Sunday paper and a reliable broker help ease the condo quest

Scanning for tunes on the radio four years ago, I picked up an obscure song with a chorus beating out something about ``condo bondage'' and the challenges of condominium ownership. It must have been one of those sign-of-the-times hits, with a product life of a millisecond, because I haven't heard it since. With the condo market evaporating over much of the United States, though, one can see some truth in the tune.

Those who bought condominiums a few years ago in Phoenix, Ariz., Dallas, and Seattle, for instance, have watched their investments depreciate. In these, and many other cities, overbuilding pushed the bottom out of the market. Prices are way off, says Saul Shiefman, and are still declining.

Mr. Shiefman, who collects data on the housing market for Dallas-based Lomas & Nettleton, the nation's largest mortgage banker, says condominium properties in San Francisco and Chicago are managing to hold their values. About the only cities where demand is still pushing prices higher are Boston and New York, he adds.

But for many people, buying a condo is still a wise choice. They may need to live ``in town'' to be close to work. They may not yet be able to afford a single-family home. Or they may like the idea of tennis courts, Jacuzzi, and swimming pool that so many of the new developments offer.

A good place to start the condominium search is the old reliable Sunday newspaper real estate section. Scan the ads to get a feel for prices, then drive the neighborhoods. Visit a few places for an idea of what certain prices will buy in the way of space and amenities. Talk to friends about transition neighborhoods and which way they are going.

Before the serious shopping starts, visit a banker or two. You won't know what price range you can look at until you sit down with a loan officer and run the numbers on your gross income, debts, amount you have for a deposit on the property, and closing costs. This procedure is the same as buying a house, except that when you figure expected monthly payments for the new place, you have to include condominium maintenance fees -- which are not tax deductible.

By the end of the meeting, you should know how much the bank can lend you, how much you will need to put down, and how much your monthly mortgage payments (including principal, interest, and taxes) are likely to be. There is no reason to feel committed to this bank. Mortgage shopping comes later. (It's helpful though, to take a mortgage application with you, so you can become familiar with the documents a bank is likely to ask you to supply further on.)

Now you can start looking at prospective new homes. Whether you stick with one broker, or use several of them, often depends on the market. In Boston, for instance, the market is so tight that brokers don't have a wide variety of properties in each price range to choose from. The buyer is forced to use a number of brokers, which, when they see you have no allegiance to them, may display no particular allegiance to you. (For example, they may not call you when something new comes on the market.)

But if you are looking in an area where the market is slow (just about everywhere), one dependable broker may be all you need.

Looking at condominiums is not like looking at houses. There are different questions to be asked. It's important to find out who manages the condominium association, who handles the common expenses, arranges for snow removal, and vacuums the halls. What's the management's track record? If the present owners have been specially assessed for an expense, that can be a tip that all is not well with the association's finances. Take a look at their balance sheet. Look for a reserve fund for emergencies.

Some self-managed condos are fine -- if the associations are small and if the people running them are experienced. This, however, is not always the case.

``There have been a lot of badly managed condos,'' says Mark Brenneman, of Brenneman Associates, a Washington, D.C., condominium developer and broker. The more common situation now is to have a property management company handle all the association business. ``Condominium management is still a relatively new phenomenon,'' he says, ``but there is a move toward more professionalism.'' Property managers in Washington are now required to be licensed, for example.

There are a slew of other questions: What is the monthly condo fee and what does it include (some include heat, others don't). Fees can range from under $100 to $500, even as much as $800 in New York. If the building has been converted from rental apartments, are there any rent control laws still governing use of the property? Are most of the units owner occupied, or rented out? A mostly owner-occupied building will not only tend to have a higher ``tone,'' it may well offer better value for the money.

Do the association bylaws say anything about pets and noise? What about storage, roofdecks, and laundry facilities? Is there parking? How old is the wiring, plumbing, and roof in the building? Are the basement windows secure and is outside lighting adequate for good security?

It's usually possible to find the answers to these questions on the first visit. There are more in-depth areas to look into -- such as learning who your neighbors are, getting a chance to talk to the association president, and finding out how long it takes to get to the nearest grocery. But if it's a tight market and you think this is the one you want -- you may have to make an offer then and there.

Offers usually don't take much in the way of earnest money -- $500 or so. They should be made contingent on drawing up a satisfactory purchase and sales agreement between yourself and the seller. Review this agreement with your attorney (try to find someone who is experienced with condominiums) as well as the association documents, including the budget for maintenance and insurance and bylaws. (In a building newly converted from rental apartments, the budget may be based too closely on the budget for the building as a rental property, when presumably lower standards were maintained.)

Make sure the purchase and sales agreement is contingent on a satisfactory engineer's examination and report of the building. Ask about anything you don't understand.

Once the purchase and sales agreement has been signed by both parties, it's time to shop for the mortgage. Actually, it's a good idea to have been watching the newspaper ads and interest rates all along, so you already have a bank or other mortgage lender in mind when the time comes.

With a decade of condominiums under their belts, bankers now have some very specific requirements for lending. ``They are more conservative, since, at first, there were a lot of ineptly done condo conversions,'' says Mr. Brenneman. Based on a perception of a higher rate of foreclosures on condos, private mortgage insurance rates in the Washington area have gone up by about 40 percent over the last few years, he estimates, although title insurance has remained stable.

In Chicago, some banks charge a quarter point more to handle condo closings than single-family houses. And if a bank has never handled a unit in the building in which you are buying, it will require copies of all of the association documents: the master deed, the unit deed, the trust and bylaws, and a copy of the association's budget. In most cases, the bank will also want to see the association's master insurance policy. More banks are requiring the building to be insured for 100 percent of its value -- otherwise you must take out a private policy to make up the difference regarding your unit.

There is one last nitty-gritty detail that will concern you and the banks. Many banks like to sell their mortgages on the secondary market which means their mortgages have to be meet the standards set by the Federal National Mortgage Association or ``Fannie Mae.'' On your first visit to a condo you like, you should ask the broker or owner if the building is Fannie Mae approved. If you don't, you may go to the trouble of filling out a mortgage application (no quick task) and find the bank won't OK the loan because the building lacks the approval.

On the other hand, a bank that does not sell its mortgages to Fannie Mae may be able to offer a more generous loan, which might be appropriate if your other financial obligations are relatively minimal.

It will take about two months for the bank and the attorneys to process your loan from the time you make the application. Keep this in mind when you shoot for a closing date on your purchase and sales agreement.