What happens to condo owner if condo reverts back to apartment?
May 14, 2008 8:25 PM Subscribe
My husband and I are looking at buying this lovely condo that was once an apartment. Unfortunately, with the market the way it is, these converted condos have been on the market since January and haven't sold but one unit. What happens if we buy one and it "reconverts" back to an apartment complex?
We live in the Seattle area (on the eastside).
The condo is gorgeous and I fell in love with it when we toured it, but we are worried about buying it and having the condos convert back to apartments. What happens to people who own units in a complex if it is forced to convert back to an apartment building? Are there any legal rights owners have or are they forced to sell (probably at a lower cost than what they paid, I'm assuming)?
Also is it possible to negotiate the price further down with a condo dealer? I'd want to offer them a little less than what they are asking for and right now I feel that is fair but I don't know how much negotiating is acceptable when it comes to condos from builders.
It is just worrisome that they have only sold one unit so far and the prices are not bad at all. Any advice?
We live in the Seattle area (on the eastside).
The condo is gorgeous and I fell in love with it when we toured it, but we are worried about buying it and having the condos convert back to apartments. What happens to people who own units in a complex if it is forced to convert back to an apartment building? Are there any legal rights owners have or are they forced to sell (probably at a lower cost than what they paid, I'm assuming)?
Also is it possible to negotiate the price further down with a condo dealer? I'd want to offer them a little less than what they are asking for and right now I feel that is fair but I don't know how much negotiating is acceptable when it comes to condos from builders.
It is just worrisome that they have only sold one unit so far and the prices are not bad at all. Any advice?
If you're going to buy, lowball them. Even if it doesn't convert back to an apartment, it's entirely possible that -- even in a hot market -- all the units would sell to investors. And then it would be a building full of renters. Alternatively, the original investors may decide to rent out all the units and you'll have a building full of investors.
If all the buildings in the surrounding area / price point are investor-owned, this may not be a problem for you, in terms of investment.
Get a buyer's agent. You don't have to pay them (at least not where I live) and they'll help you with your negotiations.
posted by acoutu at 8:30 PM on May 14, 2008 [1 favorite]
If all the buildings in the surrounding area / price point are investor-owned, this may not be a problem for you, in terms of investment.
Get a buyer's agent. You don't have to pay them (at least not where I live) and they'll help you with your negotiations.
posted by acoutu at 8:30 PM on May 14, 2008 [1 favorite]
I purchased a new condo in a 30 unit complex in May 2007. The developer has had a tough time selling units because of the market crash, so he decided to purchase half of them himself. The complex is now nearly full, half with buyers, and half with renters of the builder's units. The HOA has had discussions about whether so many renters will have as much interest in seeing that the common areas of the property are taken care of. So far, no obvious negligence, but it's only been a year.
posted by netbros at 8:41 PM on May 14, 2008
posted by netbros at 8:41 PM on May 14, 2008
Why did these places get turned from apartments into condos in the first place? Did the owner change? Why? Were the apartments not lucrative? If so, then why would someone else step in and buy up the whole lot and turn them back into apartments? Why are they having a hard time selling the condos? Is the owner pissed?
These are the kind of things you need to find out. Not only will it help you decide if you want to move there, it will help when negotiating the price, if you do decide to buy. (Personally, though, I don't think it's smart to be the only one buying...)
posted by proj08 at 8:44 PM on May 14, 2008
These are the kind of things you need to find out. Not only will it help you decide if you want to move there, it will help when negotiating the price, if you do decide to buy. (Personally, though, I don't think it's smart to be the only one buying...)
posted by proj08 at 8:44 PM on May 14, 2008
I bought a condo in a building that was converted from rentals to condos about a year and a half ago. The building has 120 units and 30 were sold to owners (a few of whom were former renters in the building who stayed on during renovations). The condo market slowed down a bit, even here in NYC, and the original investors who bought the building and converted it decided to rent out the remaining units for the time being until the market picked back up. That's been going on for about 10 months now, and the renters seem fairly respectful of the space and the building (and the one we came across who wasn't soon left after some owners complained).
