Problem & Solution: How a Condo Desk can solve an MLS’s two biggest data problems

Christopher Gardner, J.D, Broker, MLO, May 31, 2024

Attached properties (Condominiums, Co-ops, PUD’s, timeshares, site condominiums) continue to create the biggest data problems facing MLS’s, their support desks, their membership, and the buyers and sellers they serve. And in today’s climate of lawfare and industry shifting scrutiny on the practices and policies of all real estate industry stakeholders, getting it right has never been more important or self-preserving.

When it comes to attached properties, there are two glaring problems that persist that cause enormous harm to buyers, sellers, and their agents, that implementing an MLS based condo desk will forever cure over time.

Project Type Identification

To list an attached property correctly and accurately, a listing agent has to choose the correct ownership type from the following types (listed in most common order).

  1. Condominium (common interest ownership).
  2. Planned Unit Development (PUD, which is fee simple ownership with an HOA).
  3. Co-Op (stock ownership).
  4. Timeshare (fractional ownership).

The only way for a listing agent to make this determination correctly is to READ the governing documents which will distill the ownership type of a given project. Ownership type cannot be divined by a visual look at the project. There are attached SFR’s and detached condominiums. Since Co-op and timeshare are rarely encountered, this analysis focuses on the most common projects found in all MLS’s, condominiums and PUD’s.
Our nationwide research of MLSs across the country reveals that 43% of all attached property listings are incorrectly listed. This is proof that not only are the listing agents not reading the governing documents, but they are also essentially guessing every time they list an attached property.
Now if this were an innocuous error, a white paper on the problem would be unnecessary. Unfortunately, the error is devasting to buyers, sellers, agents, and by extension, the MLS. Illustrated below is the commentary of what actually happens in the two scenarios of an incorrect listing of a condominium or PUD.

I. Incorrectly listed as condominium when the property is a PUD.

When the listing agents incorrectly lists a PUD as a condominium, the listing and buyer agents know that as a condominium, a slew of qualifications, guidelines, and certifications are required of the community by the various lending insurers such as FHA, VA, FNMA and FHLMC, for the buyer to be able to purchase using one of these loan types. This known headache discourages buyer agents from showing condominiums because they are aware that the HOA has to meet underwriting criteria for the project to be eligible, and the agents know that many don’t. A PUD has no additional underwriting criteria, because it is fee simple ownership (SFR) with an HOA that requires the owner to maintain all of property (and why there is no needed financial scrutiny of the HOA).

This error dissuades showings, offers, and demand for the seller’s property because of the underwriting scrutiny that everyone knows a condominium form of ownership requires. It is for this reason that all agents dislike condominium deals.

For the buyer, when they’re misled into thinking they’re buying a condominium (where the dues cover maintenance of the building) that is in fact a PUD (where the dues do not), they subsequently come to the painful realization post-closing that the dues DO NOT cover maintenance of the building and so when the roof goes, they have to pay for it out of their own monies. This is where agents better have a good E&O policy.

II. Incorrectly listed as a PUD when it is in fact a condominium.

When the listing agent incorrectly lists a property as a PUD when it is a condominium, everyone in the transaction is moving forward believing that this is a typical SFR purchase that happens to have an HOA, and so no scrutiny of the HOA occurs, and everyone celebrates the much simpler transaction.

Unfortunately, and devastatingly, when someone does finally read the governing documents to determine the project type, it is the underwriter who does so weeks into the transaction, after the buyer spends thousands of irretrievable dollars in appraisal, inspections, and HOA documents. Now that the property has been identified correctly, all of the condominium requirements of the respective loan must be met, and very commonly they cannot. When this is the case, the deal implodes, requiring the agents to get back to work with the seller stigmatized by more days on market that a correct identification of the project type would have prevented.

Loan eligibility for condominiums

A condo desk would not only solve the attached property project type problem (allowing for an autofill of the project type for the agent) but would also enable the listing agent to upload the condominium documents for review of eligibility for each loan type. As it stands, the listing agents leave the determination of a condominium’s eligibility for a particular loan type up to the buyer’s agent and lender, which is malpractice and contributes to the reason why condos spend more days on market on average than SFR’s.

The only way to determine if a particular project meets the lending criteria is to review the condominium documents in their entirety and neither the buyer’s agent nor lender can obtain the documents until weeks into a contract. The listing agent, representing the seller/owner, can obtain the documents quickly before the property is on the market.

With a condo desk, the listing agent would be able to provide the documents so that a determination can be made for each loan type. For example, the following could be published on the listing after review by a condo desk, so everyone knows what loans can fund in the association.

Park Place Condominium Association Eligible for VA Ineligible for FHA Eligible for FNMA Ineligible for FHLMC

In addition, this information would be captured so that no subsequent listing agent in the Park Place Condominium Association would have to get the documents and provide them, and no future buyer’s agent would ever be in the dark as to what type of financing their buyer could use to purchase in the community. As it stands now in virtually all MLS’s, there is no data that addresses what many would say (including myself) is the most important information to the buyer of a condominium.

This would stimulate and encourage more buyers for the seller, eliminate transactions from imploding because of the current unknown eligibility of the association or project type, and would provide the certainty of the financing options, which is undoubtedly one of the most important questions needing answering for attached property types.

These solutions have to be MLS or forms management solutions because it is here that the data can be efficiently captured and accurately published in the marketplace, which is critical to eliminate these devastating problems moving forward. They have and will repeat themselves over and over without this solution, and as we are now seeing with various lawsuits affecting the industry, problems left unsolved are going to attract unwanted attention and expose the industry to regulatory scrutiny and litigation that everyone but the plaintiff’s bar, wants to avoid.