Top 5 Challenges For a Condo Sale

If you’re planning to sell your condo this year, it’s important to be aware of certain things that will seriously shrink your condo’s buyer pool. Here are five of the most common challenges—and some advice on how to handle them so you have a successful transaction:

1. Very high HOA dues. There’s a reason this is listed at number one. Many buyers balk at paying upwards of $500 a month in HOA dues. Of course, some are willing to pay a bit more if, say, the fitness facilities would replace their current gym membership. The reality is that if you’re living in a large building, the operating costs are simply higher, from paying for that 24-hour concierge to maintaining elevators, common areas, pools and roof decks. What You Can Do: Offer to cover six months of HOA dues as part of the deal.

2. Tenant occupying the unit. No one looks forward to taking ownership of a tenant-occupied condo if the intent is to owner occupy the property. Buyers are advised to engage attorneys, and also need to factor in the cost of paying their new mortgage, as well as their current rent. Bottom line is that there are a lot of ways things can go when you assume ownership of a tenant-occupied condo, and many buyers prefer a more straightforward, uncomplicated scenario. What You Can Do: Make sure you respect your tenant’s rights and maintain good will by setting up scheduled open houses, and not insisting on photographing the interior. Have all tenant paperwork in place, especially the rental questionnaire that confirms key details about the tenancy. Make sure your listing agent is knowledgeable about selling tenant-occupied properties so he or she represents all the facts correctly and doesn’t wade into attorney territory when talking with buyers and their agents.

3. HOA litigation. When an HOA is involved with litigation—especially when it’s related to construction defects—buyers can have a hard time getting a loan on the property. And when they can, it will be with a lender such as First Republic that will require 25% or more down, and will limit loans to adjustable-rate mortgages. Many buyers want 30-year fixed loans these days, or they may not have the additional funds to put down. What You Can Do: Make sure your agent is well-versed in the litigation details and runs them past First Republic and two other local lenders. Get their preliminary approval and recommend that buyers work with lenders who have approved the HOA. You should include any relevant litigation paperwork in your disclosures so everyone is clear up front about what the issues are.

4. Soft-story retrofit work needed in future. Certain buildings throughout San Francisco are required to have seismic retrofit work done to comply with a law passed in San Francisco on April 18, 2013. Included in the current mandate are buildings with five or more units constructed before January 1, 1978 that have two or more stories above a garage/basement and hasn’t been seismically strengthened. This work can break down into thousands of dollars per unit; if a seller is moving before the work has been done, the cost will fall upon the new condo owner. Buyers are never thrilled with having to pay large sums of money within a year of two of owning a new property, not to mention having to live in the building while disruptive work is happening (in some cases, not being able to park in the garage). What You Can Do: Disclose the status of any required retrofit work, and consider leaving some money behind to cover the cost for the new owner.

5. High renter-to-owner-occupier ratio. Having more than, say, 30% of condos in a building as rentals again presents lending challenges. Lenders will only offer adjustable-rate mortgages, and may require more of a down payment. Buyers also may not like living in a building with an excess of rented units. What You Can Do: Similar to the litigation issue, it’s a good idea to have one or two lenders give the thumbs up on the building. Have your listing agent order some loan program sheets from these lenders that he or she can distribute at open houses. An educated buyer has a much better chance of completing a sale than one who’s blindsided by a surprise.

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Get in touch:

Eileen Bermingham

Zephyr Real Estate

415.823.4656

ebermingham@zephyrsf.com

BRE# 01352627

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