Condos - the New Real Estate? Part 1

Many first-time homebuyers are attracted to the idea of buying a condo instead of a single family residence, so I want to take the time to go over some of the differences between a condo and a single family home so you can make an informed decision. Today, I'm discussing an important aspect of the price of a condominium.

First to Fall, Last to Rise?

It is a common real estate belief that condos are always the first to fall in value and the last to gain. There is some basis for this but you cannot use it as a blanket statement. Let me explain why this idea persists. At any given time, the value of a property is judged by the selling price (in the absence of sales, active listings are used) of similar properties around it. Most Realtors and appraisers use a one mile radius around the subject property. With condos, these comparables ("comps") are easy to find and there are usually many. More listings means more competition. An increased supply helps price drop.

But is it always True?

Simply put, no. Even with real estate prices lower than we have seen in a long time here in Sacramento, midtown and downtown condos are maintaining their value. So perhaps it's back to the basic real estate premise of location, location, location. It is also simple economics: demand for real estate in downtown Sacramento is high, so the condos don't sit on the market very long. There are rarely price reductions and the supply remains low thus leading to stable prices in certain areas. There are not a great number of units in downtown and that limits the supply side as well.

So if you are considering buying a condo, remember that you are also buying the neighborhood the condo is in, and it affects you more than a single family residence would. So be sure to look at the other active listings, even if it is just on the MLS, before you make a decision!