First time buyer--How do I make an offer on a condo?
September 6, 2010 5:35 PM Subscribe
First time buyer --How do I make an offer on a condo?
I am looking at a nice place for 40K (no typo). It has been on the market since July 20. I have looked at 3-4 in this building and a few more at higher prices. The neighborhood is slightly sketchy (but seems better than the last time I was here--also the place itself looks spiffed up). There is new mixed-use development going up across the street. Some of it is complete (movie theatre, foo foo lounge) -- and condos starting over there at 135K. This building has 10 or more units for sale. Here's why, I suspect: There will need to be an assessment for sprinklers of at least $300,000 (110+ units). I don't know how they will charge for that, or if it would all be due at once. One friend who lives there thinks it will be by square foot. It may be that they will get a historical grant to cover it, according to another woman who lives here. (The building next door was placed on the National Register of Historic Places.) I have spoken to three people who live here who love it. The monthly fee is $185. It is an FHA unit and I can borrow the 3%. If I ask the seller to pay closing costs, what should I offer him/what is reasonable? Thank you for any help you may be able to offer.
I am looking at a nice place for 40K (no typo). It has been on the market since July 20. I have looked at 3-4 in this building and a few more at higher prices. The neighborhood is slightly sketchy (but seems better than the last time I was here--also the place itself looks spiffed up). There is new mixed-use development going up across the street. Some of it is complete (movie theatre, foo foo lounge) -- and condos starting over there at 135K. This building has 10 or more units for sale. Here's why, I suspect: There will need to be an assessment for sprinklers of at least $300,000 (110+ units). I don't know how they will charge for that, or if it would all be due at once. One friend who lives there thinks it will be by square foot. It may be that they will get a historical grant to cover it, according to another woman who lives here. (The building next door was placed on the National Register of Historic Places.) I have spoken to three people who live here who love it. The monthly fee is $185. It is an FHA unit and I can borrow the 3%. If I ask the seller to pay closing costs, what should I offer him/what is reasonable? Thank you for any help you may be able to offer.
We just bought a condo. Definitely get a real estate agent to represent you. If you can find one via friends that has a good reputation, this simplifies the process a lot.
posted by SpacemanStix at 5:39 PM on September 6, 2010
posted by SpacemanStix at 5:39 PM on September 6, 2010
Best answer: In this market?
First, "borrow" the money. Then try to get approved for the loan. In this market, count on your bank accounts being scrutinized, so they're going to see that lump-sum payment you "borrowed" and they'll look at it with a frown. Assuming you manage to get the loan approved with that down payment (I hope FHA can do it, in this market 10% is being asked for with most loans), you contact the realtor and say "I have a x% down payment and loan approval for the amount of [loan amount] from [lender]. I'm prepared to make an offer at [offer amount], provided the [conditions you need met, such as inspection] are met."
That's it, really.
posted by davejay at 5:40 PM on September 6, 2010
First, "borrow" the money. Then try to get approved for the loan. In this market, count on your bank accounts being scrutinized, so they're going to see that lump-sum payment you "borrowed" and they'll look at it with a frown. Assuming you manage to get the loan approved with that down payment (I hope FHA can do it, in this market 10% is being asked for with most loans), you contact the realtor and say "I have a x% down payment and loan approval for the amount of [loan amount] from [lender]. I'm prepared to make an offer at [offer amount], provided the [conditions you need met, such as inspection] are met."
That's it, really.
posted by davejay at 5:40 PM on September 6, 2010
Best answer: Also, having an agent represent you, as suggested above, is a good idea but will not necessarily help you figure out why the valuation is so low. Perhaps you should make your offer contingent on reviewing the condo board's records for that unit (complaints, pest problems, insurance-covered repairs, and so on) and do a little digging on the transaction history.
posted by davejay at 5:41 PM on September 6, 2010
posted by davejay at 5:41 PM on September 6, 2010
Best answer: Hire a lawyer to take a look at their reserve fund. Once you buy in, if that reserve fund needs big boosting, you're the one who has to poney up. Also, if some of the units aren't sold then the rest of you have to make up the difference if there is structural damage to the building itself.
