WWYD condo situation.

palimpsestJune 5, 2012

As you know from a previous post my unit has been on the market for over 18 months.

Situation: very high condo fee for building type although it includes HVAC, pool fees, just not plug ins (~$50/mo). There are much higher fees in the city, but in a trendier part of the neighborhood and in the "high maintenance individual" market--the type of buyer who wants the desk man and doorman to kiss their butts every morning:)--not happening here...

The high part of the fee is to sustain building reserves in an old complex. Since the fees were raised a few years ago, not a single unit has sold at or near market value. Only defaults have sold, for minimal prices.

Feedback tabulated

Price: Very good -to -low (85%)

Reason for not considering unit: Condo fee.

Stairs both in building and in unit (there is a small elevator in building, you still must walk down 8 steps).

No powder room

Unit shows/condition: Good-to-excellent: 90%

Alternatives under consideration:

1) Raise price: it may attract buyer who can afford almost $500K in property, instead of the $320K+ condo fee, who will negotiate price back down because of condo fees, no doorman. Counteintuitive but has worked in the area. Has to be for a particular kind of buyer, like someone who will pay cash or a huge downpayment. They exist here, they usually buy a different type of condo.

2) Lower price to get the monthly carrying costs that most people who will look at the property are comfortable with. This has not seemed to work with some units, because the condo fee still can't be deducted like a mortgage can.

3) Keep price the same but pay back a certain amount of condo fee at settlement within the legal allowments. (Don't quite understand this one, why not just lower price?)

4) Move out and rent it since I own the other property. ( I don't like this one for several reasons, but maybe this makes sense.

5) a couple other people have chosen default, not because they couldn't afford to keep both and rent one, but because they just stopped caring and default doesn't seem to have the negative implications it once did, especially if you already have other property and a decent income. I would NEVER do this.

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Since the condo fee is the big one I like #3 if you can do it for a meaningful time. It would mean more to buyers than a lower price because they can deduct the mortgage not the condo fee. Plus at least I think it is a different angle to take.

    Bookmark   June 5, 2012 at 2:21PM
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I see how that works. I didn't understand it but the deduction aspect makes sense.

    Bookmark   June 5, 2012 at 2:26PM
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Any chance your board would lower the fees for everyone? I am guessing not, but you could try raising the issue at the next meeting, and try to get all of the people who have tried to sell to attend.

    Bookmark   June 5, 2012 at 3:56PM
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Where are you Palimpsest? How is the rental market?

What would you feel about renting out on a year-to-year lease basis?

    Bookmark   June 5, 2012 at 5:19PM
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The issue of lowering the fee again now that our reserve is somewhat more stable has been brought up and whenever it is an owner on the market, the response is "Of course you don't care what happens with future maintenance, you just want to get out of here".

The rental market is strong and I am renting out the place I want to live, which rents easily . I don't want to rent out this place for a couple reasons.

    Bookmark   June 5, 2012 at 6:02PM
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Putting myself in the place of a potential buyer, I don't think there's anything that would overcome the high condo fees. Even if on a short term basis they are mitigated, they'd be a long-term drain. It wouldn't work for me.

Because of that, I'd probably go with the rent option, and rent it out until there are sufficient reserves that the HOA can lower the fees back down to a reasonable level.

Alternatively, could you convince the HOA to separate out the "build up reserves" part from the ongoing fees part? Then owners could either pay off the reserve/special assessment or keep making payments. You could pay off yours and then your fee would be lower going forward, permanently.

    Bookmark   June 5, 2012 at 7:38PM
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We did ask a few people "what price would mitigate the fees" and a couple of them said they couldn't even think of one.

Although the board presented the increase as a specific reserve fund, it is not. The increase to each unit goes toward the reserve but it is not "separate" and they won't do so.

There are a couple reasons I don't want to rent: This property will Never look like it does now with a renter here. It was short-listed for publication in a national magazine. A couple of Realtors and a couple of buyers said as far as its condition and curb appeal, "the Best" they had seen in years at anywhere close to this price. Renters usually have awful furniture and they don't take care of things, so it would only be downhill from here on with a renter. Not something I would be ready to show with an hour's notice if it was on the market.

The renters in my house are decent, but they are Not careful with things, and have really stained what was brand new carpet (that they complained about before they moved in), broken a couple door knobs and generally put mileage on the house. I think that is the general trend, at least here.

The other reason is that I can afford to live in the house and rent this out, but I can't afford to 1) lower my mortgage substantially, 2) renovate to my liking, the house with cash on hand, if I don't sell this. I am in no huge hurry except I would like my father, who is 88 to be able to stay with me for an extended time, and he can't stay here if he is here long enough to need a bathroom, because of the open tread winding stair.

    Bookmark   June 5, 2012 at 8:24PM
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I had responded to your original post. We are now in Florida but looking for a condo in NY as a second home. Coops in NY have very high monthly charges. The charges cover the heat/hot water, taxes and reserve. They are very high.

