in once place for you.
If you are looking to keep your loan local, you need a broker who is tight with the local lenders, but who can also get you an overview of multiple different sources of cash and track the many changing regulations in the mortgage market.
You definitely want to work with a broker instead of going straight to the bank. Brokers can purchase loans from banks at wholesale rates, but if you go straight to the bank you'll get the same money at "retail" prices.
Your mortgage broker will also keep a cut of the loan origination fees, so once again, by doing some research into the company behind your broker you can keep your money in the community.
- Your Realtor. It's a poorly kept secret that a majority of the "big name" real estate companies are actually brands of a handful of mega companies. Within Chicago's best known real estate companies, only Baird & Warner, Conlon and @properties are locally owned and locally restricted in their scope. (Full disclosure: I currently work for Baird & Warner.)
As for the rest? Keller Williams is based in Dallas. Koenig & Strey is held by Brookfield Asset Management, based in Toronto. Coldwell Banker, Jameson Sotheby's, Century 21 and ERA are all owned by Apollo Global Management (NYC) and their sub-corporation Realogy, based in New Jersey. Re/Max is based in Denver. Prudential is based in New Jersey and is, of course, enormous.
I don't mean to insult any of the Realtors working for these companies. Sometimes working for a larger corporation means access to greater resources than would otherwise be available. However, if you're looking to keep your spending dollars local, remember that your Realtor's employer will make money off of your purchase - in some cases with very new agents the corporation will make more than the Realtor!
- Real Estate Developers. Obviously if you by a resale home instead of new construction you're going to be helping your community more. Your purchase will probably be helping the home's seller very much! However, if you choose to purchase a new development, don't make the same mistake I did. I bought my condo several years before I became a Realtor. It was built by a fellow from another country, who scooted back off for home less than six months after my closing. My purchase money went with him.
If I were buying new construction now, I would make a point to ask my developer where he was based, where he sourced his raw materials, and what his plans were for continuing to participate in and give back to the local community.
- Inspectors. Of the two contractors who must visit your new home before you close, one you can choose and the other you cannot. Your lender will determine who appraises the property, but you as the buyer have the final call in who does your inspection.
You will have your home inspected before you buy it. If your Realtor knows what they are doing they will recommend it, and your attorney likewise. Even if you're buying a home built by your Uncle Jim - come to think of it, especially then - you'll want to make sure that your new home is safe for your and your family and is likely to remain so for a good long time.
Your home inspector should be familiar with the local hazards. Make sure they are familiar with which areas in the city are prone to flooding, radon exposure, and pests. Frequently the same problem occurs in many homes on the same block, but only a local inspector with an in-depth knowledge of the area would be able to recognize that kind of trend.
Your Realtor will know of some inspectors but they won't have always researched the holding companies behind them to find out of they're local. Again, this is a chance to keep your dollars close to home, so if staying local is important to you, do a little digging before you pick an inspector.
- Attorneys. Any recent law school grad will tell you that the legal business is not what it once was. It's difficult for the smaller companies to stay afloat and nearly impossible for junior attorneys to get a foot in the door. The largest of the national firms keep on consolidating and trucking along but smaller practices fail out daily.
Your standard residential real estate closing can be quick work for a new attorney and help them establish their practice - or keep it going and part of the community. Going with a smaller, local law firm and a local attorney for your closing is another great way to help out the folks in your neighborhood.
- Moving Companies. According to the 2011 NAR Home Buyer and Seller Survey, the median moving distance for home sellers was 20 miles last year. This means that for at least half of the population there is absolutely no need to be using a large, national moving company.
Local moving companies are vital parts of the community, and moving is a pretty major expense. Look around on local review sites, keep an eye out on Twitter and stay close to Groupon as your move approaches and you should be able to find a Chicago-based, independent moving company to give you a hand.
Do you have other suggestions as to how to use your home purchase to contribute to your community? Share them in the comments!