Wow! Florida Condo Assessments are Crushing Owners

[Tekward]

We once considered becoming snow birds and buying a condo in Florida. But the recent double whammy of increased insurance costs, plus large HOA assessments, are putting many values underwater. This is after Florida's legislature passed a law in 2021 requiring HOAs to increase their reserve funds and institute a more frequent inspection regime, following the tragic collapse of the Champlain Towers in Surfside.

The Poison Pill Facing Florida Condo Owners

Imagine being a property owner in a condominium who is humming along paying the mortgage and then getting a letter from your homeowner's association (HOA) informing you of a six-figure assessment. Now imagine that you don't have the money, but under the HOA rules, failing to pay the assessment...

finance.yahoo.com

 

[Texas Proud]

I did not read the article but if they were like my mom's condo here they were not collecting enough to actually replace things that would wear out.. so the older the building got the more money had to be spent and the more the HOA went up....

Now, I can see both sides of the argument... the people who bought at the beginning actually paid for everything and would say, why do we have to start paying to replace XYZ in 20 years when it is brand new... that is fine except they then do not want the price of their condo to be reduced by the cost of the new owner having to pay that up front...

BTW, my mom's condo took out a loan so they paid for the new stuff over time so it was not a shock to the owners...

 

[ShokWaveRider]

Yes, Condos are taking a beating resulting in very few sales as per local respected realtor. Conversely SFH are increasing in value ...... again.

 

[W2R]

I can understand the concern, after the catastrophic collapse of the Champlain Towers. That was shocking. But gee, I can also understand that people have budgets and that the costs of condo ownership are becoming insanely high in some places. My guess is that many, like you (Tekward) will have second thoughts about Florida condo ownership now.

Here in New Orleans we have been hit by huge insurance increases on single family homes, which Frank and I can (barely) handle for now. But many others with paid off homes like ours, are choosing to go without insurance because they can't afford it. Scary situation IMO. Maybe there will be a rush to rural locations in sparsely populated states with low insurance rates. Or, maybe there are other solutions that I haven't thought of.

 

[MC Rider]

From the article.

his condo fees have jumped from $1,500 to $3,000. Then he was hit with an assessment of $224,000.

So is it a $300,000 condo or a $3,000,000 condo? Either way it's a big hit. But it seems in the past HOA dues were not high enough. Now it is time to play catch up. Bummer. And yeah, this will not do their values any good.

Side note, after the 1994 Northridge Earthquake a lot of projects took out 30 year SBA loans to fix the damage and retrofit. I guess the last ones will be getting paid off soon.

 

[athena53]

Here in New Orleans we have been hit by huge insurance increases on single family homes, which Frank and I can (barely) handle for now. But many others with paid off homes like ours, are choosing to go without insurance because they can't afford it. Scary situation IMO. Maybe there will be a rush to rural locations in sparsely populated states with low insurance rates. Or, maybe there are other solutions that I haven't thought of.

My parents lived in North Myrtle Beach on the coastal side of the Intracoastal waterway. Their modest house was paid for and they finally got fed up with the cost of windstorm coverage and dropped it (although they did have coverage for other perils). They figured they had the resources to go elsewhere if it were destroyed, the land was worth more than the house and if ordered to evacuate they'd stay in place and be swept away together. Dad sold it at a nice price a year after Mom died.

There have been industry proposals to have a nationwide catastrophe pool, paid for as a surcharge on homeowners insurance premiums, that would cover earthquakes, hurricanes, etc. but the only way to collect enough money in total and still give a break to homeowners in cat-prone states would be to charge higher premiums for people in states like Idaho and Wyoming to subsidize them. Somehow these ideas never came to fruition.

 

[Souschef]

I can sympathize. I was the treasurer of a condo for 25 years and I saw it all. One of the problems with condos was the board wanted to keep fees low, so they did not put enough in the reserve.
I was adamant about having enough in the reserves, but could not control insurance costs.
In an apocryphal tale, we were 3 miles from the epicenter of the Northridge quake. We had opted to not have earthquake insurance because the deductible was so high almost nothing would be covered. We sustained minimal damage, thanks to having new roofs put on with3/4 inch plywood underneath the year before.
One of the board members moved to another condo because it did have insurance. They sustained a lot of damage and were out of their condo for a year and a half while fighting with the insurance company.

