By: Marcelo Steinmander
Contrary to what you might think or have been told (or read somewhere), buying a condominium unit is not complicated. If done right, the transaction should feel similar to buying other residential real estate. True, there are specifics to take into consideration with condos that should not be ignored, but none of them should make the process feel like advanced algebra.
I won’t overcomplicate today’s post or fluff it with fancy terms. Instead, we’ll jump right in to the specifics. Today, I’m sharing the tools, resources and tricks you need to keep in mind when helping your clients, based on my own experience. These tips will enable you to be a better advisor to your customers.
I am listing condominium documents first because they often get ignored until a buyer is under contract on a specific unit. Not all condo buildings or units are the same, and the various differences could influence a buyer’s decision. That’s why as a real estate professional and one of your client’s advisors on the transaction, you want to counsel your client to dig into the documents first, so they can make an informed decision. This set of documents should include:
- The building’s declaration of condominium
- Articles of incorporation and by-laws
- Most recent financial information such as the building’s latest approved budget
- Rules & regulations of the building and frequently asked questions
- Bonus: A copy of the building’s master insurance policy (An absolute must if the buyer is purchasing with financing)
Reading and understanding the docs can be the difference between knowing and not knowing the very nature of what is being bought/sold. Since it is common to sell more than one unit a year in the same building in my business, having a current database of all the documents mentioned above has become part of our yearly routine.
Whether you are on the listing or selling side of the transaction, easy access to documentation is the easiest way to decrease concerns. If you are on the listing side, the best practice is to add the documents as attachments or have them ready for your buyer should they request copies. Your buyers and your sellers will thank you for this.
Buying With Financing? Prep for Some Research
Fannie Mae and FHA (Federal Housing Administration) guidelines on condominiums are exceptionally specific when it comes to requirements for loan approval, which means as the agent, you need to know what’s required of your buyer if they plan to finance. For Fannie and Freddie financing for a condo, there are two types of lending approvals: limited review and full review. In many cases, limited review is available when buyers have more cash for a larger down payment. Oftentimes, the limited review is the best option, because it offers a streamlined process and the highest rate of approval. Below are some of the items I like to check before scheduling showings for buyers:
- How much funding is the condominium allocating toward reserves? This is important because 10% of the budget must be allocated toward reserves to pass a full review.
- Is there any pending litigation in the building that would prevent a buyer from purchasing with financing?
- On new projects, has the HOA (Homeowners Association) been turned over to unit owners?
- Are there any special assessments on the building?
- On condominiums that are over 40 years old, have they been certified or re-certified if required by the local town or municipality?
If the condominium does not have enough reserves or if it has pending litigation, there is a good chance that conventional financing will not work or that a higher down payment will be required from the buyer. Knowing this ahead of time has proven helpful in avoiding time wasted for me and for my buyers.
A Favorite of Mine: Condos That Allow Rentals
A condominium that does not allow rentals can still be a fantastic property and similarly, condominiums without rental restrictions can be problematic. Still, I believe that condominiums that allow for rentals present a great opportunity for investment.
Not all rental opportunities provide an equal investment—or flexibility—for your client, though, so it’s important to understand the specifics for each building your client is considering.
Even for searches that involve end-users, the perfect balance is found in condos that allow rentals at least once or twice a year, with a six-month minimum requirement. Three months is fine as well, and that inventory also exists to cater to second-home buyers who need that extra flexibility. On condominiums that allow weekly and daily rentals, the potential return on investment could be even greater, particularly in areas that are tourist destinations. Miami, where my practice is based, is an example.
I like to tell my customers to plan for the present and future simultaneously. Even if your buyer wants to purchase a condo as a primary residence, they might want to think about how they might use the condo down the line if plans change. If, 10 years down the line they need to move to a different location, the condo becomes a viable income property.
Looking For a Great View? Make Sure It (Stays) Unobstructed
In cities experiencing growth, a condo that once had a great view might be out of luck if a building goes up right next to it. Beautiful views are often a selling point, which is why it’s important to think long-term when helping clients find the right unit. In my business, we have yet to have a client lose their balcony view because of growth, which I credit to the tremendous amount of research done on the front end. The tips I provide to our clients include:
- Avoid floor plans overlooking empty lots, even if those lots have been empty for decades.
- Know the height difference between buildings that are currently under construction and avoid units on low floors that will be impacted by the construction.
- Look for real estate that is right on the water, overlooking parks, or in neighborhoods with imposed height restrictions.
Exceptions to Consider
It’s true that a condo without the 10% in reserves might make it difficult for a buyer to get approval on financing, but that doesn’t inherently make the property a bad option. Some of the best condominiums I’ve ever sold and that have appreciated the most in value don’t have a view or even a balcony. I also know of several buildings that should have more leasing restrictions to improve the quiet enjoyment of the building. I’ve even seen amazing buildings in centralized locations fall from grace due to issues related to management. The point is that there’s much gray area in the process.
These notes should serve as guidelines to help identify viable condo options for your clients, but they’re not hard-fast rules. The goal should be for you to use the guidelines and tailor your approach to your unique market and the needs of your client. Nothing replaces the value of local expertise and knowledge, even in the condominium niche.
Marcelo Steinmander is a real estate professional in Miami, Fla. He embarked on his career at the young age of 18. His diverse background and fluency in English and Spanish made this an ideal field to build and retain long-lasting relationships. In 2020, Marcelo was recognized as a Top 20 Under 40 by the Miami and Chicago Mainstreet Organization of Realtors. He was also a Top 100 Agent in the Southern United States by NAHREP. By the end of 2021, Marcelo became the #1 individual producer in Berkshire Hathaway HomeServices EWM Realty based on the total number of homes sold, and in 2022 an honoree for the National Association of REALTORS® 30 Under 30. Find him on social on Instagram, X (formerly known as Twitter) and Linkedin.