Real Estate

Making the condo jump

Condos make sense for niche buyers, Realtors say, but beware the fine print

The way Peter Giovannotto sees it, choosing a condominium over a single-family home isn't a matter of square footage -- or even so much cost -- as it is a question of lifestyle.

Giovannotto is a Realtor at Dreyfus Properties, Palo Alto, specializing in condo sales, and he says they may be best for some niche groups -- they offer life a little closer to urban settings while preserving a sense of investment and ownership, their price point is a little lower in the red-hot Palo Alto real-estate market and, with homeowners association dues covering much of the upkeep and maintenance, they can offer some extra freedom to those too busy to trim the hedges or who travel too much to worry about fixing the trim.

That's why he sees condos as the perfect fit for the young, who may be sick of renting but don't want the full commitment of a home, or for older buyers, who are looking for something affordable without the extra issue of constant upkeep work. But while having a homeowners association can lessen the burdens of some everyday concerns, they also add another layer of complexity to the already perplexing process of buying and owning a home.

Want to remodel a kitchen? Remove a wall? Not without homeowner association approval in many cases. And if the association moves slowly, as some are notorious for doing, or only meets once a month, major renovations may have to wait until approval comes through. Giovannotto said he's seen people have to wait for as long as eight months for a renovation to be approved.

Condo buyers also have to be alright with the amount of trust they place in those who manage the association. If qualifications or requirements for running a condominium complex aren't met, it could mean that lenders will keep their distance for a home loan in the condos. While this can be frustrating for those looking to buy a home but can't get a loan, it's absolutely hair-raising for those who want to get out but can't because no buyers can get a loan, Giovannotto said.

Giovanotto related one particularly nasty situation in which a developer owned all of the condominiums in a complex but didn't sell off enough units, retaining ownership of 20 percent of the units as a single individual.

As a result, "it became very difficult, if not impossible, for the lender to loan on the building, so you couldn't sell to anyone with a loan," he said. "The owner would come back and buy the condos back at a discount, and you saw people losing like half the value of their homes."

Giovanotto said he found later, after digging through some Homeowners Association documents, that the owner had also been living in one of the units and was acting as association president, effectively giving him a lot of power in determining the association's rules and regulations.

But these types of issues don't jump out of nowhere, he said. Nearly all of them can be found in the hefty sheaf of documents buyers sign before buying their condos, but it requires some attention to detail and some know-how.

"The devil's in the details, and the details might leave you in a really bad situation," he said. "It really pays to go over everything really thoroughly."

One of the biggest sticking points for most condo buyers is the price of the monthly dues to the homeowners association, but Giovannotto advises not to get hung up on their dollar amount and instead look at what they cover. While it may be tempting to jump for a condo with lower dues, the extra monthly cost won't seem like much when the buyer finds himself paying for termite-damage repairs.

While the dues can sometimes seem exorbitant, it's likely they're reasonable if they're covering eventualities such as roof replacement 30 years down the road, said Juliana Lee, a Realtor with Keller Williams Realty, Palo Alto.

"That's a big chunk of money -- sometimes like $20,000 -- so they make these projections and then collect on a monthly basis," she said. "If an HOA (homeowners association) decides not to charge enough, that can mean if a major cost comes up, they'll have to ask extra."

She said it's best to look for homeowners associations with impeccable reputations and plenty of reserves for the inevitable fix-it projects that will come down the road.

Of course, buyers in Palo Alto may not have the luxury to be so choosy or so thorough. Inventory in the Palo Alto area is bone-dry and home prices are famously high. Giovannotto and Lee said there are usually one to two condos up for sale in the area per week, and they're usually sold within 14 days. And their cost can oscillate as much as their size can -- Giovannotto said condos in the massive Weatherly complex can be as large as 2,700 square feet or as small as 668 square feet, like a condo he sold recently for about $1,000 per square foot.

Still, condos are almost uniformly more affordable than single-family homes, which makes them particularly attractive to first-time buyers sick of paying sky-high Palo Alto rents, Lee said.