None of us have been forced to sell, and I don't see how that would be possible, but I suppose it could happen. I'd fight tooth and nail if it did. The only thing that could be affected is your loan - apparently there's a clause in some of my neighbors' loans that specifies that the building is x percent owner-occupied. But I don't know how that would affect you if you bought and the building later had a different percentage of owner occupation.
Haggle on the price. I offered about 10% less than the asking price and they countered with 8% less than asking. I took it.
posted by bedhead at 8:56 PM on May 14, 2008
None of us have been forced to sell, and I don't see how that would be possible, but I suppose it could happen. I'd fight tooth and nail if it did. The only thing that could be affected is your loan - apparently there's a clause in some of my neighbors' loans that specifies that the building is x percent owner-occupied. But I don't know how that would affect you if you bought and the building later had a different percentage of owner occupation.
Haggle on the price. I offered about 10% less than the asking price and they countered with 8% less than asking. I took it.
posted by bedhead at 8:56 PM on May 14, 2008
If they won't come down on the price, there's other things you can negotiate. I bought a condo from a builder in Queen Anne in 2004. There wasn't much wiggle room on the price as the market was pretty hot back then, but I got fancy appliances like a Bosch washer-dryer, a better parking spot (see if maybe you can get an additional spot, that is usually money in the bank in Seattle), and decorator upgrades.
posted by astruc at 9:21 PM on May 14, 2008
posted by astruc at 9:21 PM on May 14, 2008
Well, this Eastside realtor outlines the worst case scenario here. Having a high percentage of renters can also lower the property values -- our HOA association set a cap on the number of rental units in the complex.
The scary part of the Eastside is that while generally the market is decent near downtown Bellevue and Microsoft, there are a bunch of kind of iffy conversions happening in the Eastgate to Crossroads area where the sales just aren't happening. Over near Sammamish High School, there's the Riverstone complex, which I think is about 20% sold, but they have been selling for over a year now. Near that complex is Belsera, which is about 50% at this point, and there are a couple of new conversions a couple of miles away, the Martine and Champagne, which I don't think have sold their first units yet.
posted by curse at 10:10 PM on May 14, 2008
The scary part of the Eastside is that while generally the market is decent near downtown Bellevue and Microsoft, there are a bunch of kind of iffy conversions happening in the Eastgate to Crossroads area where the sales just aren't happening. Over near Sammamish High School, there's the Riverstone complex, which I think is about 20% sold, but they have been selling for over a year now. Near that complex is Belsera, which is about 50% at this point, and there are a couple of new conversions a couple of miles away, the Martine and Champagne, which I don't think have sold their first units yet.
posted by curse at 10:10 PM on May 14, 2008
You should recheck comparable prices. If the market is dropping then what seems reasonable to you may still be more than you need to pay in this market. A friend just moved to North Carolina and found houses listing for 50% of what they were selling for 12-15 months ago.
posted by metahawk at 10:41 PM on May 14, 2008
posted by metahawk at 10:41 PM on May 14, 2008
Also is it possible to negotiate the price further down with a condo dealer?
Yes. The condos have been on the market since January and only one has sold. Clearly they are priced too high.
posted by Dec One at 5:21 AM on May 15, 2008
Yes. The condos have been on the market since January and only one has sold. Clearly they are priced too high.
posted by Dec One at 5:21 AM on May 15, 2008
Nth'ing definitely negotiate in price. There's more condos nearing completion, and they're not selling. The Seattle market is just beginning to decline. Offer 60% of the current price. They'll reject it, and maybe counter offer for 95%, or just say that you're too low to offer a counteroffer. Call back next month, and every month, with the same price; eventually they'll take it.