 

[pb4uski]

I did not read the article but if they were like my mom's condo here they were not collecting enough to actually replace things that would wear out.. so the older the building got the more money had to be spent and the more the HOA went up....

Now, I can see both sides of the argument... the people who bought at the beginning actually paid for everything and would say, why do we have to start paying to replace XYZ in 20 years when it is brand new... that is fine except they then do not want the price of their condo to be reduced by the cost of the new owner having to pay that up front...

BTW, my mom's condo took out a loan so they paid for the new stuff over time so it was not a shock to the owners...

I used to here this all the time from some of my more ignorant fellow condo owners... I'll be dead in 20 years so why would I want to contribute to the next roof?

You're really paying for the wear and tear of the roof that is now over your head so the money to replace it will be there when it needs to be there. The original buyer paid for the new roof and then for the wear and tear of the roof over ist useful life as did each succeeding owner.

Buyers are getting smarter and looking at reserve adequacy when they buy.

I've never heard of an association taking out a loan for something like that. I guess the lender is relying on the Association's authority to assess, but what is the collateral and how could the lender foreclose if the Association didn't pay?

 

[pb4uski]

Yes, Condos are taking a beating resulting in very few sales as per local respected realtor. Conversely SFH are increasing in value ...... again.

That is part of the reason that we conceded about 10% from asking price in our recent condo sale. I sensed that prices were softening and decided that a bird in the hand was better than a bigger bird in the bush. Also, even if we held out for our desired sales price we likely would have had to carry the place all summer for I'm guessing 5 month or more since the summer is slow. Condo fees, property taxes, insurance, electricity and opportunity cost of money were almost $3k/month. The cherry on top is that I didn't have to replace our 18 year old HVAC system so I avoided that cost.

 

[MichaelB]

There are 2 separate issues. One is inadequate reserves for ongoing maintenance and repairs, such as roof replacement. Many HOAs have inadequate reserves and they much be increased. This is not new and country wide, not just Florida.

The other issue is a new Florida regulation, SB-4D, which mandates inspections and repairs for condos. It was passed after the Champlain collapse and is causing all kinds of havoc. HOA board members are liable and repairs are mostly mandatory. Estimated repair costs can exceed the market value of a condo unit. I would guess many of the inspections now lead to repair estimate that are simply unaffordable.

People with limited resources living in older buildings and whose wealth is mostly in their condo units are in a very bad situation.

 

[Sunset]

......

There have been industry proposals to have a nationwide catastrophe pool, paid for as a surcharge on homeowners insurance premiums, that would cover earthquakes, hurricanes, etc. but the only way to collect enough money in total and still give a break to homeowners in cat-prone states would be to charge higher premiums for people in states like Idaho and Wyoming to subsidize them. Somehow these ideas never came to fruition.

Pretty sure the folks in Mid-west don't want to subsidize folks who can afford beach front property.

Everyone is free to move to safer places.

Having lived in a condo and being on the board, it's only prudent that yearly charges should build a fund for future repairs, otherwise the place is simply being driven into the ground and will become uninhabitable.

 

[jazz4cash]

I was looking at a condo for investment but a realtor told me the HOA would only divulge if they met requirements for FHA financing. No other details from their books would be available until after an offer was made. That seems to be a flaw in the sales process.

 

[MC Rider]

Estimated repair costs can exceed the market value of a condo unit. I would guess many of the inspections now lead to repair estimate that are simply unaffordable.

Something something about a rock and a hard place.

My solution? Don't buy a condo. Or anything with an HOA.

 

[MichaelB]

Something something about a rock and a hard place.

My solution? Don't buy a condo. Or anything with an HOA.

Good advice for someone thinking about buying. Not so much for the million plus condo owners in Florida who alresdy bought.

 

[brett]

This reminds me of the old Fram commercials.

You can pay me now.....

Or you can pay me later.

There is a cost to building maintenance. The longer it is deferred the more expensive and extensive is becomes. This is not rocket science. Any homeowner can tell you that.

