8 Reasons NOT To Buy A Condo In San Mateo County
Are you thinking about whether you should buy a single-family home, condo, or townhome? Each has its own strengths and weaknesses and ultimately comes down to your personal preferences, taste, and budget.
Based on my 18 years of experience, these are the 8 reasons why you should not buy a condo, including what most people are not telling you.
Number 8
That would be privacy and probably not shocking. When you’re in a condo, you’re going to have someone either above you or below you, and if you’re unlucky or in an older building, you could hear people sneezing or coughing if both of your windows are open, or you could smell whatever your neighbor is cooking for dinner. I had a client who recently looked at a condo in Woodlake in San Mateo, which I should say is one of my favorite complexes on the whole Peninsula - and one of the units was very close to a restaurant, and when we were on the balcony, we could smell the flavors from the restaurant. It wasn’t obnoxious or anything, but it wasn’t ideal either, so my client passed on the unit entirely. Also, because you have shared walls, you’re going to have a lot less natural light than you would if you had a home with windows on all sides, so if you can, getting a corner unit with good sun exposure is a must.
I’m Raziel Ungar. I’ve ranked in the top five agents in San Mateo County. Every day my team and I help buyers and sellers just like you looking to make a move within San Mateo County, and I’d love to be your Peninsula real estate resource. Give me a call or shoot me a text or email if I can help.
Number 7
Do you really want to deal with an HOA? You’re going to have a lot of cooks in the kitchen making decisions that you might not agree with. HOA boards are made up of volunteer residents who are just that - volunteers, without professional experience or necessarily tons of free time to devote to doing the best job possible, which is not their fault, but it’s hard. Larger HOA complexes will have professional management which can take the load off a little but still HOA members need to step to the plate, and make important decisions, around preventative and reactive maintenance that needs to happen. These decisions are usually in the tens or hundreds of thousands of dollars, might not have been bid out properly, or who knows - there are lots of complications that can develop, especially if board members do not agree. If you own a home, you just make the decision and that’s it. But with an HOA, it’s all about consensus building which is a ton of effort. If you’re not on the board, you can be a spectator and read the monthly meeting minutes, but you’re still going to be affected. I had one seller who lived in an older building tell me after he moved in he wanted the really old looking and smelling lobby to get a little refresh so it was more inviting and whenever a unit would sell, it could sell for a higher price because of nicer common areas, it got so heated at the board level that one board member said he wouldn’t speak to him again and then sold his unit to get out of the building. Of course, this is a more extreme example, and if you owned a home you could have a crazy neighbor too, but these situations are more likely to happen in an area where there are many people living together with shared spaces.
Number 6
Low HOA fees. Many buyers will see a super low HOA fee and feel that they’re winning and that’s a good reason to choose a building, but in my view, that’s not a good way to evaluate the financial health of the HOA. There’s so much more involved. Sure, a lower HOA fee is attractive because you’re spending less each month on common area lighting, insurance for the building, and other maintenance costs, however that could also mean the HOA is choosing to spend less on building their cash reserves each month. Which is not great either. So for some background, let’s just say half of your HOA fee goes towards the operating expenses of the building, then the other half will go towards the building’s cash reserves of the property. Having strong reserves is typically a good thing, and a no-brainer in my view so that way when the roof or siding needs to be replaced, or the dual pane windows in units 302 and 303 need to be replaced, there are funds available to pay for expenses. If there’s not much in the HOA reserves, and expenses pop up, which they always do, then the HOA will need to do what is called a special assessment and then every owner needs to write a check based on their square footage to the HOA to cover whatever the expense is. And that is usually a large amount - that could be $5,000 all the way up to $20,000 or $30,000 or more, depending on what it is. Also, just keep in mind that HOA fees will increase over time.
Number 5
Property condition. What if the HOA fails to properly maintain the structure? Is it possible that signs of potential damage could be overlooked? Look no further than the very sad situation that happened in Florida in 2021 - the Surfside Condo collapse. There were all kinds of warnings and signs that in retrospect this disaster could have been avoided. Sadly the building collapsed, people died, tons lost their homes and everything they had built up over a lifetime. On the flipside, when a condo or townhome is built in California, given how complex construction is nowadays, it’s inevitable that something will fail in the first few years that maybe shouldn’t have failed. California has a statute of limitations of ten years after the property is first occupied where the HOA can sue the developer or builder for any construction defects. So they always find something and when this happens - regardless if the HOA is right and the developer did make some serious mistakes, or if the HOA is just gold-digging, if you’re trying to sell your unit, you’re almost out of luck because no bank will do a loan on a condo or townhome if there is any pending litigation in the building, so that sucks. So the only buyers who can buy are cash buyers, and guess what? They’re going to get a smoking price because 80% or more of the buyer pool is wiped out because those are the buyers who’d be getting loans. Many years ago I represented a couple buying a condo at 1700 De Anza in San Mateo. At the time there was some pending litigation in the building, so basically the resale market there totally collapsed. My buyers ended up getting a smoking deal and I guess someone just really needed to sell and my buyers got a great price because they paid cash.