Just don't get too mad when a few months later you talk to your newest neighbor (3 units sold!) and find out they paid 10% less than you ;)
Regarding if they go full rental (or 50%-90%, etc), expect maintenance fees to go up (check the contracts for how quickly they can rise, and maybe try to negotiate a yearly percentage cap; I have no clue if that's possible), and expect resale value to go down. It's not too bad to live there when some nice renters move in, but fewer people are going to want to buy a condo in a mixed owner/renter environment. ... 60% might be too high, but you didn't mention price/square footage/location ...
posted by nobeagle at 10:05 AM on May 15, 2008
Just don't get too mad when a few months later you talk to your newest neighbor (3 units sold!) and find out they paid 10% less than you ;)
Regarding if they go full rental (or 50%-90%, etc), expect maintenance fees to go up (check the contracts for how quickly they can rise, and maybe try to negotiate a yearly percentage cap; I have no clue if that's possible), and expect resale value to go down. It's not too bad to live there when some nice renters move in, but fewer people are going to want to buy a condo in a mixed owner/renter environment. ... 60% might be too high, but you didn't mention price/square footage/location ...
posted by nobeagle at 10:05 AM on May 15, 2008
Nobeagle and Snickerdoodle make great points. You may also find it difficult to obtain a mortgage:
"When it comes to condominiums, Fannie Mae requires that entire projects be approved, as opposed to just the particular apartment or townhouse being purchased. It also refuses to buy loans in condo communities that are still under construction until a certain number of units are sold, and it won't purchase loans in places where there are too many non-owner occupied units."
My first loan application was rejected for this reason, so I decided to do some research. This is one of the dangerous aspects of condo ownership. As long as any one entity has a majority interest in the condo association (eg. "a developer" or worse... the bank, if the developer runs out of money and the property is foreclosed) you have **no** protection from any changes the condo association would like to make. The majority party will have all of the votes. Neglect maintenance? Refuse to fix problems in the common area? Pick their expensive friends to do work on the building? Artificially set condo fees low to attract buyers, and leave residents with a big bill later?
To answer your question more specifically, the most common way to "convert a condo building to apartments" is for a landlord to own multiple units. Perhaps your developer will decide to keep them or perhaps they will give a special deal on multiple units to a speculator. Each unit owned affords the owner a percentage of voting rights in the condo association. The more units they own, the more difficult it will be to protect your own interests in the complex. They can change many of the condo rules to suit themselves, and you will have absolutely no recourse. You might continue to live their as an owner happily with absolutely no hassle from all the renters around you, but you should be aware of the possibilities. Banks traditionally view having renters and absentee landlords in your building as risky, because they have less interest in maintaining the property or following the condo rules.
In my case, I did end up buying in "early"-- AFTER the developer dropped the price for my unit well below market value. I had to find a bank that did not sell its mortgages to Fannie Mae-- no easy task. There were just a handful of others living in the condo complex at the time. They bought units at full price, and had to sit back and watch their property values take an instant 30-50% drop when the developer cut prices on similar units. It's going to be a long, hard road for them to recoup their purchase price when a unit with one more bedroom sold for $100,000 less.
posted by Gable Oak at 10:17 AM on May 15, 2008
"When it comes to condominiums, Fannie Mae requires that entire projects be approved, as opposed to just the particular apartment or townhouse being purchased. It also refuses to buy loans in condo communities that are still under construction until a certain number of units are sold, and it won't purchase loans in places where there are too many non-owner occupied units."
My first loan application was rejected for this reason, so I decided to do some research. This is one of the dangerous aspects of condo ownership. As long as any one entity has a majority interest in the condo association (eg. "a developer" or worse... the bank, if the developer runs out of money and the property is foreclosed) you have **no** protection from any changes the condo association would like to make. The majority party will have all of the votes. Neglect maintenance? Refuse to fix problems in the common area? Pick their expensive friends to do work on the building? Artificially set condo fees low to attract buyers, and leave residents with a big bill later?
