Fall Real Estate 2003

Publication Date: Wednesday, October 8, 2003

Considering a condo?
A practical alternative to single-family homes

by Kate Lilienthal

Twelve years ago, Mountain View resident Greta Heinemeier thought she couldn't afford to purchase a home. As a recently divorced social worker, she thought owning a home seemed beyond reach until a close friend encouraged her to consider a condominium

Greta Heinemeier thought home-buying beyond her reach, until she realized she could afford to buy a Mountain View condominium.

Heinemeier, now 68, found a small unit in the Cypress Point complex in Mountain View and pulled all her purse strings to make the down payment. She cashed in her insurance policies, borrowed from her father and coughed up her entire savings.

"Renting was the equivalent of throwing money away. I needed to do something to better secure my future," Heinemeier said. "I couldn't afford a house; my friend convinced me that a condominium was the answer."

Technically, a condominium is a building or complex in which units of property, such as apartments, are owned by individuals, and common parts of the property, such as the grounds and building structure, are owned jointly by the unit owners. "The main difference between a condominium and a house is that a condo does not include land," said Berna Davis, a Realtor in the Menlo Park office of Coldwell Banker. "A condo owner holds title to just the air space of the unit."

Ron Ritz closed escrow on his Redwood City condo in August, after saving up for the down payment for 12 years.

Historically, condos have been perceived as riskier investments than single-family residences. "Condos don't have land, and land in the Bay Area is at such a premium, that condos typically don't appreciate as quickly as detached homes. And in down markets, they can lose value faster," Davis added.

But at this time, according to Davis and business partner Kathy Krize, demand for condos and all their efficiencies is very strong at both the low and luxury ends of the real-estate spectrum.

There are approximately 65 condos currently for sale in Mountain View. At the lowest end, a one-bedroom, one-bath unit is offered for about $210,000. Luxury, four-bedroom, four-bath units sell for approximately $950,000.
In Los Altos, 25 units are currently on the market ranging from $455,000 for a two-bedroom, two-bath unit to $1,740,000 for a large unit at the high end. And in Menlo Park, condo prices currently range from $325,000 to well over a million dollars, depending on size and location.

Mountain View is the only mid-Peninsula town that has more condominiums than single-family homes. In the first six months of the year, 35 percent more condos were sold than detached residences. In Palo Alto and Menlo Park, the ratio of condominium to detached homes sales was approximately 1-to-9.

"We're seeing multiple offers on condos when they're well located and priced right for the market," Davis said.

So what's driving the demand? The answer seems to be, in part, demographics. "At the low end, condos are an accessible entry into home ownership for low- and middle-income buyers," she said. With interest rates inching up from 40-year lows, first-time buyers -- single people and newlyweds -- are jumping into the market to secure mortgages in the 6 percent range.

Ron Ritz, 33, closed escrow on a condominium in Redwood City in August. He saved for the down payment for 12 years. "I'm thrilled. I couldn't afford a traditional home. Buying a condo was a way for me to get into the real-estate market. Also, I'm single. I work during the week and head for the mountains on weekends. I didn't want the upkeep. This is the fifth place I put an offer on."
At the luxury end, the first wave of Baby Boomers is facing an empty nest and a large home, and looking to downsize. Condominiums offer a way to simplify and still maintain a desirable lifestyle.

The condo market is also benefiting from a trend called New Urbanism, a reversal of the urban flight movement of the 1950s and '60s. New Urbanites are people seeking tighter communities and easy access to downtowns and public transportation.

"These are people relocating from cities like San Francisco and New York to work in Silicon Valley. They're used to urban amenities. They want to live near work but be able to walk to the library and Peet's coffee," Davis said.

New Urbanites are purchasing condos rather than detached homes in dense areas near downtown Menlo Park and Palo Alto because a condo affords more square footage in a central location. New Urban condos emphasize sophisticated, contemporary kitchens and baths, and complexes tend to be small with a neighborly feel.

Also, many condominium complexes offer community facilities that you wouldn't find with traditional houses -- swimming pools, tennis courts, exercise rooms, not to mention a flotilla of gardeners.

"I get to enjoy a fabulous meadow and beautiful redwoods without ever lifting a finger to tend them," Heinemeier said.

But maintenance and facilities come at a price. In addition to mortgage payments, condo owners pay a homeowners' association fee. The fee typically ranges from $200 to $500 a month and pays for services, basic upkeep and repairs. The amount of the fee is determined on an annual basis by the condo owner's association, and generally corresponds to the complex's age. Typically, the older the complex, the more repairs needed, and the higher the fees.
Homeowners' association fees also pay for any litigation on the complex. Condos have been subject to large amounts of litigation, often leaving owners with the bill for the assessments.

"Condo complexes are built on spec. They're massive construction projects, and as such, may not be carefully overseen. The interior skeletons of the buildings don't always receive the attention to detail that you see on a custom home," said local real estate attorney David Marks. "Typically water damage and soil erosion resulting in cracks in the walls are the most visible problems, and often indicate greater structural issues."

"When purchasing a condo," said Davis, "do your due diligence. Consider researching the builder. Talk to the homeowners' association about litigation. Learn the details."

"Go through the homeowners' association documents with a fine-tooth comb before writing an offer. Do a property inspection and look for signs of water damage. If problems are identified, write up the purchase contract such that if they become more pronounced, the seller takes at least partial responsibility. Use your Realtor as a resource."

Heinemeier's condominium has almost doubled in value since she purchased it in 1991. She also recently paid off her mortgage. "I never would have been able to pay off my apartment rent the way I've paid off my mortgage. I'm forever thankful to that friend who convinced me to buy my condo."

"At the low end, condos are an accessible entry into home ownership for low- and middle-income buyers," - Berna Davis, a Coldwell Banker agent