What do you get when you combine low interest rates with eager first-time homebuyers faced with ever-increasing home prices and retirees looking for convenient and affordable homes? A surge in condominium sales.

The National Association of Realtors recently reported that sales in 2002 rose 10.5 percent above what had been the record in 2001 when there were 824,000 sales of existing condos and co-ops.

What's more, condos are appreciating faster than single-family homes, making condos a good option for first-time buyers who would like to build equity and then buy a single-family home in the next several years.

"The condo market is very strong and somewhat affordable. Appreciation in this sector is rapid and as a buyer this is a good place to look," said San Diego real estate agent Jason Lopez. "You can expect to gain valuable equity over the next two years ..."

For all of 2002, the median existing condo price was $137,100, up 11.3 percent from a median of $123,200 in 2001. At the same time, the typical single-family resale price rose 7.1 percent to $158,300.

By definition, when you buy a condominium, you're buying all the space contained within the walls. The condo unit may be in the form of a townhouse, apartment flat, or even a detached structure. The exterior of the building, the landscaping, surrounding roads and driveways, and common areas are all owned by an association - a group made up of all the unit owners.

Condo sales are growing stronger and faster than single-family homes, according to the NAR.

NAR President Cathy Whatley said there is a common denominator behind the increase in the number of sales.

"The rising tide that is floating all boats in the housing market is the historically affordable level of mortgage interest rates," she said. "In addition, the condo market is flourishing because both ends of the housing market - first-time buyers and retirees - are drawn by a combination of lifestyle and affordability considerations."

Lereah said there are several factors in the median condo price rising faster than historic norms.

"First, the record demand has been placing pressure on condo prices. In addition, there is a short supply of available units, notably in the West and South," he said. "We've also seen a growing popularity of upper-end units that appeal to retiring baby-boomers, and more luxury units have been built in recent years. The higher mix of more expensive units being sold accounts for some of the rise in the median condo price."

But it's not just the West and South that are experiencing a rise in sales.

The Rhode Island Association of Realtors reports that condo sales there increased by almost 21 percent in 2002.

Some of the things you should think about if you're considering a condo include:

  • The neighborhood. You'll want to examine the neighborhood. Can you commute? How are the schools? Is shopping nearby?
  • Market demand. Ask your broker to check out the sales history of the units in the association. Is there demand? Are the properties appreciating? How do the units at one property compare with like properties?
  • Association fees. You'll want to ask about the monthly fees and whether increases are planned. These fees generally cover general maintenance of the buildings, insurance, landscape and grounds upkeep, pool maintenance, security, and various administrative costs.
  • Reserve funds. Does the association collect money each month to pay for big repairs and improvements? Is the reserve fund adequate? Are any "special assessments" planned?
  • Maintenance. Most of the exterior maintenance, including roofing and painting, is typically included in the cost of the association fees. But you'll also want to look closely at what you can and can't do. Some associations won't allow you to plant your own shrubs or plants outside your front door, or accent the trim of your door in a new color.
  • Rental units. Lenders will charge higher rates to finance condo properties with a high percentage of renters. Speak with brokers and lenders for details.
  • Insurance. The association typically covers the insurance for the grounds and exterior. However, condo owners are generally responsible for insuring their personal belongings.
  • Governance. A condo association is a form of government and there are more rules and standards than with a fee-simple, stand-alone house. If you really want to play loud music every night till 2 AM and paint the front door orange, a detached home may be a better option.
  • Specific needs. Ask about the issues that are important to you. Can you have a pet? What about a home office? Can you grow vegetables in the back?
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