10 Questions You and Your Buyers Must Ask Before Purchasing A Condominium Unit

Buying a condominium unit can be more involved than buying a single family home. This is because you have to worry about both the unit itself and the condominium project as a whole.

10 Questions You Must Ask Before Purchasing A Condominium Unit

To borrow from a famous phrase, not all condominiums are created equally. Some condominiums are very well run; some are quite poorly run and underfunded. Buyers interested in purchasing a condominium unit must do their homework:  not only about the condition of the individual unit they are interested in purchasing, but on the financial health and governance of the condominium as a whole. Remember, you are buying into the entire project as much as you are the unit, and your decision will impact your daily living and your ability to re-sell.

Here are the 10 questions buyers should ask when deciding to purchase a condominium unit:

1. What is the monthly condominium fee and what does it pay for? The monthly condominium fee can range quite dramatically from condominium to condominium. The fee is a by-product of the number of units, the annual expenses to maintain the common area, whether the condo is professionally managed or self-managed, the age and condition of the project, and other variables such as litigation. For budgeting and financing you need to know the monthly fee and exactly what you are getting for it.
2. What are the condominium rules & regulations? Condominium rules can prohibit pets, your ability to rent out the unit, and perform renovations. Make sure you carefully review the rules and regulations before buying.  Needless to say, the buyer's attorney should review and approval all condominium documents, including the master deed, declaration of trust/by-laws, covenants, unit deed and floor plans to ensure compliance with state condominium laws as well as Fannie Mae and FHA guidelines, as necessary.
   
3. How much money is in the capital reserve account and how much is funded annually? The capital reserve fund is like an insurance policy for the inevitable capital repairs every building requires. As a general rule, the fund should contain at least 10% of the annual revenue budget, and in the case of older projects, even more. If the capital reserve account is poorly funded, there is a higher risk of a special assessment.  Get a copy of the last 2 years budget, the current reserve account funding level and any capital reserve study.
   
4. Are there any contemplated or pending special assessments? Special assessments are one time fees for capital improvements payable by every unit owner. Some special assessments can run in the thousands, others like the Boston Harbor Towers $75 Million renovation project, in the millions. You need to be aware if you are buying a special assessment along with your unit.  It's a good idea to ask for the last 2 years of condominium meeting minutes to check what's been going on with the condomininium.
   
5. Is there a professional management company or is the association self-managed? A professional management company, while an added cost, can add great value to a condominium with well run governance and management of common areas.
6. Is the condominium involved in any pending legal actions? Legal disputes between owners, with developers or with the association can signal trouble and a poorly run organization. Legal action equals attorneys’ fees which are payable out of the condominium budget and could result in a special assessment.  In most states, you can run a search of the condominium association in the court database to check if they've been involved in recent lawsuits.
   
7. How many units are owner occupied? A large percentage of renters can create unwanted noise and neighbor issues. It can also raise re-sale and financing  issues with the new Fannie Mae and FHA condominium regulations which limit owner-occupancy rates.
   
8. What is the condominium fee delinquency rate? Again, a signal of financial trouble, and Fannie Mae and FHA want to see the rate at 15% or less.
9. Do unit owners have exclusive easements or right to use certain common areas such as porches, decks, storage spaces and parking spaces? Condominiums differ as to how they structure the “ownership” of certain amenities such as roof decks, porches, storage spaces and parking spaces. Sometimes, they are truly “deeded” with the unit, so the unit owner has sole responsibility for maintenance and repairs. Sometimes, they are common areas in which the unit owner has the exclusive right to use, but the maintenance and repair is left with the association.  Review the Master Deed and Unit Deed on this one.
   
10. What Does The Master Insurance Policy Cover? The condominium should have up to $1M or more in coverage under their master condominium policy. For buyer's own protection, they should always buy an individual HO-6 policy covering the interior and contents of the unit, because the master policy and condo by-laws may not cover all damage to their personal possessions and interior damage in case of a roof leak, water pipe burst or other problem arising from a common area element. Ask for a copy of the master insurance policy and don't forget to check the fine print of the by-laws.  Sometimes, there's language that would hurt a unit owner in case of a common area casualty.  Condominiums over 20 units should also have fidelity insurance to protect against embezzlement.
    

