When purchasing a condo, one of the most important things to take into consideration are the monthly homeowner association assessments or maintenance fees.  These fees are paid by unit owners in order to cover the cost of the building's amenities, maintenance, insurance, etc...  It is important to understand the health of the condo association as well as provisions in the condo documents as they may lead to increases in HOA fees in the future.

A condo association is designed to operate as a not for profit corporation charged with the task of operating the building.  The association elects a board of directors to run the corporation and serve as the building's administrative contact.

When purchasing a unit in an existing construction building, the biggest risk is an increase in fees or a special assessment to pay for building repairs or bad debts.  Due to the rising numbers of foreclosures, some buildings in Downtown Miami such as Jade Brickell, Emerald on Brickell, and Ten Museum Park have seen drastic increases in their HOA fees.  Absent of bad debts or building repairs, HOA fees usually remain consistent from year to year since the association usually has a very good idea of the building's operating costs.

When purchasing in a new construction building, the biggest risk is an increase in HOA fees once the developer turns over control of the association to the unit owners.  At the inception of any condo project, the developer controls the condo association and has the responsibility of appointing the board of directors.  As certain sale thresholds are met, the association is slowly turned over to the new unit owners.  The developer is responsible for setting the operating budget and appropriately assessing all the unit owners.   Once the HOA is turned over, as a unit owner, you run the risk that the developer's estimated operating budget does not cover the actual costs of operating a fully occupied building.  This ends up with all the unit owners being reassessed for a higher monthly payment.

I mention this because right now Downtown Miami contains many new construction buildings with HOA fees that are fairly consistent (between $0.40 and $0.50 per square foot) despite drastic differences in building quality and amenities.  I'm guessing  that in the majority of these buildings the developer is still in control of the homeowner association.  It's no secret that keeping HOA fees low will help attract buyers.

Developer turnover of a condo association technically occurs when the unit owners are allowed to elect the majority of the members of the board of directors.  In most cases, this happens:

1. Three years after 50% of the units have been sold.
2. Three months after 90% of the units have been sold.
3. When all the units are complete, some have been sold, and the developer is no longer offering units for sale.
4. Seven years after the declaration of condominium has been filed.

It's unlikely that many new developments have hit these thresholds.  I hope unit owners are not faced with an unpleasant increase in their HOA fees once the associations in these buildings are turned over.

The following is an excerpt from an email I recently wrote to a client asking me about the reality of the rental market in Miami.  My client is looking to purchase a unit near the beach for use as an income-producing rental property.

In Miami and the surrounding areas, it has always been more expensive to buy than to rent.  During the bubble, this relationship was driven way out of line as people built in unreasonable expectations for price appreciation.  As prices have fallen drastically, we've seen investors looking to purchase cheap condos in desirable areas which will have good potential for price appreciation over the next 5 years or so.

A good example of this what is happening in downtown Miami, as investors are completing bulk sales for around $200/sq ft.  These investors have no intention of reselling the units right away, but will put them on the market for rent in the meantime.  After you subtract the yearly taxes and maintenance, these units produce approximately a 5% yearly return on the cash invested.  It isn't much, but the 5% will cover insurance and maintenance costs.  The real profit will come from resales of the units.  That is the reality of today's rental market.

I strongly believe that for condos priced at or near $100,000 in desirable areas, we have hit bottom here in Miami.   The unit in Treasures on the Bay listed for $89,900 last sold in 2007 for $285,000 -- prices aren't going much lower.  There are 2 reasons why the rental economics aren't as great as one would like.

1. Maintenance Costs:  Due to the high amount of foreclosures in buildings like Treasures on the Bay, condo associations have been forced to increase maintenance fees to make up for the shortfall caused by the non-paying units in foreclosure. As the foreclosure pipeline begins to shrink, the maintenance fees will return to more normal levels.
2. Purchase/Rental Economics:  Investors and developers are currently turning condos for sale into condos for rent causing an increase in supply of rental units.  Low prices are attracting investors to use their own capital to purchase units and rent them out,  thus rental prices have headed lower.  It's a good time to be a renter!

As a buyer, when deciding to work with a real estate brokerage on a transaction, you have three basic options concerning the role the firm will assume for you:

1. The brokerage firm may work as a transaction broker.
2. The brokerage firm may work as a single "buyers" agent (cannot represent both buyer and seller in the same transaction).
3. The brokerage firm will not represent the buyer.  This situation is referred to as no brokerage relationship.  The brokerage firm simply facilitates the transaction.

Under Florida law, it is presumed that all licensees are operating as transaction brokers unless a single agent or no brokerage relationship is established, in writing, with the client.  A transaction broker is a broker who provides limited representation to a buyer, a seller, or both in a real estate transaction, but who does not represent either party in a fiduciary capacity or as a single agent.

It is important to remember that when working with a transaction broker that they can represent both the buyer and seller on the same transaction.  Because a transaction broker can represent both buyer and seller, they cannot act as a fiduciary, or in other words, enter into a relationship of trust and confidence with you, the buyer.

When working with a buyers agent, you can rest assured that the agent is working with your best interests (and wallet) in mind.  A buyer's agent will work to negotiate the best price, ensure the property is inspected, and make sure you have the representation you need.  Unlike a transaction broker, your buyers agent will operate under the duties of loyalty and full disclosure.  The duty of loyalty includes, for example:

• Obtaining the most favorable price and terms for the buyer.
• Acting on behalf of the buyer.
• Not acting for parties with adverse interest in the same transaction.
• Never advancing the agent's or another person's interest at the expense of the buyer.

Under the duty of full disclosure, it is the agent's responsibility to keep the buyer fully informed at all times of the facts or information that might affect the transaction or the value of the property.  Additionally, the agent is obligated to disclose facts regarding a property's true worth.  Important facts such as the amount of "distress" in a condo development, the health of the condo association, the quality of building construction, and comparable sales are relevant to a property's true worth and will be disclosed when working with a buyer's agent.

At Miami Condo Shop, we act as a buyers agent on behalf of our clients and provide them with all information that could have a material impact on their real estate transaction.  We believe this is the best way to help our clients navigate through a difficult market and make them feel completely comfortable with their purchase.