Definitely hire a lawyer to look at those things. A real estate agent, IMO, is not enough since they want to sell you something. A lawyer just gets paid by the hour.
As well, get someone to do a full inspection of the place (300 bucks or so).
Good luck.
posted by fantasticninety at 5:52 PM on September 6, 2010
Definitely hire a lawyer to look at those things. A real estate agent, IMO, is not enough since they want to sell you something. A lawyer just gets paid by the hour.
As well, get someone to do a full inspection of the place (300 bucks or so).
Good luck.
posted by fantasticninety at 5:52 PM on September 6, 2010
Response by poster: I'm asking: what is a reasonable offer for me to make?
If I only had a penguin=it's the new building across the street I quoted (this one was built in 1911). And although I agree with you on the "if it is too good to be true..." there are several other units at the same or lower price.
Spaceman stix, davejay=It was my agent that gave me the FHA info.
davejay=Please elaborate on "in this market".
posted by Prairie at 5:55 PM on September 6, 2010
If I only had a penguin=it's the new building across the street I quoted (this one was built in 1911). And although I agree with you on the "if it is too good to be true..." there are several other units at the same or lower price.
Spaceman stix, davejay=It was my agent that gave me the FHA info.
davejay=Please elaborate on "in this market".
posted by Prairie at 5:55 PM on September 6, 2010
Find out their dues, how many units are behind on their dues or not paying them, what upcoming large projects they have on their list (roof replacement, siding, painting etc), what their policy is when some units are not paying dues (split among rest, reduce etc), go through all their rules (you don't want no guests ever policy or no window AC unit allowed or something else odd), and visit the condo at varying times to make sure you won't have neighbors who yodel or play the drums at bad times, plus knock on their doors and say hi to check there aren't any pet or other hoarders if possible (fire and health hazards).
posted by meepmeow at 6:00 PM on September 6, 2010 [1 favorite]
posted by meepmeow at 6:00 PM on September 6, 2010 [1 favorite]
Prarie, one of the things that a real estate agent representing you will do is look up what other similar units in the building and neighbourhood have sold for in the past few months. This will help you decide what the market prices for condos in the building is. Also, your real estate agent can call the sellers agent and sometimes get a sense of what non-monetary concessions might sweeten the deal for the seller. Also, the real estate agent can help you determine what conditions you want to put on your offer and draw up the offer papers for you with those conditions: For example, you will want to make the offer conditional on having your lawyer go over and approve the buildings finance records, you will make it conditional on the operation of various things (i.e. if you on close day the furnace doesn't work or the dishwasher is leaking you'll be allowed to either back out or reduce your buying price without losing your deposit). Oh, and your real estate agent can help you settle on a deposit size (deposit and downpayment aren't the same thing).
Really. You need a real estate agent representing you. An "offer" is not you calling up and saying I'd like to pay X. It's a legal document that you will be bound to if the seller accepts. You should not have to pay for the real estate agent.* The agent representing you will be paid out of the commission paid by the seller (e.g. in my case the seller paid a 5% commission and half went to my agent). Do not let the sellers agent draw up the offer. They do not represent your interests and in fact are bound by fiduciary duty to the seller to sacrifice your interests for the sellers.
*OK, I think this part varies by your location.
posted by If only I had a penguin... at 6:04 PM on September 6, 2010 [1 favorite]
Really. You need a real estate agent representing you. An "offer" is not you calling up and saying I'd like to pay X. It's a legal document that you will be bound to if the seller accepts. You should not have to pay for the real estate agent.* The agent representing you will be paid out of the commission paid by the seller (e.g. in my case the seller paid a 5% commission and half went to my agent). Do not let the sellers agent draw up the offer. They do not represent your interests and in fact are bound by fiduciary duty to the seller to sacrifice your interests for the sellers.