Often a standard condominium questionarre will answer all or most of these questions. If not, be prepared to generate this list and incorporate it into your Offer to Purchase or Purchase and Sale Agreement, as the case may be in your home state.  Do not have your buyer put earnest money down until satisfactory answers are received.  Good luck and happy condo hunting to you and your buyers!

 

 

TOP 10 QUESTIONS TO ASK THE SHORT SALE LISTING AGENT BEFORE MAKING AN OFFER

 

HOW TO EVALUATE A LISTING AGENT IF YOU ARE REPRESENTING A BUYER 

 

 1. What is your experience representing sellers in short sales? 

 

Dealing with a knowledgeable and experienced agent who has successfully closed many short sales is the sine qua non for a successful short sale. 

 

Thousands of agents are now taking short sale certification programs and presenting themselves as short sale specialists.  Many of these agents have never closed a short sale in their lives.  In fact many of the people teaching certification classes have themselves never closed a short sale.

 

Knowing the mechanics of a short sale is not enough.  Lots of agents now have this information from taking one of the many certification classes now prevalent.  It will not get the job done. 

 

Ask the agent how many short sales they have closed representing sellers in the last year.   I would also ask them if they have closed any representing a seller with the particular loan servicer who is the third party approver(s). 

 

(Representation of buyers in a short sale counts for nothing in terms of short sale experience since all the approval action goes on with the listing side.)

 

The listing agent needs to know how to escalate a deal to get an approval.  Some loan servicers - BOA immediately comes to mind - reflexively decline short sales and, I believe, manufacture values, notwithstanding what their appraisal or BPO says, hoping to extract the maximum dollars from the buyer and agents. 

 

(Understandable perhaps, but if they really wanted to get the most money from the short sale, they should provide a target number up front, not spend months jerking buyers and sellers around).

 

The agent needs to know how to get to management to get an approval with Servicers like this. In fact the listing agent needs to know how to do this just as reflexively as the servicer who is going to reflexively decline the deal. 

 

Negotiating price prior to getting to the Management level is going to prolong the process, not shorten it.  But the listing agent has to know how to get around the lower level negotiators. 

 

 2. How many liens are there on the property?

    First or first and second or HELOC, HOA, Condo, Special Assessment, Tax?

 

Second lien holders and HELOC holders can be extremely difficult and are very adept at killing deals and cutting commissions. 

 

3. Who is/are the servicer(s)?

 

BOA,  for example is extremely difficult to deal with.  Much more so than Wells Fargo.  So unless you just get lucky it will take a much more experienced and savvy agent to get an approval from BOA than WF.

 

4. Who is the investor or insurer on the loan?

 

    Fannie Mae, Freddie Mac, FHA or VA or Conventional or PMI

 

Conventional loans are the Wild West for servicers since they can approve or deny anything they want. 

 

Fannie Mae loans frequently have PMI which means, nothing is happening without the PMI companies approval, so even if there is only one lien, there may be two approvals required. 

 

FHA has a proscribed process which allows servicers little latitude for game playing. 

 

5. Is the listing agent going to have one contract signed and submitted or do they say they are going to submit the offers to the servicer to decide which one they want?

 

I would personally advise my buyers to run away from any deal where the agent says they are going to submit multiple offers to a servicer.  That tells me the listing agent is clueless.  Why would you send multiple offers to a loan servicer who takes months to approve one deal?  If the agent can’t figure out which is the best deal in a multiple offer situation, they should get out of this business completely.

 

 6. Has the servicer previously approved a deal which the buyer walked away from or has the servicer disclosed an acceptable price?

 

This may shorten the process, but not necessarily.  Some servicers will force the agent to start all over from square one again with a new buyer, including ordering a new appraisal.

 

 7. Does the agent have any financial modeling program to determine whether the offer is going to yield more cash to the investor than foreclosing?

 

This is how the lenders ultimately decide whether or not to approve a deal.  Absence of this is means you are pretty much throwing darts with a blindfold on.

