Condo-Mania!
by Richard
There are signs that bargain hunters are now bottom fishing in the real estate market.
If in fact we are at or near the bottom, a fact not yet definitively settled.
We may have dialed prices in some markets back to 2005….but this way-back machine could go all the way to the nineties now that entire asset classes are being dumped into illiquid markets by hedge funds and banks that are deep into the process of deleveraging.
If you are one of those brave souls testing the market, you should be proud to know that you are helping the market to perform a very important function known as “price discovery”. And heaven only knows that we need participants on the buy side if we are ever to restore liquidity to markets that have seized up as bid and ask prices span a very wide and deep chasm.
One sign of the market clearing mechanism is the rise of the “no reserve, no minimum” real estate auctions that are rapidly ramping up. In good times, sellers will place a reserve or minimum price as a floor, below which bidding is prohibited. But that will not draw enough heat in this market to pull the buyers in.
Once buyers know that the property is being sold “absolute”, these auctions pick up steam and momentum. For now, most of the properties being offered are pricey second home trophy properties in posh resort areas, and condominiums in frantically overbuilt and overbought markets in Florida, California, Nevada and Arizona.
It’s easy to see why the condo market exploded in these markets. They draw both the youthful Gen X and Millennial generations who have not yet started families, and aging baby boomers anxious to ditch their onerous landscaping and pool maintenance chores. You can simply lock the door and take off whenever the urge strikes you. Living maintenance free is a tremendous draw.
The Price of Owning a Condo
But it comes at a price. You need to understand the dual nature of condominium ownership. First is the deed. Which gives you title and ownership to so many cubic meters of…air. You will own from the surface of the paint inwards. Everything structural, as well as the land, is owned in common with the other owners through your proportional ownership in the condominium association. And that is where the fun and games begin.
We are highly individualistic in our behavior, but condominiums are highly communitarian in their structure and operation. You might start to explore this dichotomy by actually reading the CC &Rs (Conditions, Covenants and Restrictions) that outline the rules you must follow. And where freedom and equality collide, the results can be both contentious and costly.
Take a market like Florida, which draws retirees from a wide swath of Eastern Seaboard America. These retirees include high powered lawyers and other power broker types who may have retired too soon, and long for the hand to hand combat of litigation and negotiation.
Once they get on the board of their new condo association, this lifetime of experience wells up and they find they once again have the arena in which to practice their skills. It’s a wonder that this format has not yet been adapted to a so-called reality TV show. It would make “Survivor” look like a tempest in a teapot.
You think you are buying a primary or secondary home, or perhaps an investment property. But you are also buying into a governance quagmire that soon becomes your very own private tar baby.
And if these condos were anything close to being a rent-able investment property, the developers would not be rushing pell-mell to selling without reserve. They are stuck, slowly bleeding, paying their construction financing on top of the association dues on all the unsold units, and they want this hot potato to be in your hip pocket. Not theirs.
The Omnipotent Super
The worst case I ever saw up close was the luxury high rise that had years earlier been converted from rental to condo. It was master metered for utilities, which was the norm when it was built, but which caused endless bickering over those never turned down the heat or turned off their lights.
But the overarching scandal was maintenance. The clever maintenance supervisor, over many years, patched together an incredible variety of Rube Goldberg type solutions to each individual unit’s repair jobs. In time, he was literally the only one who knew where or how to maintain these repairs.
This gave him incredible power and leverage over all the owners, which he parlayed into the occupancy of one of the prime units in the building. At no cost. And a princely salary which allowed him to put all his kids through college. He is set for life, as no other living being would have even a clue as to how to decipher the code.
I expect that he will pass this job on eventually to one of this children. It is a sinecure and family heirloom to be treasured and protected.
Real Estate is problematic enough, without this overlay of political and social intrigue. Don’t worry about finding inventory. Several million detached single family and one owner multi-family and commercial properties will be dumped on the market before this market runs through the rinse cycle.
March 14th, 2008 at 9:34 am
Owning a condo is something I’m interested in, even if it isn’t possible at the moment. Las Vegas Condos are one of many locations that are nice to dream about.
March 27th, 2008 at 2:06 am
This is really nice post. I acquire lot of information from this post. Owing condo is really interesting. All around the world many places which are nice to dream.