New rules make condos harder to sell

Litigation over safety, construction issues can impede financing

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Mar. 18, 2011

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The Fannie Mae Selling Guide updates read: "Many buildings are converted to condominiums without the replacement of major components resulting in eventual increased costs to unit owners for maintenance and major repairs. In order to mitigate the additional risk that newly converted, non-gut-rehabilitation projects pose, all newly converted, non-gut-rehabilitation condo projects must be submitted to PERS for review and approval."

The problem is the cost to the HOA. Fannie Mae charges $1,200 for the review, plus $30 for every unit in the buildings, said Tomaselli. So, if you're looking at 200-unit building, that's $7,200 that has to paid out.

In addition, the newly converted non-guts have to undergo a reserve study to determine over a 30-year period of time what the repair costs are going to be in regard to such items as elevators, roofs, mechanical and structural systems, and the exterior.

"The current guidelines require that only 10 percent of the budget be set aside for reserve. Once the reserve study is done, an accurate number is given on what the reserve should be -- and those numbers can be tremendous," Tomaselli said.

The main goal of a reserve study is accuracy. "This guideline requiring reserve studies for new non-gut-rehab condominiums will ensure accurate reserve funding enforcement that will eliminate special assessments in most cases," said Tomaselli.

It's not a bad thing for Fannie Mae because it is making sure homeowners are protected -- but for developments, increased maintenance can loom large.

Steve Bergsman is a freelance writer in Arizona and author of several books. His latest book, "After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade," has been ranked as a top-selling real estate investment book for the Amazon Kindle e-reader.

Contact Steve Bergsman:
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