1 bedroom non-warrantable condo valuation

[just_one_question]

Hi forum!

I'm a bit stuck on this one. I have a 1/1 condo in a downtown area. Previous buyers have backed out due to financing problems (the building has one owner owning too many units). Previous owners paid 100K - but that was in 2012. Figuring the discount for non-warrantable is the tricky part. Of course the sellers want to price it like it's a warrantable condo - well above what they paid - nearly 200K. Any suggestions? Thank you.

 

[Artemis Fowl]

Find proxy sales?
ie. Sales with and without that issue. They don't need to be comps to your subject but should be comps to each other in order to derive a discount.

Option 2: decline

 

[J Grant]

what the heck is a warrantable condo?

 

[shrubberyvaluation]

what the heck is a warrantable condo?

Non-Warrantable vs Warrantable Condos: Rules and How to Finance Them

Since conventional mortgages are the most common type of home loan in the United States today, it’s a big advantage for both buyers and sellers to have a warrantable condo. However it's not the end of the world if you've got your heart set on a non-warrantable condo, we cover the nuances to...

www.valuepenguin.com

 

[J Grant]

Non-Warrantable vs Warrantable Condos: Rules and How to Finance Them

Since conventional mortgages are the most common type of home loan in the United States today, it’s a big advantage for both buyers and sellers to have a warrantable condo. However it's not the end of the world if you've got your heart set on a non-warrantable condo, we cover the nuances to...

www.valuepenguin.com

Thanks, I understand wrt the article what it is, I have just never seen that term for it used ( in my market area)

A condo unit (for the OP) that does not qualify for conventional financing typically sells for a discount because it can often need a cash sale or private financing.

 

[J Grant]

Hi forum!

I'm a bit stuck on this one. I have a 1/1 condo in a downtown area. Previous buyers have backed out due to financing problems (the building has one owner owning too many units). Previous owners paid 100K - but that was in 2012. Figuring the discount for non-warrantable is the tricky part. Of course the sellers want to price it like it's a warrantable condo - well above what they paid - nearly 200K. Any suggestions? Thank you.

The price is up to you. Unless you are an investor looking to rent in a manner that might want the less restrictive rules of a non warrantable condo, why the heck would you want to buy it ? A condo is not just the unit, it is the building and it's financials. A building that has little in reserves or vulnerable to one owner owning many units, ( who can default ), might mean big assessments or problems

Are you looking to buy it or appraise it?

 

[Dublin ohio]

Thanks, I understand wrt the article what it is, I have just never seen that term for it used ( in my market area)

Around here they have called them non conforming for years.

 

[just_one_question]

The price is up to you. Unless you are an investor looking to rent in a manner that might want the less restrictive rules of a non warrantable condo, why the heck would you want to buy it ? A condo is not just the unit, it is the building and it's financials. A building that has little in reserves or vulnerable to one owner owning many units, ( who can default ), might mean big assessments or problems

Are you looking to buy it or appraise it?

Both. I want to appraise it, and also buy it if it's a good deal. There's one guy that owns several of the units in the building, I suspect he's renting them out as investments or such. But that seems kind of like an unhelpful thing to do, if it causes the other people in the building not to be able to get mortgages.

 

[J Grant]

Both. I want to appraise it, and also buy it if it's a good deal. There's one guy that owns several of the units in the building, I suspect he's renting them out as investments or such. But that seems kind of like an unhelpful thing to do, if it causes the other people in the building not to be able to get mortgages.

Virtually the only people who buy in these "non warrantable" condos, in my experience, are investors looking to rent out, and that indeed keeps the building in the kind of status you find it now - a high number of tenants vs owner occupied , which means most lenders won't finance it. The REAL hidden cost, one which you need to be prepared for, is if the building needs major repair or suffers damage later, the building may have lousy financials/low reserves which means a high assessment down the road - and some investor owners might just walk instead of paying it. A few of these buildings in worst case scenario lose their condo status and revert to rentals (meaning you can lose your investment) if enough owners can not pay a big assessment or lien on the condo, such as if there were to be a major lawsuit. One building I appraise in is the exception and graduated to warrantable status, as eventually more owner occupants bought but that was a better location and a newer condo.

Many of these condos look neglected because of high number of renters and owners too cheap to vote to repair or upgrade the common areas/ buildings. If this condo building you are looking at looks in good shape that is a plus. As far as prices, some sell for equivalent amounts as "warrantable " condos, because lax rental policies invite investors to purchase, others sell for between 10-20% less. .

That said, if you want to go forward, what makes it a "good deal" would be if the price and monthly expenses yields a positive cash flow from renting it out, or if you could run it as a profitable air bnb.

 

[J Grant]

Remember the recent collapse of the SurfSide condo in Miami? That was a "warrantable" condo, but aprox 2 years pror to the collapse, an engineering study found the building needed major repair, like several hundred million $ worth, and the owners, instead of repairing it, were bitterly fighting - some of them wanted to repair it /the assesement and others voted against repair --in a condo you need a majority of X owner vote to proceed ( depending on state law and or condo docs/HOA rules ). It never got repaired due to the fight and one day the building collapsed and killed a number of people.

That is an extreme case but a number of condos have gotten into trouble if they are under funded in reserves- it is worth the $ to hire a good RE attorney to go over the condo docs and budget if you are not equipped to evaluate it yourself . There is a law now post this disaster that in the state of Florida condos need a base level $ of reserves and any building over 3 stories high needs an engineering survey done every X # of years - that law is just going into effect and I anticipate a number of battles around it - the better run condos keep up with repairs/have periodic assessments and ample reserves but guess what they ain't cheap - turns out we get what we pay for one way or another.