Buying and Selling Condos

Condos (condominiums) can be the prefect option for people who want to live a low maintenance lifestyle, but still want the perks of home ownership. They often come with awesome amenities such as pools, club houses, workout rooms and more. Before you buy or sell a condo though, it’s important to understand how the purchasing process differs from all other dwelling types.

Buying a Condo

When you are looking to buy a condo it’s very important that you work with a Realtor (and Lender if you are getting financing) that has experience with condo purchases. If you are a cash buyer, the process is the same as when you would buy a single family home (put in an offer, get an accepted contract etc.), although I still suggest looking into the HOA to make sure there are no potential issues that can arise.

If you are getting financing for your condo purchase though, lenders have very strict guidelines on condo complexes they will finance in. When starting your search, your Realtor can easily find out if specific condo complexes are FHA approved. If they are FHA approved this makes for a quick smooth process. The problem is that not very many complexes are FHA approved. Most condo financing available will be conventional and VA loans. Remember those strict guidelines I talked about though? The trick is that you only usually find out if the complex meets those guidelines AFTER you have an accepted contract. Once you find a condo you like, your Realtor can talk with the HOA to try their best to get the needed info. Often times though, this information is not shared. So to move forward with your condo purchase you make an offer and negotiate until you and the seller have agreed on price and terms (this doesn’t mean you will know you can finance it yet though!). Once you have an accepted contract, your lender will send out a condo questionnaire to the HOA (at a COST TO THE BUYER usually about $50). This is the form that will see if the complex will meet the lenders condo guidelines. It will ask the HOA questions such as what percentage of units are owner occupied, how much money is in the HOA reserves, are there any current litigations that the HOA is involved in, etc. There are two different questionnaires based on the amount of money you can put down and the type of loan you are applying for. If you are putting down less than 20% on a conventional loan, you would need to have the full review done by your lender. This has more questions and tighter guidelines. If you are able to put down at least 20% down on a conventional loan or you are applying for a VA loan you would have a LIMITED REVIEW done by your lender. If at all possible, the limited review is better as there are less questions that are asked and not as many guidelines to follow.  You usually hear back from the HOA in a week/week and a half, but if the answers to these questions do not meet the lender guidelines (such as if below 50% of units are owner occupied) the complex will not qualify for the loan and you will need to cancel the contract. The good news is that there is a contingency in the contract that says if financing doesn’t work out,  all earnest money is returned to the buyer. So the only downside is that you can lose the condo questionnaire fee and some time in your search. If the condo questionnaire does meet the lenders guidelines though, you are good to go ahead and move forward in the purchasing process.

Selling a Condo

When selling a property you don’t often think about your neighbors effecting your ability to sell. With condos though this can be the case. The process of selling a condo is different than the sale of a single family home, so it’s important to work with a Realtor that understands the steps of a condo sale and who can educate you on what to expect in the process. Before your property is even active, your Realtor should be working with your HOA as well as a lender to find out if there are any potential problems that can arise and types of financing that are available in the complex.

If you are able to get a cash offer, the process would be the same as a single family home sale. Financing (what most people do) is what can be tricky for condos. For a lender to finance a condo sale, they have very strict guidelines that must be met within the COMPLEX (not your specific condo, the WHOLE complex!). So let’s say that you get an offer that includes the buyer getting financing (again this is MOST offers). It’s important for you to know that even once you have an accepted offer, you do not yet know if that buyer’s lender has approved financing in the complex yet. After there is an accepted offer is when the lender in the transaction will send a condo questionnaire to your condo’s HOA for them to fill out. This questionnaire will ask questions such as is the HOA involved in any current litigations (if they are you have to wait for them to settle), what ratio of units is owner occupied, how much money does the association have in reserves. etc. So why is this important to know as a condo seller? It’s important because if the numbers on the condo questionnaire don’t meet the lender guidelines, that means that the loan will be declined and the contract will need to be canceled. This is how your neighbors can effect your sale. For instance if you have over 15% of residence delinquent on their HOA dues, this could mean that your complex doesn’t qualify for financing and make your property much harder to sell. It’s also important to know so that you can fully evaluate the offers that you have come in. For instance if you had 2 offers come in at the same time, one conventional 5% down and one VA 5% down. Your best bet would be to go with the VA financed offer because they have fewer guidelines in their loan process. The bottom line is that condo sales can be tricky. When interviewing potential Realtors to work with, make sure that they are experienced in condo sales and that they will be able to properly represent you!