To answer your question more specifically, the most common way to "convert a condo building to apartments" is for a landlord to own multiple units. Perhaps your developer will decide to keep them or perhaps they will give a special deal on multiple units to a speculator. Each unit owned affords the owner a percentage of voting rights in the condo association. The more units they own, the more difficult it will be to protect your own interests in the complex. They can change many of the condo rules to suit themselves, and you will have absolutely no recourse. You might continue to live their as an owner happily with absolutely no hassle from all the renters around you, but you should be aware of the possibilities. Banks traditionally view having renters and absentee landlords in your building as risky, because they have less interest in maintaining the property or following the condo rules.
In my case, I did end up buying in "early"-- AFTER the developer dropped the price for my unit well below market value. I had to find a bank that did not sell its mortgages to Fannie Mae-- no easy task. There were just a handful of others living in the condo complex at the time. They bought units at full price, and had to sit back and watch their property values take an instant 30-50% drop when the developer cut prices on similar units. It's going to be a long, hard road for them to recoup their purchase price when a unit with one more bedroom sold for $100,000 less.
posted by Gable Oak at 10:17 AM on May 15, 2008
rainygrl716: Also is it possible to negotiate the price further down with a condo dealer? I'd want to offer them a little less than what they are asking for and right now I feel that is fair but I don't know how much negotiating is acceptable when it comes to condos from builders.
All issues of potential ownership aside- EVERYTHING IS NEGOTIABLE. You have two things (potentially) working in your favor:
- It's a buyer's market in general. Sales agents are trying to artificially keep the market propped up by overpricing their listings because it only takes one sucker saying "yes" to close the deal.
- I don't know the Seattle market, but here in NYC the vast bulk of available inventory is recent condo developments that can't sell their units.
Use PropertyShark and Zillow relentlessly. Lowball the crap out of the asking price.
posted by mkultra at 11:44 AM on May 15, 2008 [1 favorite]
All issues of potential ownership aside- EVERYTHING IS NEGOTIABLE. You have two things (potentially) working in your favor:
- It's a buyer's market in general. Sales agents are trying to artificially keep the market propped up by overpricing their listings because it only takes one sucker saying "yes" to close the deal.
- I don't know the Seattle market, but here in NYC the vast bulk of available inventory is recent condo developments that can't sell their units.
Use PropertyShark and Zillow relentlessly. Lowball the crap out of the asking price.
posted by mkultra at 11:44 AM on May 15, 2008 [1 favorite]
Kind of parallel to the whole risk of not selling discussion, is that in the Seattle area, new and conversion condos have had a particularly bad track record with regards to siding and deck issues. Some of the problems are discussed here.
In the conversion I'm living in now, we've had to deal with this issue -- all of our repairs are done and we came out relatively well after a lawsuit against the conversion company, but typically things don't usually work out that well. The risk is that if the siding and/or deck grading is found to be substandard, the blame for the issue could either fall on the conversion company or the original builders. Add to this the layer of shell companies and corporations formed explicitly for the conversion process and it can be incredibly difficult to find someone willing to pay even if you can win a judgment.
Typically, a home inspection on a condo will focus on the interior of the unit, and do a cursory inspection of the outside. If you do decide to offer on the property, see if you can get a more detailed inspection of the exterior, particularly paying attention to siding issues.
posted by curse at 1:00 PM on May 20, 2008
In the conversion I'm living in now, we've had to deal with this issue -- all of our repairs are done and we came out relatively well after a lawsuit against the conversion company, but typically things don't usually work out that well. The risk is that if the siding and/or deck grading is found to be substandard, the blame for the issue could either fall on the conversion company or the original builders. Add to this the layer of shell companies and corporations formed explicitly for the conversion process and it can be incredibly difficult to find someone willing to pay even if you can win a judgment.
Typically, a home inspection on a condo will focus on the interior of the unit, and do a cursory inspection of the outside. If you do decide to offer on the property, see if you can get a more detailed inspection of the exterior, particularly paying attention to siding issues.
posted by curse at 1:00 PM on May 20, 2008
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