*OK, I think this part varies by your location.
posted by If only I had a penguin... at 6:04 PM on September 6, 2010 [1 favorite]
In a bad market, you should be able to get away with offering 10-15% below asking price, at least that's what I've done, and it worked out pretty well for me. It sounds like this is an undesirable property so they will not expect to get their asking price. 20% below asking price is about the lowest I've heard of being offered.
Also, you ought to be able to contact the association/management company to find out what the assessment will be for each unit and when it will be. That will be very important, there's no way you can decide what the house is worth without knowing this information. Remember to get a good inspection to see if there is any reason why these condos are being offered at such a low price that is also a good reason you should not buy them.
I'm not big on real estate agents myself (I've bought and sold houses without using them), but when you're the buyer, there's really not much downside to using them. You can use Zillow.com to see what other units have recently sold for, though, you don't specifically need them for that. It searches public records, so you can also get this information through public records.
posted by treehorn+bunny at 6:13 PM on September 6, 2010
Also, you ought to be able to contact the association/management company to find out what the assessment will be for each unit and when it will be. That will be very important, there's no way you can decide what the house is worth without knowing this information. Remember to get a good inspection to see if there is any reason why these condos are being offered at such a low price that is also a good reason you should not buy them.
I'm not big on real estate agents myself (I've bought and sold houses without using them), but when you're the buyer, there's really not much downside to using them. You can use Zillow.com to see what other units have recently sold for, though, you don't specifically need them for that. It searches public records, so you can also get this information through public records.
posted by treehorn+bunny at 6:13 PM on September 6, 2010
We're having a problem directly answering your question because we don't know your objectives. First, are you looking for a nice place to live, a killer real estate investment or a way to speculate on the gentrification of your neighborhood? Different objectives will result in different offers. If you want a nice place to live, ask your realtor what the reasonable value of the unit is and offer that. Be ready to walk away if the seller does not accept your offer. If you want to "play the game" offer 10% less than what you would be willing to pay and accept the seller's counter offer at or below the price you would have been willing to pay.
If you are looking at this as a killer investment, low-ball your offer knowing that no sane person would accept that price, but what the heck, nothing ventured nothing gained. You can decide whether the seller's counter makes it still look killer to you.
If you think this is a good speculation based upon the ultimate gentrification of the neighborhood, ask your self how long you are willing to wait for all of the other units that are now for sale to go off the market. Some of them will be foreclosed (lowball competition), some will keep going down as desperate sellers panic, and some will go off market as owners decide to ride it out.
Frankly, if you are not simply looking at this for a nice place to live, I would pass on this property with all of the unknown factors (your own financial situation included). I would not be making this purchase if I had to borrow the down payment.
posted by Old Geezer at 7:44 PM on September 6, 2010
If you are looking at this as a killer investment, low-ball your offer knowing that no sane person would accept that price, but what the heck, nothing ventured nothing gained. You can decide whether the seller's counter makes it still look killer to you.
If you think this is a good speculation based upon the ultimate gentrification of the neighborhood, ask your self how long you are willing to wait for all of the other units that are now for sale to go off the market. Some of them will be foreclosed (lowball competition), some will keep going down as desperate sellers panic, and some will go off market as owners decide to ride it out.
Frankly, if you are not simply looking at this for a nice place to live, I would pass on this property with all of the unknown factors (your own financial situation included). I would not be making this purchase if I had to borrow the down payment.
posted by Old Geezer at 7:44 PM on September 6, 2010
If you are borrowing 3% from one source so that you can then turn around and borrow the other 97% from another source, then you are basically repeating the pattern that led to the real estate crash in the first place -- over-leveraging yourself to buy something you really can't afford. There's a reason that's a bad idea.