Are condos somehow immune to this?

Condo liability, condo assessments, condo insurance, and traffic in Florida are the main reasons why, when we retired, we considered purchasing a winter home in Florida for about 10 seconds.

Despite having spent a great deal of time in all parts of the state over the years.

 

[Pointby2]

Something something about a rock and a hard place.

My solution? Don't buy a condo. Or anything with an HOA.

HOA hate is pretty universal on the internet. Here in Orange County CA, there are approximately 5,000 homeowner's associations and 82% of residents live in an HOA. Our HOA is great. That being said, I'd be hesitant to live in a Condo with an HOA.

 

[rk911]

We hope we never ever have to share walls with anyone or live under the thumb and eye of Alice Kravitz and her HOA. My mom lived under two HOAs and neither was pleasant.

 

[Chuckanut]

Our board does not want to raise the monthly dues by $50 because too many people can’t afford it. Yet to do a roof replacement we will need a special assessment in the thousands. How will the people who supposedly can’t afford $50 more each month come up with thousands of dollars at once?

OTOH, complaints to the HOA are virtually non existent. Everybody pays on time. The property is kept up well. Overall the system works.

 

[Texas Proud]

I used to here this all the time from some of my more ignorant fellow condo owners... I'll be dead in 20 years so why would I want to contribute to the next roof?

You're really paying for the wear and tear of the roof that is now over your head so the money to replace it will be there when it needs to be there. The original buyer paid for the new roof and then for the wear and tear of the roof over ist useful life as did each succeeding owner.

Buyers are getting smarter and looking at reserve adequacy when they buy.

I've never heard of an association taking out a loan for something like that. I guess the lender is relying on the Association's authority to assess, but what is the collateral and how could the lender foreclose if the Association didn't pay?

I agree... but as noted, why not have the new owner pay for the new roof when it is needed... if it were a SFH then the old owner would not give the new owner any money for the wear and tear.. he just sells the house as is and the new owner must adjust their price paid for the wear and tear...

I am not sure exactly how the loan docs went... but I do know that it was taken as a vote and the loan won over a one time assessment... maybe it was legal enough for the bank... and it could be the ownership structure... my mom owned a certain pct. of the whole, not an individual place...

 

[rk911]

I was looking at a condo for investment but a realtor told me the HOA would only divulge if they met requirements for FHA financing. No other details from their books would be available until after an offer was made. That seems to be a flaw in the sales process.

Sounds like a plan to deter offers...but why??

 

[ncbill]

Type of construction also matters.

High-rise concrete towers with flat roofs in a maritime environment will always have more maintenance needs than my conventional stick-built townhouse with brick siding & a peaked roof using standard asphalt shingles.

 

[teej1985]

Type of construction also matters.

High-rise concrete towers with flat roofs in a maritime environment will always have more maintenance needs than my conventional stick-built townhouse with brick siding & a peaked roof using standard asphalt shingles.

I'm assuming that something like you have in maritime environment could be costly to maintain also. Staying away from the coast probably helps a bunch.

 

[FlaGator]

I'm assuming that something like you have in maritime environment could be costly to maintain also. Staying away from the coast probably helps a bunch.

Correct. But even 10 miles from the coast as I was in SoFla, the humidity is so high things start to rust in <30 days. Now I'm 1 mile from the water, and anodized aluminum is corroding. Imagine what a 30 year old concrete structure just a few hundred yards from the beach is experiencing.

 

[RetiredHappy]

We don't share a wall with another home and we have 3 HOAs and would not want to live in another home without HOA again. Before we moved to the current single family home, we lived in a high end concrete single level condo penthouse unit in the same resort community, and we also had to pay into 3 HOAs. Even with that, we were very glad to have to pay into the HOAs. HOAs are not always bad, as in our case, an excellent setup. Our 3 HOAs cover 1) the resort community lake and general area, 2) the guard gated community in which our home resides and 3) sub-development.

 

[audreyh1]

It seems inevitable once a building reaches a certain age because people generally don’t want to pay ahead for shared property. Florida double whammy with the insurance challenges. Plus building requirements get more stringent.