 

8. Has the property been priced appropriately?

 

I still see short sale listings where it is obvious the property is priced at a number which would pay off all of the liens.  Ridiculous.  Don’t even think about showing your buyers this property.

 

9. Do the agent comments say something like “commission paid on net sales price” or “50% to selling agent of approved commission”?

 

Either this agent is clueless or they don’t know how to handle commission negotiations with the lender.  This is a run away, don’t walk situation. 

 

10. Does the agent purport to be an expert?

 

I would be very, very wary of anyone who purports to be an expert.  The only experts I am aware of are the guys sworn in as such in court rooms.  We have 10 to 15 short sales in various stages of approval all the time and I see new twists on servicer tactics and processes every day - and there are dozens of servicer representing hundreds if not thousands of different investors.  And don't forget HAMP or HAFA.

 

Bonus Question:

 

11. Will an Attorney get you a better deal on a Short Sale?

 

Think about it.  Until this year, most attorneys would have turned their noses up at dealing with loan servicers on short sales.  Suddenly, they’re experts in short sales. 

 

(The inspiration for this blog was a question asked me by another agent at a meeting of the top agents in the Anne Arundel County Association of Realtors in Annapolis)

 

© Michael Davis 2010

 

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Listing Your Home for Short Sale, Part 6: Patience and Cooperation

Listing your home for short sale is not as complicated as you think.  This is the final installment in a series.  If you've missed the prior installments, you can link to them here: 

Listing Your Home for Short Sale, Part 1:  Do You Qualify?

Listing Your Home for Sale Sale, Part 2:  Choosing Your Listing Agent

Listing Your Home for Short Sale, Part 3:  Collecting Your Financial Information

Listing Your Home for Short Sale, Part 4:  The Hardship Letter

Listing Your Home for Short Sale, Part 5: The Authorization Letter

So you've got your Listing Agent, have them authorized to talk to your mortgage holder(s).  You've gathered all your financial information and hardship letter and sent them to the mortgage holder(s) too.  This is where patience and cooperation come in.

First you must wait for a buyer to write an offer on your home.  If you've hired a good Listing Agent, your home will priced right and that won't take too long.  Once you've got the offer that is acceptable to you, you'll sign it and make it a contract.  From there, your Listing Agent will send the contract to the mortgage holder(s) for approval.  Next.....

HURRY UP AND WAIT

I find that weekly phone calls to the mortgage holder(s) get me very little information that makes a seller or buyer feel like there is progress being made. Calling more frequently does not make it go any faster.  Your patience as a seller during thes long periods of no information is appreciated.

After the contract is given to the bank, the bank scans the document into their internal databases.  This process alone can take two or three days.

Next a negotiator will need to be assigned.  Depending on the bank, it may be immediate, may take a month.

Once that negotiator is assigned, they will order an appraisal or a BPO (Broker Price Opinion).   Just getting the BPO or appraisal ordered adn back in the mortgage holder(s) system can take two weeks.  This is an important part of the process because getting a value on the property will tell the negotiator if the contract needs to countered with a higher sales price.

Once the negotiator has determined whether or not the contract needs a counter offer or is fine the way it is, the contract is then given to the investors on the loan to determine whether or not they will accept the loss and approve the short sale.  This can take days or months.  All depends on the investor.

And while all of this is going on, there will be periodic requests for updated financial information, or requests to resend information you've already sent.  Cooperate with your Listing Agent and mortgage holder(s) and don't argue.  Cooperation is the key to success.

So while all of this is going on in the background, and you are about to give up, one day the phone will ring with the news you've been waiting for.  Your Listing Agent will be on the other end of the phone telling you that the short sale has been approved or why it has not been approved.  In my business as a Listing Agent, nine times out of ten, I'm giving good news to my Short Sale sellers.

Short sales are certainly more complicated than regular resales, but they aren't impossible when you are prepared and you hire a good Short Sale Listing Agent.

 

 

 

Part 2 - WHAT THE LENDERS WON'T TELL YOU ABOUT YOUR SHORT SALE!

     My last post opened up a flood of comments!  I also received numerous calls and emails from many of you.  Therefore, I am expanding on the subject with this second part.