Number 4
Limitations on renting. Some HOAs have rules that only allow a certain percentage of the units to be rented out. This rule exists because some think that when most of the units are occupied by owners rather than tenants owners will take better care of the property because they have more skin in the game. I’m not sure that’s true especially on the Peninsula, but it perhaps a fair is a concern. I had a client a number of years ago who owned a really nice condo on Elm Street in San Mateo. He bought it when he was young and single, then got married and lived there with his wife. When they had their first daughter, they needed more space and decided to buy a home in Burlingame. Okay, a pretty natural thing. They really wanted to rent out their unit to create passive income, and they didn’t need to sell it in order to buy the new home in Burlingame. However, the HOA had a rule that capped the number of renters at I think it was 30% of the building, and it was already at its max, so even though my client wanted to rent out his unit, he was forced to sell. And at the time, the market had dropped quite a bit, so he ended up selling the condo for something like 35%-40% less than what units in the same building had sold for only several years prior. This was a bummer in my opinion because this ended up devaluing all the units in the building for years having a low sale out there as a comp, and devalued the building in my opinion more than if they just allowed the owner to rent.
Number 3
Insurance. If you haven’t been under a rock in the past year, you’re probably familiar with what’s been going on in the insurance market in California as insurers have started to reprice risk based on natural hazards and disasters, so insurance rates have gone through the roof. Though not catastrophic, it’s not ideal. So how does this relate to condos? First of all, if you’re in an older building with a lot of deferred maintenance, insurers are starting to go deeper on condition and ask for inspections they may not have in the past and then insist that deferred items or upgrades be performed. And even worse, living in earthquake country, if having earthquake insurance is important to you, it’s highly unlikely you’re going to find an HOA that has it, because it’s expensive, which makes sense, and you’d need a majority of HOA members to vote for it, so good luck with that. I think I’ve done maybe two transactions in my career where the HOA had earthquake insurance.
Number 2
Mismanagement. Alright, so like any non-profit, there are plenty of good players out there, and unfortunately some shady ones. It’s not out of the question to see HOA funds not spent wisely - maybe harmlessly, but still not good and maybe bids for work weren’t obtained competitively, money was spent on work that didn’t need to be done, or on consultants who shouldn’t have been engaged to consult. At its worst, given that the oversight of professional management is by volunteer HOA board members, bad things can happen. Take, for example, one nearly thousand-unit complex in San Mateo, where a woman who was in finance at the HOA embezzled over $2.8 million over a seven-year period. That’s insane. And no one noticed? This happened just 2 miles from my office. In a building that was supposedly “financially strong”? Was no one checking the flow of money to whatever fake entities she created? Did the auditors and the volunteer HOA leadership actually do any legit audit work or did they just rubber stamp the cooked books?
While this isn’t common, of course, it’s just something you want to keep in the back of your mind. And one piece of advice—if you’re buying a property in an HOA, be sure to read through all of the documents that you get in advance prior to submitting an offer, as those are really important. Read the CC&Rs, read the meeting minutes, check the insurance policy, walk around the building at different times of the day, and get a vibe for it—just do your basic due diligence.
Number 1
So if you made it this far, and you’re okay with all of this, I want to share some data with you on rates of appreciation. This was a little tedious for my team to research and I haven’t seen this data online before, so I hope you find it interesting. Here you can see rates of appreciation for condos and townhomes in San Mateo County over a 20-year period. Not a huge shocker, but homes clearly outperformed properties with HOAs—the demand tells me that more people around here prefer to buy homes than properties with HOAs, even if the entry price point is significantly higher. So if you’re a first-time buyer thinking about buying your first condo in San Mateo County, go ahead and do it—you might not get the same rate of appreciation as with a home, but it’s still a huge accomplishment and you won’t have to fork out hundreds of thousands or millions more either, and you can still own a great piece of Peninsula real estate.
So with all that I’ve said here, perhaps buying a condo sounds kind of depressing. But I’d much rather be upfront in the beginning so this gives you an idea of some worst-case scenarios and things to keep in mind if you go this route. I’ve represented tons of nice people buying condos and townhomes and they’ve all been very happy, but that’s because they did their homework in advance.
To learn about the 3 most affordable cities in San Mateo County, check out this video. If you’re thinking about selling a house or you’re looking to buy a home anywhere in San Mateo County, my team and I want to be your Peninsula real estate resource of choice, wherever that is. Reach out on my website or shoot me a text or email and I’ll see you soon.
