Member Outreach Condo Program

Be a Condo Sales Pro
CAR Member Outreach
www.MarkiLemons.com

Focused on Real Estate!

Marki Lemons
Speaker
@Marki_Lemons
http://www.linkedin.com/in/markilemons

#CARMO

Condos Are Selling

Chicago Condo Selling Price

S I M P L I F Y I N G T H E D I F F I C U LT

"A condominium or condo-conversion
development is warrantable

ADPR
if it has features that lenders view as
protection against
hazards that threaten the value of the units”

5 www.adprnetwork.com

https://entp.hud.gov/idapp/html/condlook.cf
m S I M P L I F Y I N G T H E D I F F I C U LT

7
ADPR www.adprnetwork.com


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ADPR
www.adprnetwork.com

Some things that impact Warrantability…

(in no particular order)

# of (pre)-sales Market conditions and absorption
Proven demand for units Owner occupancy ratio
Investor ownership ratio HOA finances
HOA control Builder warrantees
Completion of common elements Phasing and add-ons
Commercial space # of units in project or phase

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New construction or conversion Gut rehab, non-gut rehab conversion
Marketing/sales programs Builder reputation/experience
Legal aspects Architect’s report
Quality construction Engineer’s report
Legal document requirements Phase at time of application


What is the problem?

• The rules are complex, and change all the time.

• The requirements of Fannie Mae, Freddie Mac and FHA/VA
(more than 95%+ of all condo loans) increased, and now
strictly applied.

• Lenders used to have flexibility with respect to warrantability,
and non-warrantable finance options were readily available.

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This is no longer the case!

• Lenders have additional property criteria. Overlay

• Additional borrower criteria. (Minimum credit scores affecting
LTV, PMI, interest rate, other).


Warrantability is not specific…

• Different rules depending on project characteristics.

• Different rules as the development progresses.

• Different rules for different lending programs.

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• Rules change all the time.

• Some rules are subjective (opinions of decision
makers).


Possible implications of non-warrantability

• No buyer financing can be obtained - at all!
(If you think this is not true, just google it).

• No buyer financing can be obtained until the project
is complete, or nearly complete, and even then there

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may be sales-stopping limitations.

• Buyers may only be able to get a non-warrantable
condo loan at a (0.50-2.00%) higher rate.

• Loans at more than 80% loan to value may be
difficult, or impossible to obtain.

If the project is warrantable… S I M P L I F Y I N G T H E D I F F I C U LT

• Mainstream mortgage programs available at market
rates.

• Higher loan limits (up to $729,750 per unit) may
apply.

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• Financing to 80%-90%-95%-100% LTV.

• More options for hard to place loans available.

• Financing can be effectively included in
marketing/sales promotions, and deal structures.

Warrantability is always temporary…

Re-approvals are required - or may be desirable – due
to:

1. Construction/rehab progress.

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2. (Pre-) sales (as often as with every single sale)!

3. Approval expirations.

4. Other events.


What to do…

Warrantability drastically increases marketability!

• Planning, and a pro-active stance is critical. It should
start as early as property acquisition.

• Position the project to become warrantable at the
earliest opportunity.

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• Ensure continued warrantability and availability of
lending programs to enable marketing/sales.

• Develop alternate buyer financing options where
warrantability cannot be (initially) secured.


FHA Condominium Project Approval

Spot approvals not available, entire
buildings only

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 Common areas must be 100%
complete
 Final or temporary certificate of
occupancy must be 12 months old

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 50% owner occupied
 10% reserves
 HOA can be in control of developer as
long as CO is more than 12 months old.


