Did Condos Get Hit Harder Than Houses In The Downturn?

In 2007, I sold my condo and we bought the house of our dreams.  We wanted something that we would be able to start a family in, and the house has served us very well in that regard.

The condo I sold was my first real place, and I left it with great sadness.  Still, I knew that while it was a good bachelor pad, it wasn’t any place to start a family.

The condo was built around 1990.  I think the ‘original’ price was in the neighborhood of $70,000 or thereabouts.  It sold in the early 1990’s for around $80-85k if memory serves.

I bought it in the spring of 1999.  It was listed for $104,900 and I put a full price offer.  There was a second offer, equal to mine, but the seller chose my offer because I was not moving out of another house, therefore I didn’t have another sale in the way of closing.

Everything went without a hitch and I took ownership in March.  Within the first year, I replaced all of the carpeting and re-painted virtually every room.

In 2003, I re-financed from a 30-year 6.875% mortgage to a 15-year 5.25% mortgage.  These rates look high compared to today, but both at the time were pretty good rates.

Based on similar units sold, the condo appreciated pretty well, though nowhere near the crazy levels that were seen elsewhere.  I figure at its peak value around 2005 or 2006, it probably could have fetched $140,000.  It was an end unit, pretty well maintained, and the neighbors were, for the most part, quiet and courteous.

The market had already started to slip, at least in the Detroit area.  Sales had pretty much come to a standstill, so when I met with the real estate agent to help me sell the unit (the same agent who had represented me as a buyer back in 1999), he set the expectation that it could be awhile.  This was in the winter of 2007.  He suggested I paint again and do a few other things, which I did.

We listed the condo for $135,000.  Within a few days, another unit went for sale in my building around $132,000, so even though it had only been a few days, we lowered the price to match.

People looked but things were slow.  It could go a few days between viewings.

After about a month and a half, the realtor indicated that there seemed to be a pretty promising looker.  Sure enough, it was on a Saturday that he told me that we’d received an offer.

At the time, I felt the offer was far below and was actually a little insulted.  Still, after talking it over with my realtor, he advised that I accept it.  The offer was for around $122,000.  I asked him to counter with $124,900, which he did, and it was accepted.  I would also have to pay around $5,000 at closing, so it was really around $120,000.

This still represented quite a bit of equity, but after seeing the values fall around $20k from it’s peak, I was disappointed.  You have to realize that I had no idea of what was really about to come.  I felt we ‘made it up’ on the purchase of our house, as we got the house at $50k less than what the owners had paid for it in 2003 (which I thought was the ‘bottom’, though it went down another $50k or more after we bought it…but back to the condo).

The day of the scheduled closing came and we were told there was a delay. This was a nightmare for us because we were doing both closings on the same day, selling my condo and buying our house.  We were nervous about losing the house, but we had no choice to delay the week or so that the buyer’s lender (Countrywide, if that tells you anything) needed.

The new closing date came and another wrinkle came up.  Turns out that there were some limitations on what we could ‘give back’ to the buyer at closing as part of the transaction.  I want to say it was limited to around $1,000.  My realtor had been in contact with the buyer and asked that we cut her a check during the closing for the difference.

I knew that if I said no, she could just cancel the sale.  But, I also knew that we had leverage, so I offered to split the difference.

She accepted, so we ended up a couple of thousand ahead of where we had planned.  Not too bad.

At closing, I was a little horrified to find out that she would be financing the entire transaction, with a primary and second mortgage taken at the same time, both by Countrywide.  We all know how that turned out, but at the time, if you banked on the values going back up, this didn’t seem so bad.

As it so happens, it was within a couple of weeks of closing that Countrywide problems really began to emerge, and they stopped those type of loans.  So, we beat it under the buzzer.

After seeing the values continue to drop, I was curious as to what would happen with the condo.  I noted in 2008 that the condo was on the market, though it was for rent.  By that time, the buyer was definitely underwater.  I found out from an old neighbor that I kept in contact with, that she ended up moving out of state with an ex-boyfriend.

Tax records for that city are kept online and are available for public viewing.  The summer and winter taxes were paid a couple of times, and then they weren’t.

