Real Estate

Making the condo jump

Condos make sense for niche buyers, Realtors say, but beware the fine print

The way Peter Giovannotto sees it, choosing a condominium over a single-family home isn't a matter of square footage -- or even so much cost -- as it is a question of lifestyle.

Giovannotto is a Realtor at Dreyfus Properties, Palo Alto, specializing in condo sales, and he says they may be best for some niche groups -- they offer life a little closer to urban settings while preserving a sense of investment and ownership, their price point is a little lower in the red-hot Palo Alto real-estate market and, with homeowners association dues covering much of the upkeep and maintenance, they can offer some extra freedom to those too busy to trim the hedges or who travel too much to worry about fixing the trim.

That's why he sees condos as the perfect fit for the young, who may be sick of renting but don't want the full commitment of a home, or for older buyers, who are looking for something affordable without the extra issue of constant upkeep work. But while having a homeowners association can lessen the burdens of some everyday concerns, they also add another layer of complexity to the already perplexing process of buying and owning a home.

Want to remodel a kitchen? Remove a wall? Not without homeowner association approval in many cases. And if the association moves slowly, as some are notorious for doing, or only meets once a month, major renovations may have to wait until approval comes through. Giovannotto said he's seen people have to wait for as long as eight months for a renovation to be approved.

Condo buyers also have to be alright with the amount of trust they place in those who manage the association. If qualifications or requirements for running a condominium complex aren't met, it could mean that lenders will keep their distance for a home loan in the condos. While this can be frustrating for those looking to buy a home but can't get a loan, it's absolutely hair-raising for those who want to get out but can't because no buyers can get a loan, Giovannotto said.

Giovanotto related one particularly nasty situation in which a developer owned all of the condominiums in a complex but didn't sell off enough units, retaining ownership of 20 percent of the units as a single individual.

As a result, "it became very difficult, if not impossible, for the lender to loan on the building, so you couldn't sell to anyone with a loan," he said. "The owner would come back and buy the condos back at a discount, and you saw people losing like half the value of their homes."

Giovanotto said he found later, after digging through some Homeowners Association documents, that the owner had also been living in one of the units and was acting as association president, effectively giving him a lot of power in determining the association's rules and regulations.

But these types of issues don't jump out of nowhere, he said. Nearly all of them can be found in the hefty sheaf of documents buyers sign before buying their condos, but it requires some attention to detail and some know-how.

"The devil's in the details, and the details might leave you in a really bad situation," he said. "It really pays to go over everything really thoroughly."

One of the biggest sticking points for most condo buyers is the price of the monthly dues to the homeowners association, but Giovannotto advises not to get hung up on their dollar amount and instead look at what they cover. While it may be tempting to jump for a condo with lower dues, the extra monthly cost won't seem like much when the buyer finds himself paying for termite-damage repairs.

While the dues can sometimes seem exorbitant, it's likely they're reasonable if they're covering eventualities such as roof replacement 30 years down the road, said Juliana Lee, a Realtor with Keller Williams Realty, Palo Alto.

"That's a big chunk of money -- sometimes like $20,000 -- so they make these projections and then collect on a monthly basis," she said. "If an HOA (homeowners association) decides not to charge enough, that can mean if a major cost comes up, they'll have to ask extra."

She said it's best to look for homeowners associations with impeccable reputations and plenty of reserves for the inevitable fix-it projects that will come down the road.

Of course, buyers in Palo Alto may not have the luxury to be so choosy or so thorough. Inventory in the Palo Alto area is bone-dry and home prices are famously high. Giovannotto and Lee said there are usually one to two condos up for sale in the area per week, and they're usually sold within 14 days. And their cost can oscillate as much as their size can -- Giovannotto said condos in the massive Weatherly complex can be as large as 2,700 square feet or as small as 668 square feet, like a condo he sold recently for about $1,000 per square foot.

Still, condos are almost uniformly more affordable than single-family homes, which makes them particularly attractive to first-time buyers sick of paying sky-high Palo Alto rents, Lee said.

"In Palo Alto it makes sense because (a condo) holds its value very well, and there are only so many homes because Palo Alto is small, so supply and demand are pretty much holding," she said. "Interest rates are still close to an all-time low, so it still makes sense to purchase a condo instead of paying rent."

Online Editor Eric Van Susteren can be emailed at evansusteren@paweekly.com.

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