Coops work by shares based on sq foot and the larger unites (2-beds) are too high for us. I get listings daily and our son (in NY) will go to look at some. There are so many beautiful units which have been sitting over a year. There have been multiple price reductions and they are still not selling. I feel for the owners, but I can't justfying buying with those fees.

Price reduction does not work very well, at least in NYC. Some units are now listed as bank owned. Most of the units that have been listed over a year (after multiple price drops) are now renting.

I feel for you but understand. We are on the otherside of your situation and that monthly charge makes these properties very undesirable. We will probably buy one but will have to buy a 1-bed, which really will be difficult.

I think you might have to rent.


    Bookmark   June 5, 2012 at 11:42PM
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Our co-ops here used to have price controls and some of the buildings never allowed sales on the open market. The shares were bought back by the associations and the associations resold the unit. One building went to market pricing during the bubble, and I wonder if this was a mistake. They never used to have a vacant unit, now at market pricing, they do.

I am having conversations with a board member about the analysis of recent sales and effects on pricing and we are pretty much in agreement about what has happed to sales and the prices we can ask (About $100,000 less per typical unit than neighborhood comps). The problem will be finding a solution. I would wait out another year if necessary rather than renting, I am not in a position that I need to be in that other house absolutely and I am fine renting that one.

    Bookmark   June 6, 2012 at 9:00PM
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I would think that the board has an incentive to do something about the fees to make the units more salable. Even if they don't want to sell NOW, if the units aren't salable except at a steep discount, then people will continue to default, and you'll have a building full of foreclosures, which hurts everyone.

It's a tough spot to be in, but perhaps this quandry can spur them into action.

Any idea on what the ceiling is on the fees in order to not turn off potential buyers? That can be a benchmark for the board to work towards, and they can get creative around that.

    Bookmark   June 6, 2012 at 9:38PM
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The fees unfortunately turned off buyers BEFORE they were raised another 35%. The ceiling is below what they will ever be again. But the prices were corrected for the fees at that level.

But potential buyers compare the fees (which include all utilities except plug ins) to condos where the utilities are separate, where there is no pool or the pool fee is separate that have electric heat and hot water, etc. And Realtors feed them the wrong information, too.

Unfortunately I am finding people do NOT really READ the listing before they look. My listing explicitly spells things out, but for example some of the feed back

"disappointed no powder room/second bathroom"
--its listed as one bath

"did not like that there were stairs in the unit"
--its listed as a bilevel with Bath on second floor of unit

"did not realize it was on the third floor"
--its listed as 3-Front

"kitchen is very small"
--called compact in listing, two pictures

"Love the unit, but have a dog
--"NO DOGS in association" in capital letters in listing

    Bookmark   June 6, 2012 at 9:53PM
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All of those distressed sales in the complex have created a new market value for your place. If me, I would be heading up a mutiny with the rest of the homeowners. Show them with facts how the HOA has turned the complex into an unmarketable property.
Also, don't forget that lenders will not finance a condo if more than 51% of the units in the complex are rentals...

    Bookmark   June 7, 2012 at 7:24AM
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There are much worse situations, new large buildings that are so undersold that the maintenance fees coming in are not enough for the basics, units being auctioned for sale to increase occupancy, buy one-get one deals.

One of the board members has been receptive to my discussions and analysis of what this has been doing to pricing, but we really do need to maintain our reserves, we are a series of buildings between 80 and 170 years old with a near-50 year old rehab. So we are all in the same boat: I think the fee could be Reduced perhaps, but they are not using the money to go on vacation :). We run through tons of assessment money on infrastructure.

    Bookmark   June 7, 2012 at 10:59AM
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Can you stage a coup? i.e. get yourself and one of the other people trying to sell on the board?
In my small building we have kept assessments reasonable but with the understanding that there would be special assessments for big ticket items, like the roof.

    Bookmark   June 8, 2012 at 8:05AM
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The coup would only be 10 months from now at the next elections. The last time this was attempted the one guy ended up getting "recalled" by the homeowners, and the other really converted to the idea that the raise was needed.

    Bookmark   June 8, 2012 at 2:06PM
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Although it's not logical, I do think that offering to pay the fee for a year might help (people are often irrational when buying a home).

I feel for you--when I first moved to this area and was renting, there's a complex across the street on the beach where the one-bedrooms were amazingly cheap (even in 1998 $35K to be on the ocean was pretty remarkable), but I discovered that in that complex everyone paid the same maintenance fee, whether you had a three-story townhouse directly on the ocean or the mingey little one bedroom overlooking the parking lot. So the fee was about double what it would have been anywhere else out here.

At the time I just thought I'd rather be paying that money towards equity than seeing it vanish in fees, but now I realize that it would probably have been tough to unload one of those one bedrooms, too.

    Bookmark   June 8, 2012 at 2:12PM
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