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.
“It’s creating the perfect storm,” says John Warsing, a sales director for Circ Residences with the South Florida real estate firm ISGWorld.
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How the Champlain Tower Disaster Changed Everything
The Champlain Towers tragedy could have been prevented with routine inspections and preventative maintenance, according to investigators.
An investigative report issued this summer pointed to a defectively designed flat slab supporting the south tower’s pool deck, just above the underground garage. The slab supporting the pool deck collapsed more than four minutes before the tower came crashing down, according to investigators, who found issues with the deck’s design, construction and maintenance.
“The condo had an inspection that said there were structural issues, but nothing was done to correct it and unfortunately, we had this terrible, terrible event,” says Brittany Alexander, founder and attorney at Premier Property Law in Fort Lauderdale, which serves property owners across Florida.
Before these new laws were put in place, structural integrity was left to self-governance by condo association boards, explains Alexander. “Many owners and association members lacked the knowledge of assessing and maintaining the structural integrity of the building,” she says.
Most condo owners don’t want to pay higher HOA fees to fund the proactive work required, creating a two-fold problem, she says. However, now that inspections and repairs are mandatory, many condo owners are facing exorbitant costs for immediate issues or to build reserves for future repairs.
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.
For comparison, sales prices in the remainder of the 43 metro markets Redfin analyzed across the country gained 1.9% during that same period.
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.
Milestone Assessment
“The milestone assessment requires experts, like licensed engineers or architects, to assess the structure of the building. They are looking for anything that would indicate the support of the building is in distress or disrepair,” Alexander says.
This can include inspecting load-bearing walls — which help keep the building up — foundations, roofs and interior walls to check for water damage that might deteriorate the property. If the building had a certificate of occupancy (COO) before 1992, owners must complete the milestone assessment by Dec. 31, 2024.
The first part of the assessment is a visual inspection. “If they find any issues, they have to do more extensive testing, which may include destructive testing to see if it’s actually a risk or just cosmetic in nature,” Alexander says.
This assessment has to happen within 30 years from the certificate of occupancy and applies to all new and future condo construction. “If the property is within three miles of the coastline, it has to happen within 25 years of COO, and every 10 years after that,” says Alexander.
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.
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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.
Low Demand and Lots of Inventory
“The condos that are taking the biggest beating are over 30 years old,” Warsing says.
Florida has an estimated 1.5 million condos, with 37% of them in South Florida’s Miami-Dade and Broward counties.
Pre-Covid condo inventory in South Florida was just over 22,000. This was considered a healthy, balanced market before a pandemic-fueled buying frenzy took hold. During the pandemic, condo inventory plummeted, leaving roughly 8,300 condos in South Florida for sale in the second quarter of 2023. In the second quarter of 2024, more than 20,200 condos were listed for sale in South Florida, an increase of 143%.
Nearly 18,000 of those 22,000 listings were condo buildings aged 30 years or more, Warsing says.
According to data from multiple listing services compiled by ISG World, South Florida condo buildings from 10 to 30 years old have seen prices increase 7% in the first six months of 2024. Condos aged 30 years or older, on the other hand, have seen prices fall by 19% in that same region and time frame.
South Florida isn’t the only region feeling the heat. Robert Arnold, managing broker of Sand Dollar Realty in Altamonte Springs, Florida, says, “In June, there were 890 condos for sale in Seminole and Orange County. By July 31, there were 2,088 condos for sale, according to the Orlando Association of Realty.” That’s a 135% increase month over month.
Inability to Finance or Insure Older Condos
“It’s not just a lack of demand in the current crisis, many condos also aren’t financeable or insurable,” Warsing says. Banks and insurance companies want a laundry list of HOA documents, which now includes these survey results, he adds. “If they don’t know the condition of the structure or it’s not in good shape, it could make it nonfinanceable or noninsurable,” says Warsing.
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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.
Developers continue to build high-rise condos in South Florida that are selling for as much as $3,000 to $5,000 per square foot. “When we look at newer buildings, 10 years or newer, inventory is strong and sales are happening,” Warsing says.
What Florida Condo Owners Can Do
Condo associations are required to provide a copy of the inspection and survey results within 45 days of completion.
Based on the results, boards may issue a special assessment and a new reserve fund fee. If resident owners can pay the bill in cash or finance it, the HOA community can make the repairs, which improves the safety of the building and its value.
Many condo owners don’t have the money to cover pricey special assessments, so they are trying to unload their properties.
Since condo prices have fallen for older properties and demand is low, some condo owners cannot sell for enough money to pay off the mortgage and special assessments, which must be paid at closing to have a clear title.
“Some condos’ common area insurance coverage has special assessment coverage to insure some of the costs if homeowners can’t pay,” Alexander says. Associations can front the bill to make the repairs using financing through banks or possibly a state aid program, but financers will only issue this if special assessments are placed on the owners to recoup the loan.
If you can’t pay your condo assessments, the condo association can foreclose, taking ownership of the property and selling it at auction or on the traditional market to recoup its debts.
If you own an older condo in Florida, you may struggle to sell it right now. Waiting until the necessary repairs are made to the building and inventory and demand normalize will likely net you more money.
Just remember, if enough people in the condominium building don’t pay the assessments or reserve fees, it could lead to excessive empty units with no buyers. Eventually, the HOA may be unable to pay its obligations and could face receivership or be forced to sell the building to be repurposed or torn down.
If allowed by the HOA community and the building is deemed safe, renting your unit may be a way to cover any mortgage or insurance costs until it’s a more advantageous time to sell. If you cannot fund the required special assessments, reach out to your HOA community to see if there is a special financing program they are participating in that might be available to you too.
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Florida?s Condo Crisis: Why Condo Sales are Plummeting originally appeared on usnews.com