     Now, I know some of my comments are going to get readers all riled up.  Some lenders and their representatives have been secretly reading Active Rain and this post. 

     Please note that I do not sugarcoat the short sale process.  Our firm represents the homeowner in the negotiation process and therefore has their best interest in mind.  This process should be treated as a business decision and not a personal one.  The lender certainly has no personal attachment to your client or the property.

5) Prepare Your Clients for the Long Haul!  I ask all my new short sale clients, "are you in a hurry?"  If they are, our firm is not a good fit for them.  Please note that there is a difference between working quickly and efficiently and being in a hurry.  The lenders are in no hurry to process your short sale file.  Plus, if the homeowner is basically living for free in the home, what hurry is there to move out and start paying rent?  The process provides them a good opportunity to stabilize themselves financially.  And always remind them: A HOUSE DOES NOT A HOME MAKE!  Home is your family and friends, not brick and mortar.  Home will go wherever they go.  The lender, on the other hand, will take every opportunity to attach an emotional response to that building, even if it is unsalable collateral.  Don't let your clients fall in to that trap.

6) Every Lender Has Issues!  As I mentioned in Part 1 of this post, never assume that the lenders have their short sale process down to a science.  It's a work in progress for them.  This is still their worst nightmare and they are just hoping it will go away when they wake up.  They still think this housing mess will end tomorrow.   Their loss mitigation staff is a temporary solution to the problem and there is a heavy turnover of employees along with a huge backlog of files.  The same underwriter that approved your loan was offered a job as a so-called "negotiator."  And, he/she is still working with the same mentality... "the bank is in control!"  Unfortunately, you have to let them believe that.  REMEMBER, YOU HAVE THE BUYERS FOR THEIR HUGE MESS!

7) Make a Buck Not a Friend!  We've all heard the saying, "the squeaky wheel gets the oil."  With the current state of the loss mitigation industry you need to be as squeaky as possible.  You need to be noticed; otherwise, your short sale file will be delayed time and time again.  One of the worst culprits right now is Countrywide/Bank of America (and that's a whole other post or two).  They are a real mess and overwhelmed with files.  Turn-time on newly received faxes is taking at least ten days, and that's assuming they find your fax.  Send your fax two or three times if necessary!  Yes, that may only add to the backlog of faxes, but if it means they will find YOUR fax and YOUR file nearly two weeks later you've accomplished your goal.  If you are calling and don't like the answer or attitude of the short sale representative, hang up and call again!  Trust me, the answer will change every time you phone.

8) The BPO Is EVERYTHING...For Now!  It amazes me that lenders depend on a half-assed appraisal called the BPO (Broker Price Opinion) to make their biggest investment decision on your file.  To put it bluntly, your BPO can be sabotaged by any green-eyed, angry broker with an attitude.  Always be sure to meet with the evaluator at the property if at all possible.  And, be sure he/she receives a copy of your contract.  The lender certainly didn't provide them a copy.  You already have a good idea for what the property should sell.  Be sure you convey your thoughts and opinion to that person.  Remember, the BPO is simply a range in value.  The negotiator or bank representative will usually try to trap you with the highest value in the range.  Let them know that you will NOT pay the top of the price range.

9) Tough Love...Credit Means NOTHING!  I'm still amazed how many borrowers ask me how badly their credit will be impacted by a short sale.  The answer...SIGNIFICANTLY!  Your short sale client should not be worried about how his/her credit will be impacted by their current financial and housing situation.  It should be the last thing on their minds.  I'm astounded that there is always some expert trying to put foreclosure vs short sale into tidy perspective for someone that is finding themselves in the worst financial crisis of their lives.  There is really no difference.  A 450 score or a 500 score is still a lousy score.  For the most part your client must be in a foreclosure status with the lender before they will even consider a short sale.  And, whoever tells you different is flat out lying.  Credit reporting agencies and the lenders that use them have been telling us for years that our credit rating is the most important thing in our lives.  They've spent millions of dollars on campaigns to remind us of that.  This has simply been a scare tactic and it has worked magnificently...until now.  I've seen clients scrape and borrow money, or completely eat away at all their retirement savings just to keep up with a worthless investment property.  All because they fear how it will affect their credit rating, even at the expense of really important matters like food, utilities, and medical necessities.  Your credit will always bounce back.  Plus, the lenders will need all those who are suffering from this crisis back into the fold in a few years when they are ready to really lend again and we are ready to borrow.

