How to separate the good deals from the bad
After a long slide, housing prices are slowly beginning to recover in some parts of the US. But at least one segment of the real estate market is still bursting with bargains — condominiums.
How to choose the right condo at the right price…
WEIGH BENEFITS AND DRAWBACKS
Condominium units are perceived as (and sometimes are) riskier investments than houses. Yet shifting from a house to a condo can provide benefits, including relief from maintenance responsibilities, an instant community of fellow owners in the building or complex, and amenities, such as tennis courts, swimming pools and free shuttle vans to shopping and activities.
When you buy into a condo association, you hold title to your unit, but you share control of the common areas and services as well as financial responsibility for maintaining them. That means if a significant number of your neighbors fall behind in paying their monthly common charges or their units are foreclosed upon, you and other unit owners will wind up shouldering their common-area burden by paying higher common charges and/or special assessments. Before you buy a unit, have your lawyer review the association’s financial statements carefully.
Furthermore, decisions over services are not entirely in your hands. If the condo board votes to put in new elevators or replant the garden, you will be assessed your share of the cost whether or not you think the change is necessary. The association’s bylaws will spell out procedures for deciding on capital improvements to the property.
If you decide that a condo is right for you…
Choose a vital neighborhood. As the population ages, condo demand is being fueled by older couples who want to downsize or relocate. Thus it’s wise to pick a location near shopping, medical facilities, transportation and entertainment, which are important to this vast pool of future buyers.
Avoid areas full of cookie-cutter apartments that have been for sale more than six months. Markets where developers overbuilt during the 2006-2007 real estate bubble will take the longest to recover, and if you move into a new development, you may find yourself in financial limbo — maybe even without neighbors — for years.
Examples: Las Vegas, Miami and San Diego are glutted with condos, and prices are down by as much as 40% since 2007, compared with an average drop of less than 10% in certain areas, including Boston, New York, San Francisco and Toledo.
Caution: Never buy a condo just because the price is right. Look for an economically healthy area where employment is on the upswing. The growth not only will protect your investment, it will afford you a better quality of life.
Scrutinize the management. Don’t rely on sales pitches from the agent who manages the property and gets a commission for selling a unit. Talk to people who actually live there to find out whether the property is well-maintained… fees and common charges are stable… security is reliable… and the services offered are the ones you want. Residents usually are happy to answer questions if you start a conversation in the building’s lobby, or you can ask your real estate agent for phone numbers.
Helpful: Ask the unit’s current owners why they are selling and where they’re going. If they are in perfect health and moving to another condo close by, that’s a red flag.
Even better: If the condo association allows it, rent a unit in the complex before you buy so that you can evaluate the building and neighborhood firsthand. The experience will give you a clearer idea of what the unit you’re considering is worth.
Consider how the complex fits in with your lifestyle. People who have lived in a house of their own for many years and are used to privacy should consider the communal aspect of condo living. Even a beautiful apartment at an attractive price isn’t a bargain if your lifestyle doesn’t mesh with that of the people around you.
Example: So-called “active adult” condo communities for people age 55 and older have proliferated in the last several years to cater to baby boomers approaching or in retirement. Before you buy a unit in such a complex, think seriously about whether you really want to live full-time among members of a single demographic group.
Check the bylaws for rules on kids and pets. For example, many retiree complexes restrict the number of days per year that you may have young children visit you or bar kids from using the pool. Some allow residents to keep cats and birds but not dogs, and others permit dogs as long as you don’t bring them into common areas.
Be wary of brand-new construction. If a development has no track record, you can’t tell how well its finances and shared amenities will be managed. And new units in an established condominium may be built with different materials, posing unforeseen problems ranging from sudden leaks to excessive ambient noise. In addition, you will pay more for a new condo, often covering the seller’s closing costs on top of your own.
Best buy: A gently used condo, five years old or less, usually is a safer investment than a brand-new one.
Exploit the glut. Don’t assume that you’re getting the best deal just because the overall market is depressed. Even in heavily overbuilt areas, you should try to hammer down the asking price by an additional 5% or more to make sure that you don’t wind up paying more than the condo is worth. There is probably another one just like it across the street.
Helpful: Use the Web site Zillow.com to learn the selling prices of comparable units in the neighborhood, and don’t hesitate to cite your research during your negotiations. Get a sense of how eager the seller is to sell by asking whether he/she has bought a new home and where.
Bid on several units. Pick three or four that you would love to live in, and make offers on them all — and let sellers know that you are doing this. Sellers who know that they’re competing for your commitment are more likely to meet your price… and they even may throw in incentives, such as furnishings or a one-year membership to the golf club nearby. Besides bargaining power, having multiple options gives you flexibility. If one deal falls through, you don’t have to start from square one.
Strategy: In markets with an abundance of empty condos, look for units with distinctive features that will help them hold their value, such as corner apartments… those with views or terraces… and those away from high- traffic streets. Then play their sellers against one another to bring asking prices down. For example, you might say, “I like this apartment, but I saw a very similar one yesterday with a balcony off the bedroom and a Jacuzzi in the master bath.”