Avoid Six Way Too Common Condo Buyer Mistakes
Written by PJ Wade on Monday, 09 December 2013 10:57 am
If practice makes perfect, how can you excel at buying a condominium unit when you'll probably do it fewer than a half dozen times in your life?
What about the first time you buy? You'll be working without any condo practice at all! Since condo prices start in the tens of thousands of dollars and head into the millions, gaining practice as a buyer can involve some very expensive lessons.
Can you name any complex, life-enhancing task you can learn to do exceptionally well in just a few tries? After all, aren't you aiming to be an above-average condo purchaser out to achieve the equivalent of a touchdown or picking a very hot stock every time you buy?
When you learn how to do anything, you make the same mistakes that other "newbies" make whether it's mastering a sport, acquiring a skill, or targeting an investment. Repetition of the same first mistakes leads to frustration in sport and undermines confidence when learning a skill. In investing - which is what every real estate purchase is - repeating common mistakes is frustrating, unsettling, and costs money and future returns. None of this negativity is necessary.
Avoiding common mistakes is what separates savvy investors from the masses. Do you really want to repeat the mistakes common to other condo buyers when you take your first plunge into the market or perhaps your second or third?
How do you go from zero to expert in one condo buy?
Mistake #1: When speaking to groups of condo buyers and "wanna-bes," I am always struck by how little they understand about condos in all shapes and sizes. Ownership of condominiums involves title to the space defined by the condo unit and a share in the common element which includes amenities and the land. Owners are responsible for their unit's monthly costs and a pro-rated share of maintenance costs for every other part of the condominium complex.
I recently contacted The MIAMI Association of REALTORS® to get an insider view of condominium buyer habits from three MIAMI members: Christopher Zoller, Melissa Rubin, and Sep Niakan.
To really understand this form of real estate ownership and a specific condominium complex, Certified Residential Specialist Christopher Zoller of EWM Realty International, suggests condo buyers "seek out other owners (preferably long-time owners), board members, or the manager and ask the tough questions" so they can learn the potential weaknesses and future expenses. Carefully review financial statements, upcoming assessments, and recent Board Meeting minutes to discover significant details like pending fee increases.
Zoller, who also invests in condominiums, offers other examples of common buyer mistakes linked to misunderstanding condo complexities:
- Not learning what percentage of the units are owner-occupied. The mortgage lender may not approve or give favorable financing to an association that has more than a certain percentage of investor-owned units. The buyer's loan could either be denied, or the interest rate or LTV ration could be much higher.
- Not checking insurance documents for flood and windstorm coverage, and whether or not the premiums are financed or paid in full. Inadequate insurance could be costly, and not having enough reserves to pay the insurance premiums can also be very costly.
Mistake #4: "In this [Miami] market, the buyer needs to make fast decisions and make an offer, often at full asking price or over," emailed Broker Melissa Rubin, CIPS, CDPE, and Certified Board Mediator, of Platinum Properties International, who specializes in condominiums to serve her international clients and the national luxury market. "If they wait, they miss the opportunity and next month the same property is at a higher price."
Rubin gives this example: "A buyer sees a pre-construction property and is thinking about it. Price today is $1.0M for the 25th floor. Next month, the 25th floor is sold and the 20th floor is for sale for $1.1M. Our market is increasing so rapidly, that if a buyer can hold a unit for 15 days with the rescission period, it is a better decision to do so, and [then] change their mind [if necessary], rather than thinking about it and reacting afterwards."
Mistake #5: Buying mistakes can also be linked to short-term thinking by buyers intent on what they'll do when they move in, not on the investment value of this home purchase.
"The best approach for buyers is to recognize they are buying to enjoy the property and, over a period of time, the additional funds to secure a better property will yield them a better return," stresses Rubin. "There is huge competition among buyers now and bidding low will frustrate them and not achieve their goals."
Mistake #6: MIAMI Broker/Owner Sep Niakan, CRS, GRI, ILHM of HB Roswell Realty is very clear about the most repeated mistake buyers make: "Not buying waterfront and water view when they can afford it. Waterfront and water view units are always easier to sell and always appreciate better in the long run. Buyers' loss is in significant future equity! Buy what is rare and unique such as waterfront or water view."