Be sure to read Part 1 of the Post: http://activerain.com/blogsview/1171787/what-the-lenders-won-t-tell-you-about-your-short-sale-

My next post... "SHORT SALE HORROR STORIES!"  I hope you'll share your short sale nightmares, too.  And, I won't shy away from naming lenders.  Stay tuned!

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We offer the LOWEST TRANSACTIONAL FUNDING FEES for all your FLORIDA SHORT SALE DOUBLE CLOSINGS & FLIPS!!  Plus, our knowledgeable title partners understand your needs and process.

VERY SIMPLE:  1.75% per transaction or $1,850 minimum!  Both closings must take place with our preferred title partners.

Contact Me: (561) 337-5789

 

WHAT THE LENDERS WON'T TELL YOU ABOUT YOUR SHORT SALE!

     Not a day goes by that I don't hear the same question from an agent, "Why would the bank do that to my short sale?"  It's really quite simple...BECAUSE THEY CAN!

     I could write a book about everything the lenders won't tell you about the short sale process.  However, it would be worthless the moment it is published.  The business changes every day, every hour, every minute.  The lenders, investors, collections agencies, government agencies and everyone involved in this mess are still trying to figure out what happened, let alone what is happening right now.

   ANYONE THAT TELLS YOU THEY KNOW THE SECRETS OF DOING SHORT SALES, RUN FROM THEM AS FAST AS YOU CAN!  AND HERE ARE THE REASONS WHY...

1)  The lenders still are not sure that what they are doing is right FOR THEM.  They are constantly changing their short sale and loss mitigation process to figure out what will make the most return on the loss.  It will change at the whim of those assigned to review the pipeline disaster that is their loss mitigation.  And, time and time again, the changes usually are not for the best.  They only further complicate the process.  The banks are in the business to lend money.  The whole loss mitigation and short sale business is still a blur to them.  Think about how absurd this business is...they will forgive $300,000 on the property without blinking, but will kill a short sale for the remaining $5,000.

2) The property is ONLY A WIDGET!  The lender will never see or visit the home.  The only one that cares about how the home looks is the homeowner.  The lenders and their investors DO NOT CARE ABOUT THE FEELINGS OF THE BORROWERS/HOMEOWNERS.  They have NO emotional attachment to the property.  However, they want to assure that the borrower absolutely HAS an emotional attachment.  Remember, those lovely photos in the appraisal are only seen by an underwriter that initially approved the loan.  The actual lender does not care for photos and will never see them.  THE PROPERTY IS SIMPLY A WIDGET.

3) Lenders and investors make secret deals for billions of dollars every day behind your back!  Many agents remain shortsighted on the housing industry, alltogether.  They only want to see and believe that their real estate transaction is the only way the lender can move the property.  In fact, this is not by any means the principal manner of unloading their inventory.  REO's, performing and non-performing notes account for the majority of their swaps.  However, those sales are never recorded in public records.  Most of them are sold for pennies on the dollar.

4) The housing crisis is NOWHERE NEAR A BOTTOM!  The biggest reason for this is the tremendous amount of inventory.  And I'm not simply talking about the inventory in the lender's hands.  I'm talking about inventory yet to be taken back.  There are millions of homeowners living in their homes for free.  I have clients going on 2 and 3 years without a mortgage payment.  The lenders and their investors are simply overwhelmed by this crisis and they would rather see someone in the property taking care of it.  Once they foreclose, they are responsible for all the bills on the house.  Only 30% of the lender inventory is even available for sale.  Nearly three times the current inventory is pending foreclosure.  And unless everyone behind on their payments gets back to work and starts paying their mortgage, the crisis will not be going away any time soon.