By this time, values had dropped even more, and I figured that she was giving up the condo.

Over the summer, we had dinner nearby and I wanted to drive by.  The place was definitely in foreclosure as the notices that are common were posted in the windows.  Looking in, the place looked pretty good.  The neighbor that I had mentioned earlier happened to see us, and said that, yes, she had given it up, but that the bank had just put it back on the market.

So I searched and found the listing, and I was floored when I saw what the asking price was:

$49,900.

In 2011, that was 30% lower than it had originally sold for twenty one years prior.  And while it was dated (appliances were all original, linoleum and fixtures were all original), it wasn’t destroyed like other foreclosures, all the wiring and plumbing were intact.  From the listing, you could tell that even the washer and dryer that I had to leave as part of the sale were still there.

It ended up selling pretty quick.  For more than the asking price.

How much more?

$100

That’s right, the property tax records showed that it sold for $50,000.

I simply couldn’t believe it.

I knew condo owners took a bigger hit.  But, not only was the eventual decline more than what our house went down ($75k for the condo vs. $50k for our house), the percentage differeace was huge (62% for the condo, where it was less than a third of that for the house).

As much as I hated seeing our house decline in value, it will take a lot longer for the condo to recover value than it will for the house, at least in term of percentage.

Not only that, but you have to figure at those deflated prices, that you might have had people buying condos that might not otherwise be able to afford them, and that they might not take as good of care of them given the low prices.  This could further keep the prices down.

That was shocking to me.

What have the trends been in terms of houses vs. condos where you live?

 

The Wild-Card Risk Of Buying A Condo

I lived in a condo for almost eight years.  As a single guy, having my ‘bachelor pad’ was great and I loved it.  I got my feet wet in home ownership, actually built some equity with a rising housing market, and had a sense of pride that I never had while previously renting.

When looking around, I did a lot of research and knew pretty much exactly what I was getting myself into before I finalized the purchase.  I knew what my mortgage entailed, I understood the rules, I even understood the monthly association fees.

One of the things that I knew about but never really thought too much about, though, was what I now call the ‘wild card’ risk.  That is the special assessment.

Well, I did learn about it, and chances are if you live in a condo for any length of time, you will too!

With condos, you’re typically not responsible for many of the things that a regular homeowner would be for the ‘common’ areas, typically the exterior of the buildings and the grounds that the condos sit on.  The upkeep of those items is handled by the association dues.  What should happen is that a portion of your association dues is set aside and banked to handle the routine maintenance and upkeep items.

In an ideal world, the amount collected and set aside would always be enough to cover anything that came up.  But, we don’t live in an ideal world.  In my case, it was determined that all of the buildings needed new roofs.  Part of the dues had been diligently funded toward replacement roofs, so this wouldn’t have been a problem, except that the roofs needed to be replaced sooner than had been anticipated.

Essentially, the math worked out that if the roofs lasted fifteen years, there would have been enough collected and set aside to pay for them, but when they wore out after twelve years, as you can imagine, not enough money had been collected.

Waiting three more years wasn’t an option, so the board had to move forward with the roof replacement.  In order to fund the difference, a special assessment was levied on all units.  I think it worked out to a total of $900, which is pretty steep for many.  In our case, the board was able to split the payments over two years, so it was a little less painful.

Still, if you’re planning on buying a condo, make sure you understand that this is a risk.

It’s probably possible to understand that risk, though you never really know for sure.  Some things I’d advise to think about are:

  • Look at the age of the units – There is nothing wrong with buying an older condo, but realize that as buildings get older, they require more and more upkeep.
  • Understand what is considered common: Roofs, windows, doors.  Make sure you understand exactly what is covered and what isn’t.
  • Look at the current condition of the units – Keep an eye out for potential big ticket cost items, and examine their condition.
  • If possible, try to get some history: A nosy neighbor seeing who might be looking at a place could be engaged in a conversation and could probably let you know if there’s a history of assessments.

I wouldn’t let special assessments, or the possibility thereof, scare you off from buying a condo, as it can be a great experience.  But, make sure you understand the risk and implications and plan accordingly.