New FHA Condominium Guidelines: Financially Sound Projects = Better Investments

by Rich Vetstein on December 9, 2009 · 2 comments

in Condominium Law, FHA, Massachusetts Real Estate Law, Mortgages, Realtors

I’m getting pretty tired of all the condominium developers and realtors out there claiming and clamoring that the new FHA condominium guidelines which went into effect this week are the next coming of the Apocalypse. The fact remains that the new guidelines will ensure that condominiums are financially sound and well-run, and that’s good news for everyone: lenders, consumers, buyers, unit owners and realtors alike.

David Fletcher, a Florida real estate broker and former developer who has survived every recession since the 1970’s, gets it. In an article in Realty Times yesterday, he outlines 10 benefits of the new rules, especially from a sales and marketing perspective:

  1. More buyers will enter the market because they can afford the lower down payment.
  2. No single investor can purchase more than 10% of the units, so the idea of a controlled association by one or two investors is no longer a threat.
  3. More inventory will offer wider choices tending to keep prices in check, as “FHA approved’ condominiums come on line.
  4. More real estate agents will be willing to show condominiums to their buyers, because the lender who provides the mortgage will have to approve not only the condo documents, but the condo association’s budget, reserve account and its fidelity insurance policy.
  5. New construction developers have the guidelines needed to create urgency in their pricing strategies, which is key to building and maintaining momentum.
  6. Commercial lenders will have a more comfortable level with developers. While the 50% presale requirement may look obtrusive, it is actually a benefit to the developer, because it will create urgency for buyers to purchase.
  7. Established associations that have dragged their feet to get their finances in order, now have a valid value-based reason to become “FHA Approved.”
  8. Real estate agents will show FHA approved condominiums with confidence in the association’s finances, not just because the down payment is low.
  9. Forward thinking lenders will hustle to become a “an approved lender’ in resale and new communities alike
  10. Knowing the property already has approved lenders will make competition for listings tighter and will attract more buyers and more prospects to the listing.

David believes — and I agree with him — that “FHA Approved” will become one of the most sought after seals of approvals for condominiums in 2010 and beyond. Let’s hope that all the realtors, lenders, and condominium developers out there realize the benefits that can be gained from obtaining FHA approved status.

  • Hello,

    In regards to David’s comment noted as number five in his list of reasons why the new rules are better. I was hoping you could elaborate as to why these new rules somehow change the current marketing strategies and pricing programs of new communities launching for sale?

  • Mary

    I agree with your post – in theory. However, in the short term, the new regs will likely have a negative impact on some well-managed and funded condo associations in terms of both the effort required to collect some of the data and in terms of saleability of units.

    I am on the board of a condominium association that is not FHA-certified and am having difficulty finding guidance about exactly what steps we as a board need to take to obtain certification (we appear to meet all of the new criteria). Do we need to hire an attorney? Where do we start ?

    I am very concerned the limits on rental units. How on earth we can identify with absolute certainty the exact percentage of rented units? – We are not party to leases. Our declarations do require that owners provide the association with copies of leases and related information, but it is very difficult, probably impossible, to be certain that we have 100% compliance.

    I agree that FHA approval will become a powerful tool for forcing some associations to be more fiscally responsible – this is a good thing. Unfortunately, I foresee the approval process becoming severely backlogged and leaving a lot of well managed properties out in the cold. FHA should have provided more a much longer implementation period.

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