condominium

Purchasing a Condominium- BUYER BEWARE . . . not really, just do your homework

The real estate economy is slowly picking up encouraged by an abundance of condominium units on the market, Sellers motivated to move them,  historically low mortgage interest rates and the first time home buyer tax credit due to expire (unless extended) at the end of April, 2010.  I feel the need to revisit certain items of due diligence a prospective purchaser must look at when buying a condo.

As posted on this blog on September 17, 2007:  There are currently a great number of sponsor sold condominium units in the New York City market place. A sponsor is the person or entity who is developing a building as a condominium (or cooperative). Like everything else, there are condominium developments that have been built well and others that have been built poorly. Prior to entering into contract, the offering plan and all amendments should be reviewed. The offering plan is a full disclosure of a project to the public that is filed through the New York State Attorney General’s Office. The offering plan lists the name of the sponsor of a condominium building, its principals and other developments built by them. Research the names of the principals and their other developments on the internet. You may find references to any of the above and if the buildings and the units are built well or poorly. Even if the price is right, the carrying charges low and the location of the building prime, you do not want to invest in a building or unit that is poorly constructed. It is more likely that you will have problems in the future. Even if a warranty is given by the Sponsor, if a history of poorly constructed buildings exists, you may still need to go to court to enforce your warranty behind other disgruntled purchasers.

Another thing a potential purchaser of a condominium unit can do is speak with the current occupants of a condominium building. Unlike real estate brokers who have an underlying motivation to sell a condo unit, an existing owner of a condo unit in a building typically does not have an agenda to hide the truth from anyone who asks. People love to complain. If there are problems you will hear about it. I would ask more than one person just to make sure that the complaint spoken of, is not the exception and but the rule. One complaining unit owner may have a particular set of circumstances that do not necessarily apply to the entire condominium building and taint one’s decision to buy.

It may be beneficial for the prospective purchaser of a condominium unit (whether a resale or a Sponsor sold-newly constructed Unit) to engage the services of an engineer or home inspector before purchasing a condominium unit. It is not only good to know what the physical condition of the unit you are purchasing, but it is important to know the overall condition of the condominium building. The need for repairs to the common elements and infrastructure of a condominium building may result in unplanned assessments that may not fit into a prospective purchaser’s budget.

One of the things prospective purchasers need to look at is the number of the units in a particular condominium building that are sold or in contract. If the number of unsold units is too great, banks will refuse to give mortgages in that particular building and prevent a person from buying a unit in a building despite good credit. Some developments are able to get a building “pre-approved” by a particular lender and may even require a purchaser obtain a pre-approval letter from a particular lender who has already consented to providing mortgages in a particular building.

I came across a recent New York Times article written by Elizabeth Harris that highlighted certain things a prospective purchaser must look at prior to signing on the dotted line.  I thought it was informative and encourage you to read it.

http://www.nytimes.com/2010/01/31/realestate/31cov.html

I do not do this very often but I will tell you that I have worked a number of times with Tom Le of the Corcoran Group who was quoted in the article. I have found him to be very knowledgeable in the field of condominiums. He is a very savvy customer orientated broker. All of my clients who have used him (developer and consumer alike) have been very happy with the services provided.

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Lavenderlawblog Post -Bad News . . . Good News

  • The below article in Crain’s New York references an auction of 16 condominium units located in Greenpoint, Brooklyn at a 75% reduction from the original stated sales price. Is this another sign of a bad economy or is it the result of a developer who got into trouble (possibly due to slow or faulty construction) and is required to sell condo units quickly to avoid profits being eaten up by construction loan interest. In bidding on these units, a potential purchaser should be careful to investigate the condition of the building and the condominium units. Any warranty given for defects in construction and materials will only be as good as the developer providing them. There may be a reason why a 75% discount exists. It may be prudent to hire a good engineer to inspect the building and the unit to determine if there are potential defects that will need to be addressed after title to the condominium unit has passed. You may wish to check to see if the developer is involved in any lawsuits. The presence of litigation may be a sign of things to come.

http://www.crainsnewyork.com/article/20091013/FREE/910139992

  • Although there is a 14% decline in the citywide home prices from 2008, there is a 4% increase in prices from last quarter with the number of sales increasing 35% over the 2nd and 3rd quarters which is still 20% below the depressed levels of 2008. The data changes depending on what part of the city you are referring to. The overall prices of condominiums rose 1% over the 2nd and 3rd quarters. Manhattan dropped 5%. That is possibly the result of high priced condo units remaining unsold.

http://www.crainsnewyork.com/article/20091015/FREE/910159993

  • Home prices rose nationally for the third straight month as indicated in the Standard & Poors/Case-Shiller index (see the link below). Why are these figures important? Rising prices mean appreciation in the value of properties which assists people who owe more to the bank than their home is worth. Rising property values also make it more likely that mortgage loans will be funded because the properties will appraise higher. More equity in properties may contribute to the ability to purchase replacement properties rather than participate in a short sale. All aid in the recovery of the economy.

http://www2.standardandpoors.com/spf/pdf/index/CSHomePrice_Release_102706.pdf

It is uncertain what affect a rise in foreclosures and unemployment paired with the expiration of the tax credit for first time home buyers will have on prices in the future. Talk about a roller coaster . . .

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Purchasing a condominium unit due dilligence-Quick Tip

There are currently a great number of sponsor sold condominium units in the New York City market place. A sponsor is the person or entity who is developing a building as a condominium (or cooperative). Like everything else, there are condominium developments that have been built well and there are others that have been built poorly. Prior to entering into contract, the offering plan and all amendments should be reviewed. The offering plan is a full disclosure of a project to the public that is filed through the New York State Attorney General’s Office. The offering plan lists the name of the sponsor of a condominium building, its principals and other developments the principals have built. Research the names of the principals and their other developments on the internet. You may find references to any of the above and if the buildings and the units were built well or poorly. Even if the price is right, the carrying charges are low and the location of the building is prime, you do not want to invest in a building or unit that is poorly constructed. It is more likely that you will have problems in the future. Even if a warranty is given by the Sponsor, if the sponsor has a history of poorly constructed buildings, you may still need to go to court to enforce your warranty behind other disgruntled purchasers.

I am currently representing a client who wishes to purchase a condominium unit from a sponsor of a newly constructed building. Inquiry reveals a very real concern that the sponsor (a very large developer) is not very liquid and has a reputation of selling poorly designed and constructed buildings. As part of our due diligence we will need to ascertain what percentage of the units is being kept by the Sponsor. This is important because if there are a large number of units being held by a sponsor of a condominium and that sponsor is not able to pay common charges, the business of the condominium association may be severely hindered. We wish to ascertain how realistic the first year budget is. If it is not, you may be subject to additional assessments or an increase in common charges.

 

 

Buying a condo-quick tip

When looking to buy a newly formed condominium unit, see if the Sponsor has formed other condominium buildings. The offering plan of the condominium will list other projects the Sponsor has been or is currently involved in. Visit those buildings; see if Purchasers in those building have had problems. Has the Sponsor been sued by the Purchasers of those units? Have complaints been lodged with the New York State Attorney General’s Office? If something is found it could be a one time occurrence or evidence of the workmanship you can expect in a unit you wish to purchase.