 30% Presales needed
 Must be 50% owner occupied
 Certificate of occupancy must be less
than 12 months old

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 For projects with final CO issued more
than 12 months ago, need 50% pre-
sales
 50% presales needed after June 30,
2011

Non-Warrantable Condominium Projects

 Projects which do not qualify for
Fannie/Freddie financing

 20% down payment

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 620 minimum FICO


Non-Warrantable Condominium Factors

 Less than 50% pre-sales
 Can do “first-in” condos
 More than 50% investor concentration
 Waiver when purchasing unit as

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primary/second home
 More than 20% commercial space
 Exception granted with compensating
factors

Docs needed for Condominium Project
Approval SIMPLIFYING THE D I F F I C U LT

 Budget with 10% of the association dues as
reserves
 Completed Condo Questionnaire
 Articles of Incorporation
 Must be in good standing and registered with
the state

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 Recorded and signed declarations and by-
laws
 Plat map or survey of the floors
 Master Insurance Policy
 Certificate of Occupancy for all units

Example of Sample Budget

GARDENS AT SUNSET COVE
PROPOSED OPERATNG BUDGET -- COMMON EXPENSES
as of Jan 1, 2011

2421 2423 2425 2427 2301 2303 2305 2307
Monthly Proposed Assessment Collected 172 202 202 172 172 202 202 172
Annual Operating Revenue Per Unit $ 2,067 $ 2,426 $ 2,426 $ 2,067 $ 2,067 $ 2,426 $ 2,426 $ 2,067

Unit 2421 2423 2425 2427 2301 2303 2305 2307
Allocation 11.5% 13.5% 13.5% 11.5% 11.5% 13.5% 13.5% 11.5%
Operating Expenses
Telephone (Fire alarm) $ 1,000 115.00 135.00 135.00 115.00 115.00 135.00 135.00 115.00
Water 200 23.00 27.00 27.00 23.00 23.00 27.00 27.00 23.00
Common Electric (allocated) (4) 600 69.00 81.00 81.00 69.00 69.00 81.00 81.00 69.00
Fire Monitoring 720 82.80 97.20 97.20 82.80 82.80 97.20 97.20 82.80
Landscaping 4,000 460.00 540.00 540.00 460.00 460.00 540.00 540.00 460.00
Contingency 1,500 172.50 202.50 202.50 172.50 172.50 202.50 202.50 172.50
Subtotal Operating Expenses (a) 8,020 922 1,083 1,083 922 922 1,083 1,083 922

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Repair and Maintenance
Common area cleaning - - -
Building maintenance, inspection and repairs 1,200 138.00 162.00 162.00 138.00 138.00 162.00 162.00 138.00
Subtotal Repair and Maintenance (b) 1,200 138 162 162 138 138 162 162 138
Insurance
Subtotal Insurance (c) 3,600 414 486 486 414 414 486 486 414
Administrative
Subtotal Administrative Expenses (d) 650 75 88 88 75 75 88 88 75
Reserves
Roof 1,000 115.00 135.00 135.00 115.00 115.00 135.00 135.00 115.00
Exterior painting 2,500 287.50 337.50 337.50 287.50 287.50 337.50 337.50 287.50
Windows/Doors 1,000 115.00 135.00 135.00 115.00 115.00 135.00 135.00 115.00
Subtotal Reserves (e) 4,500 517.50 607.50 607.50 517.50 517.50 607.50 607.50 517.50
Reserves as % of Revenue Collected 25% 25% 25% 25% 25% 25% 25% 25%
Total estimated expenses (a+b+c+d+e) $ 17,970 $ 2,067 $ 2,426 $ 2,426 $ 2,067 $ 2,067 $ 2,426 $ 2,426 $ 2,067


Recorded/Signed Decs and By-laws

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Plat Map/Survey

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20 Billion Page Views Per
Month

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Facebook Leads

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The Power of Twitter

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http://www.google.com/alerts

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The condo options vary widely from
Conventional, FHA and VA. Credit
scores, HOA budgets, HOA dues paid
timely, presale requirements, down

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payments, etc
And…the rules are changing all the
time, which means what might be good
today is bad tomorrow.


Marki Lemons
Speaker
@Marki_Lemons
http://www.linkedin.com/in/markilemons
Thank
#CARMO
You.

Member Outreach Condo Program

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