"In Palo Alto it makes sense because (a condo) holds its value very well, and there are only so many homes because Palo Alto is small, so supply and demand are pretty much holding," she said. "Interest rates are still close to an all-time low, so it still makes sense to purchase a condo instead of paying rent."

Online Editor Eric Van Susteren can be emailed at evansusteren@paweekly.com.

Comments

 +   Like this comment
Posted by MIke
a resident of University South
on Oct 25, 2013 at 8:52 pm

The article says, "She said it's best to look for homeowners associations with impeccable reputations and plenty of reserves for the inevitable fix-it projects that will come down the road."

From what I see, most, if not all, Palo Alto condo associations have paltry reserves.

When I asked my condo association's management company they said we were 20% to 30% funded and a $6000 to $7000 per unit special assessment was coming soon.

Q: Is your association's reserves fully funded?


 +   Like this comment
Posted by Conds-Can-Be-A-Hassle
a resident of Another Palo Alto neighborhood
on Oct 26, 2013 at 12:40 pm

> they also add another layer of complexity to the already perplexing
> process of buying and owning a home.

Homeowners Associations can be a major pain in the neck. They often have almost dictatorial control over the way people live. The Associations can mandate the kinds of door decorations that you might want to put up, how your balcony is maintained, whether or not you can smoke in your own home, and whether you can display any political literature on the outside of your apartment/unit.

Courts have been generally unwilling to side with the Condo owner--making life in a Condo complex that ends up in the hands of control freaks a living hell.

Best to check to see if any court cases have been filed against the Homeowners Association, and talk to some of the residents, to see if there is anything about living in this building/complex that might affect your sense of how you want to live your life.

Some Condo Associations have actually sued unit owners for payment of fees/assessments--and some (depending on location) have begun to seize property for to obtain money owed them:

More homeowners associations seizing property and rent when dues fall behind:
Web Link

All-in-all, this invisible government can make Condo living unpleasant.


 +   Like this comment
Posted by Back in the Day
a resident of Midtown
on Oct 26, 2013 at 5:24 pm

When we began our search for a starter home, in 1994, several real estate agents at that time counseled us against investing in one: there are hidden costs, such as HOA fees that, when added to your mortgage payment, make condos more expensive on a monthly basis than a single family detached home; the appreciate very, very slowly due to the fact that they have such tiny lots; they are usually poorly constructed; more of them are purchased as investment properties to be rented out monthly, rather than as a primary residence,eventually turning the neighborhood into an undesirable one; the undesirable neighborhood it turns into makes it very hard to unload later.

Nonetheless, we settled on a high-end condo with a small patio, and put down a deposit. We checked in with our insurance agent to find out the cost of homeowner's insurance. Surprisingly, he cited all the same cons as the real estate agents, adding an ever-increasing crime rate as a condo development ages ( and original owners move and/or rent the property out for income). He also showed us some insurance industry charts showing that high-density developments, whether rented or owned by the inhabitant tend toward more violent and non-violent crime than single family detached homes.

That info was so off-putting that we asked for our deposit on the condo to be returned to us. The developer's agent refused, again and again. We went to mediation, where the developer refused to even go 50-50 with us on the deposit return. Finally, we went to court, where, after a year of waiting, a judge heard our case and informed the developer that non-refundable deposits were illegal in California. We won, but we were never able to get more than one installment of the money owed us.

However a Pyrrhic victory it was, at least we were not stuck living all these years since in a condo we could not sell. We checked on the condo neighborhood in 2004, and it was not as well-maintained as it should have been, the street it is on has since become a very busy, noisy one, and a gate with a code had to be installed to lock out intruders. There is currently a condo there that has been on the market for over 18 months, with a price tag of slightly under a million dollars, seemingly a bargain for anywhere in Palo Alto. Apparently, there have been no takers in all this time, though we don't know the full story.

So glad we did not buy there!


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