If you have further questions about condos or would like to see an example of a condo questionnaire feel free to comment, email me at Rachell@TwinsAndCompany.com, or call/text 602.574.3438. 

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Condo Vs. Townhouse

Condo

Can you tell if the property above is a condo (condominium) or a townhouse? I’m betting most people would guess that it’s a townhouse (FYI, it’s a condo). Sometimes by looking at a property with no other facts, it’s impossible to tell the type of dwelling, as both can look the same (ex.the townhouse “style” condo above). Some condos even look like single family homes because when the market took a hit it was cheaper to get condo permits for new builds then it was for single family permits.  Confusion between the differences between condos and townhouses is common. While condos and townhouses can be a good option for some buyers, it’s important for buyers to know the distinct differences and pros and cons of both types of properties before making any commitments.

Ownership

When you buy a condo you are only buying the interior space of your specific unit, not the land that it is on (even if it’s a townhouse style condo like above). When you buy a townhouse you are purchasing the interior, land, and any yard or patio spaces. While to some people the ownership of the land doesn’t matter, it’s just important to understand the differences in what you are actually purchasing.

Homeowner’s Association

Both condos and townhouses will most likely have a HOA, which comes with additional fees. Condo HOA dues are typically higher than townhouse dues as they usually have more common areas or amenities compared to townhouses. Condos might also have services such as water, trash, sewer, or even cable included in their dues. Both condo and townhouse dues usually cover exterior maintenance (ex. exterior paint, roof, etc.) as well as common area maintenance. Some condos will even do interior maintenance like you would find in an apartment complex (this does not apply to all condos though so be sure to check with the HOA!). Homeowner’s associations will also have rules and regulations that need to be followed. These could include common area rules, pet restrictions, grounds restrictions, and more. It’s important to get information about a property’s HOA before making a decision to put an offer on the property. For my clients I personally call the HOA to find out the dues (they can be very expensive), what is covered by the HOA (maintenance, utilities, etc.), and basic rules and regulations that are important to my buyer (ex. do they allow pets or have any weight limits). Without that information it’s hard to make an informed decision on if it’s the right property, or affordable financially.

Privacy

Both condos and townhouses can present privacy issues to some people. Typically in both you will have at least one shared wall. It’s important to find out how thick the shared walls are, and listen to hear if there is any noise that can be heard within the unit. I even suggest knocking on your direct neighbors doors to introduce yourself and see if they have any noise complaints. It also gives you a chance to see what type of neighbors you would have should you choose to buy. In tight quarters neighbors who clash can be a recipe for disaster.

Townhouse and Condo Searches

Searching for condos and townhouses can be difficult as they are listed by the dwelling style not the type. So when looking on websites like Trulia, Zillow, or even the MLS condos can be listed as a townhouse due to the exterior look of the property. Using a Realtor during your search is key as they can further investigate the true type of dwelling it is by looking at tax records and other documents. It’s important to know the dwelling type as the buying and selling process is different between condos and townhouses.

Resale

When reselling a townhouse the process is very similar to if you were selling a single family detached home. As long as it’s in good shape, you should be able to sell it with no extra hoops to jump through. When selling a condo though, options of buyers can be limited. Cash buyers are of course always an option, but selling to a buyer who is getting financing (a majority of people) can be difficult. The buyers lender will do a condo questionnaire that asks questions about the complex and HOA to find out if it’s a warrantable condo complex. If it does not meet their strict conditions they will not finance the deal (keep an eye out for a separate blog post about buying and selling condos next Tuesday for more info!).

Bottom Line

Condos and townhouses can be great options, especially for first time home buyers. You have to make the decision of what type of home works best for you and your current situation. I always suggest talking with a Realtor before buying or selling a townhouse or condo though so that you can make informed decisions based on the current local market.

If you want to know more about condos or townhouses feel free to ask questions in the comment area, email me at Rachell@TwinsAndCompany.com, or call/text me at 602.574.3438. Also be sure to check back next Tuesday to learn more about buying and selling condos!