Joining the 'Condo Club'

Follow Mortgage Insurers When Investing in the Condo Market

July 2011 - For many first time buyers affordability dictates whether a condo will become the first home they will buy, their initial investment in Real Estate.   After the market correction of 2008, there is significant value and opportunities in this segment for the entry level buyer.   Mortgage insurers (CMHC, Genworth & Canada Guarantee) and lenders; have closely monitored their loss experience of recent years.   As a result they are more selective in the condominiums they will underwrite.

If this is your first step on the property ladder, take the same stance as the insurer or lender.  If they find issues with a property are these indications that this is not the best place to invest your housing dollar?  When you upgrade to a better property a few years down the road, will this initial property maximizes your investment?   Will there be any obstacles to financing for a new buyer when your property hits the market? 

In the last year I have had condominium properties, not the applicant, declined for the following reasons:

• Some insurers and lenders are staying away from condominium developments with “age” restrictions such as plus 18 or 55 and up.   If a property goes into default, the insurer/lender wants no restrictions in the resale market.    Unless an age restriction is something you value or desire as an owner this may not be the home for you.  
• Pending litigation can also cause the insurer to say no……….This year I had a client make an offer on a condo, built in 2007.  In 2007 on completion the owners had launched a suit against the builder to cover initial deficiencies. In 2011 it was evident that this litigation was uncollectable.   The current board had not released the suit out of principle.  The condo fees and a small special assessment had taken care of all building issues.  The insurers were not willing to under take any further units in the complex with any form of litigation present.
• Some lenders are now asking for Condo Documents for review prior to approval.   Financials are reviewed to ensure that reserve funds are sufficient to meet the needs of the development.  If the board minutes mention special assessments, lenders want to confirm the nature and extent of the assessment.   In many cases they want to ensure the special assessment has been paid in full by the current owner.
• The square footage can also be an issue.  Very few lenders will finance condos 500 square feet and under, some have set the ceiling at 600 square feet.   Lenders have concern that in default, these smaller condos may have poor resale options. 
• Some lenders are staying away from condo conversions due to previous loss experience.
• Some buildings have been red flagged due to specific issues such as post tension, water penetration, mold etc. 

So what does this mean for entry level Buyers looking to the condo market?  Does this mean buyers should stay away from this market segment?   Not at all……., It means simply that you MUST do your due diligence with your purchase.  Select a REALTOR® based on their knowledge and experience in this specific area of the market.  Thoroughly review the condo documents provided.  If a lender has apprehension about a property, so should you.

Greg Gullekson, Mortgage Broker
Dominion Lending Centres Westcor
403.244.9133
www.greggullekson.ca

HOW DO YOU BUY THE ‘RIGHT’ CONDO?

July 2011 - In 2003 I bought my first condo in downtown Calgary, it was so exciting.  I wasn’t in the real estate business at the time so I relied on my REALTOR® to help me through the process.  In hindsight, I can see now that his knowledge of condos were limiting at best.  A few years later I became a REALTOR® and I quickly identified my need to learn everything there was to know about condos.  As a result I became a Certified Condo Specialist and then went on to become Condo President of my own building.  What I have learned with both experiences has been invaluable both for me as a professional and for my clients.

What can I share with you?  The process of buying the ‘right’ condo starts very early.  It begins with knowing what condo ownership means.  I tell my clients it’s much like buying into an elite club.  Your rather large membership amount means that you need to abide by all the rules and regulations of the club.  You need to know what is acceptable and what isn’t permitted in your new club.  You need to be involved with the other club members after all you’re attached to them both physically and financially.   The next step is ensuring you have a REALTOR® that knows all about condos.   They will guide, educate and help you during the buying process.   The REALTOR® I had in 2003 knew very little about condos, I don’t even recall seeing or hearing about condo documents.  My lawyer didn’t help me too much either.  She failed to advise me of and then discharge three Caveats attached to my property.  The first one was an age restriction (60 plus) on my title. As I roamed the halls later and checked my birth certificate – I couldn’t help but notice none of us looked anywhere near to 60.  The caveat from 1911 was not discharged either, but then again I didn’t see any harm in not allowing anyone in the building to run a prostitution house, gambling hall or a liquor canteen.  The 1905 caveat was lost, who knew what that one was about – maybe a grain elevator could never be erected there.  Nevertheless, when I went to sell my condo the Buyer’s Lawyer requested that at my expense these all be discharged.  In addition, on the possession day the lender decided not to release funds with the age restriction, eventually this was sorted out but not without my aneurysm flaring up.

How does one avoid potential problems?  Again, it starts early.  When I’m showing condos I like to talk to owners.   If they happen to be in the elevator or walking by us I want my buyer to hear what they think of the building and the Board.  When my client finds the condo they want and they are ready to write up a purchase contract - I always pull title.  The title identifies the owner, the original mortgage amount or other additional mortgages as well as restrictive covenants, caveats and easements.  These are all very important things to know.  When it comes to the  purchase contract,  under  ‘Additional Terms’ I insert two points that provide additional protection for my buyer, these are identified as special assessments or other financial obligations  that have been announced, levied or due on or before the possession date.  The Seller then becomes financially responsible for these.   When condo documents are received, review these thoroughly – particularly the Board minutes and By-Laws.  The condo reviewer will be quite thorough with the financials.   Then when you move in, join the Board.  Take responsibility for what happens within your club, be active, care. 

I was voted in as our condo Board President as a result of what I would consider, ‘a hostile takeover’ of the old and very incompetent Board.  Greg Gullekson and I successfully teamed up as he was also the Treasurer of our Board.  With much due diligence on our part we halted a special assessment that could have bankrupted many owners.  With hours of research and meetings with contractors we proceeded with a building envelope restoration at a cost that was 60% less than that of the original Board.  We exceeded the expectations of all owners in the end, with a building that looked spectacular.   

Condos offer a unique ownership opportunity.  A condo can be an excellent investment particularly to a first time buyer.  It can be a wonderful lifestyle choice too.  This is all dependent though on choosing the right condo.   Make sure your team of experts: REALTOR®, Mortgage Broker, Condo Reviewer, Lawyer, your personal advisors are worthy of joining YOUR club.   

Jacqui Williamson, REALTOR, Certified Condo Specialist
Century 21 Bamber Realty Ltd.
403.245.0773
www.jacquiwilliamson.com