5 Costly Mistakes Condo Buyers Make
Having worked with hundreds of condo buyers & sellers the past 15 years, I've seen these five common mistakes buyers make. Sometimes they are costly and sometimes they result in the buyer missing their dream condo. Fortunately, all of these can be avoided.
1. Offering the wrong amount
Notice I didn't say offer too much or too little, because it all depends on the situation.
Some buyers will offer too much because they:
- Buy on emotion. When a buyer falls in love with a condo and 'has to have it', they tend to pay too much.
- Use the wrong comps when deriving a price and fail to notice important differences. In some buildings, a one-floor difference can be the difference between staring into a building across the street or at one floor higher, a beautiful view of the monuments.
- Mis-read the competition when there isn't any. A lot of traffic at an open house doesn't always mean multiple offers.
Some buyers will offer too little and regret it later when they lose out because they:
- Use the wrong comps to come up with their price. Sometimes the condo you are making an offer on, seems identical to the last sale, but really is worth $25,000 more.
- Have this idea that you should always offer X percentage below list price. No, sometimes the seller will misprice their condo too low and other buyers will see that and offer more.
- Make a lowball offer that insults the seller so much that they simply won't deal with that buyer again.
How do you know how much to offer? Make sure you are comparing apples to apples and do your homework. Also, have your agent do a comparative market analysis before you write that offer.
2. Not learning what is important to the seller
The most important term of the offer is not always the price. The seller might need a quick settlement because they are moving out of the country or they are closing on a new home and they need the money from the sale. Or they need a short rent back until their new home is ready. Or they are out of the area and can't be bothered with any home inspection repairs. How do you know? You ask or better yet, have your agent ask. A good agent will know the right questions to ask and how to interpret the answers.
3. Failing to get pre-approved for financing.
Not getting pre-approved can hurt you in several ways. If you start your condo search in a higher price bracket and visit a number of condos, you will be sorely disappointed when you have to look at a price range much lower than you anticipated. Not being pre-approved can also hurt you when you make an offer. Many sellers won't respond to an offer without a pre-approval letter and if you are competing against other buyers, you put yourself at a disadvantage. Getting pre-approved can also uncover some bad credit marks you were not aware and/or give you tips to improve your credit score. Getting pre-approved is relatively easy and no reason not to do it early in the process.
4. Not reading the condo docs
There is a reason why most states give condo buyers a review period to read the condo docs - because there can be really important information in the documents that you might not be aware of and would cause you not to buy the condo. Are the reserves sufficient? Are there special assessments being discussed in the board minutes? Can you live with the pet policy? Are there condo violations on the unit you are purchasing that the seller needs to correct if asked?
5. Not paying attention to the condo fee
The price of the condo is obviously important, but don't become so focused on that to the exclusion of the condo fee. I always help my client understand what their monthly payment is - the sum of your mortgage payment (Principle + Interest) + Taxes + Insurance + Condo Fees. When they are trying to decide between several different condos, they are sometimes surprised to find they have a lower monthly payment in the higher priced condo they are considering. There are many factors that determine the condo fee, including, the age of the building, the amenities offered, the number of units in the building, how well-run the building is and more. It is also important to look at whether any utilities are included in the fee. In most new buildings, the owner is responsible for all the utilities, including water. In some older buildings, all utilities are included.
When my client is the buyer, I can help them steer clear of these issues. When I'm representing the seller and see the buyer making these mistakes, I'm limited in the help I can provide. I shrug my shoulders and hear the ESPN voice in my head saying "C'mon Man!"