FirstService Residential President of South Florida High-Rise Hector Vargas provides insights on Florida's condo market
DANIA BEACH, Fla. (Sept. 10, 2024)
Florida lawmakers enacted legislation following the catastrophic collapse of the Champlain Towers condominium building in Surfside in 2021. The devastating event in South Florida's Miami-Dade County killed 98 people when the south tower suddenly crumpled in one of the deadliest building collapses in U.S. history. To prevent similar disasters, condos of a certain age are required to undergo rigorous inspections with detailed plans to fund necessary repairs and maintain structural integrity by the end of the year.
According to data provided by the Florida Realtors Association, inventory of condos and townhomes across the state increased 91.9% in the second quarter of 2024 compared with the year prior. There were roughly 62,011 active listings equating to 7.4 months supply. For reference, a year earlier, there was just 3.6 months supply in the condo market.
Closed sales in the second quarter of 2024 also slumped 9.2%, a sign there is weakening demand. According to a recent Redfin report, condo prices are falling across the state.
A state statute outlines the milestone and the structural integrity reserve assessments, which are the new condo requirements for buildings three stories or higher. These laws do not impact townhomes or single-family homes.
The Structural Integrity Reserve Study
The structural integrity reserve study addresses how the condo association will pay for future repairs based on a building's age and condition. The money collected in the reserve account is in addition to regular HOA fees and any required improvements discovered in the milestone inspection.
"Reserve funding is not required until January 1, 2026. However, we’re seeing increases somewhere between 30% to 40% of the reserve funds for the associations we manage right now," says Hector Vargas, a Miami resident and president of the South Florida High-Rise Division with FirstService Residential.
Vargas manages all aspects of the condo association, from the front desk, hospitality, financials and preventative maintenance for over 400 condominium buildings and roughly 98,000 condo units.
Associations that existed before 2022 must have the reserve study done by the end of 2024 but aren’t required to have the milestone assessment completed yet, unless the buildings meet the age specifications.
The reserve study can be completed every 36 months if desired, but it must happen at least every 10 years to ensure the HOA is accurately collecting money for future repairs.
New Reserve Fees In Addition to Higher HOA Fees
HOA fees are collected to pay for the building's shared utilities, insurance and labor to maintain common areas like a pool, landscaping or cosmetic updates.
"Now, they have the additional reserve funding, which is a requirement by January 1, 2026," says Vargas. "If the association was funding reserves, they will feel less of an impact compared to those who never really funded the reserves, but there is really no way to mitigate it."
Vargas described how one condo association he manages needs $4.17 million to "catch up" in year one. "Then, moving forward, the reserve funding will be $750 per unit, which doesn’t include the standard HOA fee," he says.
HOA fees have climbed for many owners lately – particularly for those in hurricane-prone areas of the state, because of insurance costs. A recent Redfin report shows that during the three months ending July 31, HOA fees increased in Florida more than 5% in Miami to more than 17% in Tampa.
"We try to find solutions to mitigate rising HOA expenses, but there are very few options with respect to insurance after many carriers left the state," says Vargas.
Expensive Special Assessments
A special assessment is a fee charged to condo owners in addition to their regular association monthly maintenance fees for a special project or an unforeseen repair.
"Astronomical special assessments are being delivered to members," says Vargas. One condominium association Vargas manages needs $20 million to make the necessary repairs found in the milestone assessment, "which equates to a special assessment of about $132,000 per unit," he says.
Higher fees and unexpected special assessments are challenging for anyone, but they're especially alarming for older condo residents on a fixed budget.
Those 30- or 40-year-old condo buildings that haven't been properly maintained and are in poor structural condition or have major infrastructure needs are in for a tough time.
"We’re going to see foreclosures," Vargas says. "Condo associations are going to face an incredible amount of receivables. If they aren’t going to be able to meet all of their expenses and the services required to maintain the property, they may have to go into receivership."
Receivership means a government-appointed party comes in to manage the funds of the condo association until it can become solvent. Vargas believes if some associations aren’t able to become solvent, they’ll likely make a distress sale to a developer who will tear the building down and rebuild luxury condos, which are still in high demand.
To read the full article from U.S. News, click here: https://realestate.usnews.com/real-estate/articles/floridas-condo-crisis-why-condo-sales-are-plummeting
Florida's condo market is under immense pressure from new regulations requiring inspections and expensive repairs. Through conversations, we are committed to supporting our boards.
