COLUMN: Condominium units in the New World

We have effectively killed the sale of condominium units. Deader than the Presidents' flying bug. But unlike the bug, condo units will come back. But they'll only come back if we know what we did, and how to avoid doing it again. Here's what happened, and how we fix it.

I have told the story before about the woman who purchased a 20-year old, one bedroom condo during the silly years. She bought with the idea that she would rent the unit to pay for it, until she could flip the unit for profit. She paid $380,000 for the unit, and financed $350,000. She put the unit on the rental market and got around $1,000/month in rent, before paying commissions. She had principal and interest payments of over $3,000/month. She did not even realize enough income to pay the taxes and insurance. When the unit did not sell, as nothing sold beginning sometime in 2005, she was in serious trouble.

Why would something like this happen? Unless employed for that purpose, a Realtor has no right or privilege to tell a buyer they are paying too much. But now our condo unit market has a horrible reputation because units like this one were marketed not for their value but solely because of someone's guess that they would increase in price. Hopefully the mortgage markets have reformed themselves enough to avoid the worst of these examples in the future. The appraisers also will have to decide what responsibility they owe to the system, and how to avoid statistically supportable but vastly incorrect statements of value. Realtors will have to sell real estate, not the false message that the current real estate value is unimportant because the property will surely sell for more tomorrow.

When this poor lady is foreclosed, as surely she will be, her unit will go back on the market. So will countless others. We will have another chance to do this correctly. Realtors must go back to selling real estate by understanding the elements of value and by qualifying the purchaser.

Owning a condo unit was a good idea before units were used as a fungible medium for speculation. A condo unit can be great if you want to stay in one and get closer to the beach, and if you want to earn some portion of your cost by renting to others. They are not good for doubling your money in six months, or if you believe they will cost you nothing because such units will “pay for themselves”.

The elements of value for condominium units are vastly more complex than those of single-family homes, but value for a condominium unit is just as important as value for a single family home. A Realtor experienced in condominium sales knows that value in such properties can be far more complex than for single-family sales, but he or she will never market a unit based solely on speculative increases in price.

Condo unit sales will be back, and when they are, they should be marketed based on all the elements of value, not as a tool for speculation.

Mike Chesser is a Board Certified Real Estate Attorney with Chesser & Barr, P.A.