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Once inside an apartment, buyers often suffer from tunnel vision: Kitchens, bathrooms and views tend to obscure unsexy considerations like sponsor control and rental policies.
Broker-blogger Malcolm Carter has seen plenty of apartment hunters succumb to the wiles of a chef's kitchen only to wake up gasping in the not-very-happily ever after.
Here's his take on 10 questions buyers should ask beside whether the counter is granite or marble:
Q. Is a sponsor still in control of the building?
A. A sponsor who controls the budget frequently means that the reserve fund is threadbare and necessary work has been deferred.
Q. Have enough apartments been sold to satisfy a lender?
A. Many lenders complying with Fannie Mae guidelines won’t approve mortgages if at least 51 percent (or sometimes even more) of the units haven’t sold yet, occupied by the buyer or both. Lenders also look askance at mechanic’s liens against even one owner, anemic reserve funding, skimpy fidelity bonds, excessive delinquencies of monthly payments or greater than 10 percent ownership by a single investor.
Q. Are you the developer’s golden ticket?
A. If your purchase in a new building means the sponsor will own fewer than 50% of the units after you close, then you are essential to achieving the sponsor’s dreams. (See above re: lender requirements.) Thus, you should be able to wrangle a bargain, but remember that buyers of sponsor apartments (versus resales) usually end up paying transfer taxes—close to $20,000 for a $1 million unit.
Q. Are the amenities convenient enough?
A. Consider whether you simply deposit your trash in a service area or down a chute, versus hauling it downstairs. Additionally, the convenience of same-floor laundry machines cannot be overstated.
Q. Are pieds-a-terre and sublets allowed—and how much will you tithe for the privilege?
A. Find out the house rules for sublets and any extra monthly fees that apply. Restrictions on sublets and pieds-a-terre reflect worries that absent owners are unlikely to be active, supportive and involved community members, thereby degrading the building. Also, as mentioned above, some lenders may refuse to do business in buildings that fall below their thresholds for owner occupancy.
Q. What big-ticket repairs and upgrades are looming on the building’s horizon, and where will the money come from?
A. Not only should you be worried about old and poorly maintained plumbing that drips murky water onto your new furniture, but you also need to predict whether your monthly maintenance will cover major building repairs. Ask to see the board’s “five-year-plan.” Consider yourself warned if there isn’t one.
Q. What’s the board like?
A. If you’re like most people, you want a board that’s responsible but not so uptight that living, renovating, and moving in and out of your apartment is a nightmare. House rules and board minutes might give you a sense of the board’s personality and persnicketiness.
While appreciating that they may be biased, try asking prospective neighbors along with building employees and the property manager. In an interview with a co-op board, gauge their contributions by diplomatically asking what they’ve accomplsihed in the past year and what are their plans.
Q. What’s on the ground floor, across the street or next door?
A. If you’re near a restaurant, a vet or a bar, for example, be sure you have a high-tolerance for cooking smells, vermin, bass music, secondhand smoke and/or yelping.
Q. What is the live-in super like?
A. The super is far more critical to your day-to-day happiness than the board, so meet him to check out his manner, then look into the stairwells to check out his work. Ask a resident and pay attention to answers that feel evasive.
Q. If the building is going condo, what is your impression of the renters who are staying on?
A. You’ll be running into them in elevators, laundry rooms and other common areas, and they may well irritate you for reasons that are best left to your imagination, with the understanding that someday you could be just like them.