Be sure to read Part 2: http://activerain.com/blogsview/1183207/what-the-lenders-won-t-tell-you-about-your-short-sale-part-2

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We offer the LOWEST TRANSACTIONAL FUNDING FEES for all your FLORIDA SHORT SALE DOUBLE CLOSINGS & FLIPS!!  Plus, our knowledgable Title staff understands your needs and process.

VERY SIMPLE:  1.75% per transaction or $1,850 minimum!

Contact Me: (561) 337-5789

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FHA Property Guidelines Are Not Understood by Many Mortgage Originators!

I receive FHA appraisal orders from many different people and many different mortgage companies across the country. I know many times these Mortgage Professionals tell me they telephone interview a perspective borrower about their home and after I leave the home it is obvious they have no idea what questions to ask before ordering the FHA appraisal.

I am sometimes told "The house does not sound to be in the best condition," or a similar line. On many occasions the home is just slightly dated and meets all FHa conditions, the originator worried for no real reason and might have scared their borrower away with his/her concerns about the FHA Appraisal. Other occasions, I come to a home with a statement of slight concern and the roof if leaking, the windows are rotted, peeling interior paint, electrical systems not completely functioning, etc...

Allright, I have identified the problem, now I would like to share a solution. FHA Appraisers used to have to use a checklist supplied by HUD for evaluating whether a home meets FHA property standards. These FHA checklists were included in the FHA appraisal. HUD no longer requires or desires these valuation condition forms (VC sheets.) Now FHA appraisers are held to a standard of reporting the same items of concern within the apraisal report, without using the VC sheets. Well at least the VC sheet made appraisers appear more like the messenger instead of a ruthless and unpredictable home inspector.

Here are some of the items that HUD requires each home to be checked, before providing FHA mortgage insurance on a property.

Any termite infestation is not acceptable to HUD.

Attics and crawl spaces are required to be checked by the appraiser. A "Head & Shoulder" inspection is required for all FHA appraisals. Sometimes attic access is blocked by a closet filled with things. Appraiser has no responsibility for moving personal items and would be at risk by moving and taking responsibility for such items. Stored things get broken when moved or are discovered broken, I have not talked to a FHA appraiser that is willing to move stuff to access a crawl space or an attic entry (closet scuttle.) We can condition the appraisal to have these items cleared and return. We just are not in the moving business.

Roofs must have an estimated two year remaining life. Snow covered roofs require revisit to the home or a roofing inspection. Flat top roofs no longer require an automatic roofing certification. Exterior surfaces cannot be unprotected. Painted surfaces require attention if there is an issue of wear on the home or surface due to maintenance.

Electrical and plumbing systems must be fully operational. Checking a"Representive sample" of electrical systems is part of the observation. Each home must have a hot water source and must be operating at the time of observation. Furnace or certral heating system must be able to be turned on and heard operate by the FHA appraiser. Summer observations still need the system checked. Climates not requiring a heating system do not need furnace check. Southern tip of Florida, Hawaii, etc.. 

Safety:  Window, doors, steps & handrails, reverse feature for automatic garage doors and general safety concerns are part of the FHA appraisal observation. Homes built before 1978 cannot have any cracking, peeling, or otherwise defective interior paint surface.

RURAL CONCERNS:   Onsite wells and sanitary septic systems do not necessarily require testing, however underwriters usually ask for these tests. Check with your underwriters if this is a concern. The FHA Appraisal Report must state distance of well from sanitary system and comment of availablity of public sewers. Roads to home must be able to traveled in all weather. (We know flooding, ice and heavy snow are not the fault of the road.)

Outside of the Property: Here are some concerns outside of homeowner's control. Sink Holes, slush pits, improvements (home) within fall distance of towers, excessive hazardous noises (includes street traffic & airport travel paths,)  Soil contamination is a concern from environmental concerns.

In general the appraiser must look for any safety of occupants, structural condition, or soundness concern of the improvements of the home. The FHA Appraisers know this as HUD's three S's. Please understand there are more things in the FHA protocol that I did not mention here. I tried to gather the most frequent concerns that I know of.

 James S. Graner
Real Estate Appraiser
ph  (636)916-4325
cell (314)277-3336
fax (636)949-2637
Website http://appraisalmo.com