So how much should you offer? I'm thinking the answer to that question, at least for the time being, is $0.
posted by spilon at 8:32 PM on September 6, 2010
So how much should you offer? I'm thinking the answer to that question, at least for the time being, is $0.
posted by spilon at 8:32 PM on September 6, 2010
IANYL, and I am not offering advice on this particular buy, but generally, but I would second what the everyone else has said regarding getting an agent. Granted, those agents have an interest in seeing you buy, too, but the important thing is that they have resources and knowledge that you do not.
Second, get an inspection. They're not always helpful, and certainly not reliable in a legal sense, but they have experience and knowledge that you do not. Even if they open up new avenues of questioning for you, they're worth it. (Likely case is that an inspection will be necessary as a condition for a mortgage anyway, so you might as well do it before signing an offer.)
Third, get a lawyer. GET A LAWYER BEFORE SIGNING ANY OFFER. Make the offer conditional on your lawyer's approval. Whatever it is, DO NOT lock yourself in before you get a lawyer to look at it. Your lawyer won't be able to advise you on the merits a particular purchase as a business decision -- only you can decide that -- but they will definitely be able to give you more information required to make that informed decision.
Up here, lawyers have access to what is known as a 'status certificate'. It tells the financial particulars of any condo corporation, in terms of the reserve fund, its insurance coverage, etc. That status certificate says everything and nothing, but your lawyer will know how to read it. (The particulars of your jurisdiction may differ, but I can't imagine the principle is much different.)
In short, you have to spend money to make money. Spend money on agents, inspectors, lawyers. Rely on their expertise. Relying on them is not an indication of some personal shortcoming, but rather a reflection of your sophistication as a smart shopper, in that you realize that there are others more trained in these dealings than you. Relying on those pros -- and their insurance coverage -- is never a bad idea.
posted by Capt. Renault at 8:43 PM on September 6, 2010
Second, get an inspection. They're not always helpful, and certainly not reliable in a legal sense, but they have experience and knowledge that you do not. Even if they open up new avenues of questioning for you, they're worth it. (Likely case is that an inspection will be necessary as a condition for a mortgage anyway, so you might as well do it before signing an offer.)
Third, get a lawyer. GET A LAWYER BEFORE SIGNING ANY OFFER. Make the offer conditional on your lawyer's approval. Whatever it is, DO NOT lock yourself in before you get a lawyer to look at it. Your lawyer won't be able to advise you on the merits a particular purchase as a business decision -- only you can decide that -- but they will definitely be able to give you more information required to make that informed decision.
Up here, lawyers have access to what is known as a 'status certificate'. It tells the financial particulars of any condo corporation, in terms of the reserve fund, its insurance coverage, etc. That status certificate says everything and nothing, but your lawyer will know how to read it. (The particulars of your jurisdiction may differ, but I can't imagine the principle is much different.)
In short, you have to spend money to make money. Spend money on agents, inspectors, lawyers. Rely on their expertise. Relying on them is not an indication of some personal shortcoming, but rather a reflection of your sophistication as a smart shopper, in that you realize that there are others more trained in these dealings than you. Relying on those pros -- and their insurance coverage -- is never a bad idea.
posted by Capt. Renault at 8:43 PM on September 6, 2010
Response by poster: Old Geezer=I am looking for a place to live. It seemed better than continuing to pay rent. I've been gainfully employed at the same place for 12 years (although we all know that could change in a second)
spilon=40K didn't seem like overextending myself (15 year mortgage about what I pay for rent now and 30 much less), although I do see your point about borrowing.
All=I appreciate your input! Very useful!
posted by Prairie at 4:30 AM on September 8, 2010
spilon=40K didn't seem like overextending myself (15 year mortgage about what I pay for rent now and 30 much less), although I do see your point about borrowing.
All=I appreciate your input! Very useful!
posted by Prairie at 4:30 AM on September 8, 2010
This thread is closed to new comments.
posted by If only I had a penguin... at 5:38 PM on September 6, 2010