By Carole Hawkins, [email protected]
Phyllis Staines did three condo deals near the Intracoastal and Beaches last year.
But, the real estate veteran admits, it can be a tough way to earn a commission.
“It all depends on the condominium,” she said.
From experience she knows, there are certain complexes she’ll sidestep.
When it comes to Northeast Florida’s condo market, the picture is also mixed.
Some of the news is rosy. The annual number of sales for existing condos is at pre-recession levels. Prices have recovered by half.
But bank loans for condos have not rebounded. Sixty percent of condo sales in Northeast Florida are all-cash deals. That’s nothing like before the recession, when only 10 percent were.
The reasons have nothing to do with buyer credit or bank lending policy. The problems lie within the condo complexes themselves.
It could take several years to get back to normal.
Lending to two owners
A condo owner buys his or her own unit, but also buys into the shared property managed by the condo association — the grounds, the roof, the stairs and more.
When banks lend, they see two owners — the buyer and the association. It’s a problem for buyers because many associations’ finances haven’t recovered from the downturn.
For a federally backed loan, guidelines require:
• At least 85 percent of the owners in a complex to be current on monthly association fees.
• At least half of the units to be owner-occupied.
• Associations to set aside at least 10 percent of their annual budget in reserves for capital repair and replacement and major maintenance.
They are rules that have been hard to stick by.
“The market crashed and some people just walked away,” Staines said. “We’re talking from $50,000 on up, people were bailing.”
Association dues for groups of units were absent, reserves fell behind.
To catch up, associations raised the dues — in one example, from $182 per month to $540, Staines said.
It made condos a hard sell with consumers. Later, when dues came down, many buyers still opted to rent instead.
Some complexes are doing OK — the associations protected their assets and finances have rebounded. When a condo customer needs financing, Staines steers the buyer toward these.
Few condos make the list
Realtors learn from bitter experience which condo complexes are likely to be underwritten by banks.
A quicker way is to check online lists of projects approved for Fannie Mae or FHA financing. To qualify, condo associations undergo an audit and recertify every two years.
Federal approval matters, because many lenders want to re-sell their loans to Fannie Mae or FHA.
There are many associations, however, that let their certification lapse during the recession. Or, they applied and were rejected.
In Jacksonville only 14 out of 101 complexes on FHA’s list are approved. On Fannie Mae’s list, six Jacksonville projects are approved.
The John Gorrie a condominium appears on both.
That means buyers can apply for a loan with as little as 3.5 percent down. And, bank approval will go more quickly, because the federal government has already underwritten the complex.
It also speaks volumes about the financial soundness of the development, said Ron Buckley, developer consultant for the project.
“The typical buyer probably doesn’t realize the value of all the scrutiny that’s been done,” he said. “But buying real estate — that’s the easy part. Selling it is the hard part.”
The John Gorrie came online in 2011. It was a tough time to sell condos. The project benefited from a clean financial slate, though.
It’s unlike the fractured condo projects of a few years earlier, which may only have been partially sold when the market crashed.
Sometimes developers turned them over to investors or leased units as apartments. After years of not adding to reserves, it was hard to catch up.
“When condos go sideways, as some of them did very badly, it takes years to bring them back,” Buckley said.
Maybe a townhome
instead of a condo
When condos are on FHA or Fannie Mae approved lists, they’re pretty easy to get financed, said Jamie Zeitz of Homebridge Financial Services.
But, he’s financed some that aren’t.
That’s because some projects are doing fine, but haven’t bothered to get recertified. Still, he said, they ought to.
“The condo associations haven’t seen the big picture, that they should spend the time and money if they want to keep themselves relevant,” Zeitz said. “But, there are condos at the beach that are performing fine.”
Another option when a complex isn’t approved is for a buyer to apply to Fannie Mae for a “limited review” of the complex.
It requires a higher down payment, 25 percent, and can only be used for a mortgage on a primary or secondary home.
Tough requirements limiting investors and delinquencies are still there. But on the whole, the process is easier.
When buyers need low-down-payment financing, though, Zeitz said Realtors have three options.
Tell them not to buy a condo.
Look on government websites to see which ones are approved before shopping. Or, introduce buyers to townhomes.
“They are financed just like a single-family home,” Zeitz said.
In other words, no condo association to review.