Florida’s condo market is in muddy waters now that new condo laws are being enforced this year.Florida lawmakers enacted legislation following the catastrophic collapse of the Champlain Towers condominium building in Surfside in 2021. The devastating event in South Florida's Miami-Dade County killed 98 people when the south tower suddenly crumpled in one of the deadliest building collapses in U.S. history. To prevent similar disasters, condos of a certain age are required to undergo rigorous inspections with detailed plans to fund necessary repairs and maintain structural integrity by the end of the year.
The Condo Crisis in Numbers
The new Florida condo laws are creating a full-blown crisis as owners flock to the market to unload their condos.According to data provided by the Florida Realtors Association, inventory of condos and townhomes across the state increased 91.9% in the second quarter of 2024 compared with the year prior. There were roughly 62,011 active listings equating to 7.4 months supply. For reference, a year earlier, there was just 3.6 months supply in the condo market.
Closed sales in the second quarter of 2024 also slumped 9.2%, a sign there is weakening demand. According to a recent Redfin report, condo prices are falling across the state.
The New Florida Condo Laws Explained
The new Florida condo laws were created to emphasize the gravity of having regular assessments and ensure condo reserves are strong enough to handle maintenance and work needed to uphold a building’s structural integrity.A state statute outlines the milestone and the structural integrity reserve assessments, which are the new condo requirements for buildings three stories or higher. These laws do not impact townhomes or single-family homes.
The Structural Integrity Reserve Study
The structural integrity reserve study addresses how the condo association will pay for future repairs based on a building's age and condition. The money collected in the reserve account is in addition to regular HOA fees and any required improvements discovered in the milestone inspection.
"Reserve funding is not required until January 1, 2026. However, we’re seeing increases somewhere between 30% to 40% of the reserve funds for the associations we manage right now," says Hector Vargas, a Miami resident and president of the South Florida High-Rise Division with FirstService Residential.
Vargas manages all aspects of the condo association, from the front desk, hospitality, financials and preventative maintenance for over 400 condominium buildings and roughly 98,000 condo units.
Associations that existed before 2022 must have the reserve study done by the end of 2024 but aren’t required to have the milestone assessment completed yet, unless the buildings meet the age specifications.
The reserve study can be completed every 36 months if desired, but it must happen at least every 10 years to ensure the HOA is accurately collecting money for future repairs.
How It's Impacting Owners and the Market
The impact on condo owners and the statewide housing market is being felt in numerous ways. The first, and most obvious, is higher fees for owners.New Reserve Fees In Addition to Higher HOA Fees
HOA fees are collected to pay for the building's shared utilities, insurance and labor to maintain common areas like a pool, landscaping or cosmetic updates.
"Now, they have the additional reserve funding, which is a requirement by January 1, 2026," says Vargas. "If the association was funding reserves, they will feel less of an impact compared to those who never really funded the reserves, but there is really no way to mitigate it."
Vargas described how one condo association he manages needs $4.17 million to "catch up" in year one. "Then, moving forward, the reserve funding will be $750 per unit, which doesn’t include the standard HOA fee," he says.
HOA fees have climbed for many owners lately – particularly for those in hurricane-prone areas of the state, because of insurance costs. A recent Redfin report shows that during the three months ending July 31, HOA fees increased in Florida more than 5% in Miami to more than 17% in Tampa.
"We try to find solutions to mitigate rising HOA expenses, but there are very few options with respect to insurance after many carriers left the state," says Vargas.
Expensive Special Assessments
A special assessment is a fee charged to condo owners in addition to their regular association monthly maintenance fees for a special project or an unforeseen repair.
"Astronomical special assessments are being delivered to members," says Vargas. One condominium association Vargas manages needs $20 million to make the necessary repairs found in the milestone assessment, "which equates to a special assessment of about $132,000 per unit," he says.
Higher fees and unexpected special assessments are challenging for anyone, but they're especially alarming for older condo residents on a fixed budget.
The Future of Florida's Condo Market
"It’s going to be a bit of a survival situation for some condo associations," Vargas says.Those 30- or 40-year-old condo buildings that haven't been properly maintained and are in poor structural condition or have major infrastructure needs are in for a tough time.
"We’re going to see foreclosures," Vargas says. "Condo associations are going to face an incredible amount of receivables. If they aren’t going to be able to meet all of their expenses and the services required to maintain the property, they may have to go into receivership."
Receivership means a government-appointed party comes in to manage the funds of the condo association until it can become solvent. Vargas believes if some associations aren’t able to become solvent, they’ll likely make a distress sale to a developer who will tear the building down and rebuild luxury condos, which are still in high demand.
To read the full article from U.S. News, click here: https://realestate.usnews.com/real-estate/articles/floridas-condo-crisis-why-condo-sales-are-plummeting