Thursday, June 23, 2022

New Rules for Condos = $$$

The Florida legislature finally approved legislation addressing condo building safety during the recent special session. The draft as approved requires buildings of three or more stories and within three miles of the ocean, which is all of Cocoa Beach, to be visually inspected by the time they are 25 years old and every ten years thereafter by an engineer or architect. If structural deterioration is found during the visual inspection, further inspections to determine whether the building is structurally sound are required. That means buildings completed before 1992, must complete their first inspection by Dec. 31, 2024. Enforcement is expected to be at the County level with oversight by DBPR. 

Beginning Jan. 1, 2025, condo associations will be prohibited from waiving the collection of reserve funds for structural maintenance and repairs which is an item that most condos in our area do not already include in their reserve accounts. The measure also calls for a reserve study every ten years. 

We won't have the exact language until the final bill has been completed and signed into law by the end of this year. Big questions include the percentage of reserves that will be required and how the amount for structural reserves will be determined. Concrete repairs can vary wildly depending on extent at time of repair and where on a building they exist so estimating future costs might require the use of a crystal ball. Even without structural reserves the difference in full or partial reserves can be hundreds of dollars a month in condo fees. Whatever the final language it's safe to expect that single requirement to increase condo fees substantially. 

The ten year period between reserve studies and inspections is already being questioned as not frequent enough to accomplish the intentions. It is a step in the right direction but some professionals suggest inspections and reserve studies every three years as more appropriate in order to maintain realistic reserves. Condo owners in buildings without reserves and that have deferred structural maintenance are about to have a serious reality check on the real cost of oceanfront condo living. A 25 unit building that estimates they will need one million dollars for a concrete project in ten years will need to add $333 per month to each unit's condo fees right now in order to have that million in ten years. Estimating repair costs a decade in advance is guesswork at best as is estimating the extent of the needed repairs ten years out. What is estimated at a million today might turn out to be five million in 2032. Owners of units in older oceanfront buildings should be prepared for meaningful increases in their monthly fees. Inspections, repairs and structural reserves will no longer be optional and they won't be cheap.

The rate of new contracts on condo units in Cocoa Beach and Cape Canaveral has slowed significantly in the last couple of weeks. The rate of accepted contracts so far in June is at about half the rate we enjoyed one month earlier. In addition to sharply higher mortgage rates I imagine the stock market decline may be affecting those cash buyers who would have been selling stocks to fund their condo purchase. Whatever the reason, we are experiencing a slowdown in activity. Whether it persists is anyone's guess.

“Most successful people are just a walking anxiety disorder harnessed for productivity.” __Andrew Wilkinson

Thursday, June 16, 2022

Condo Mortgages Just Got Tougher

Residential real estate activity in Cocoa Beach and Cape Canaveral has slowed somewhat as we've entered our summer season. Twenty condo sellers have accepted a contract since June 1 along with seven sellers of single family homes. Inventory is unchanged from May with 79 condos and townhomes and 17 single family homes for sale this morning. Those numbers do not included 11 pre-construction offerings. The lowest-priced single family home offered in Cape Canaveral is $2.2 MM. It is also the only home currently for sale in that city. Of the 16 Cocoa Beach homes for sale, the lowest asking price is $499,000 and the highest, $1.75 MM.

Closed sales of note so far in June include a beautifully remodeled direct ocean 6th floor Constellation 3/2 with ocean and river views and one of the best floor plans in Cocoa Beach. It sold for $935,000 before hitting the market. Twelve of the 27 sold units so far this month sold in the first seven days on the market. Slightly more than half of these sales were cash deals. Twelve of the 27 sold for more than $300 per square foot with the weekly rental units that closed bringing substantial premiums to those in buildings that prohibit short-term rentals which are the vast majority of local condos. Skyrocketing vacation rental rates have pushed the prices of units in the handful of short-term rental buildings to unheard-of levels. Two bedroom oceanfront units with the ability to do vacation rentals have pushed over $600,000.

The condo collapse in Surfside happened one year ago this month and it seemed that there were going to be no impact after the Florida legislature earlier this year chose not to act on the Florida BAR task force recommendations. Absent legislative action, property insurers took steps to protect themselves and are increasing premiums and in some cases cancelling policies on a wide scale. 

Coming in from left field, the biggest impact so far has been an addendum to the Fannie Mae condo questionnaire. The condo questionnaire must be completed by a condo association for a prospective purchaser who is buying with a mortgage and the answers must conform to Fannie Mae guidelines if the mortgage is to be approved. In the past the main potentially deal-killing issues were ratio of residents to renters, percentage of past due owners, number of units owned by same entity, reserves, insurance and existence of current litigation. The full review questionnaire since March 2022 is much more probing with pages of questions about building condition, date of last structural inspections, findings of that inspection and plans to correct and fund those findings. A respondent who is lucky enough to have a recent satisfactory inspection is likely to be given pause by questions on page two about the association's "awareness" of any safety or structural issue. This is sure to strike some fear in the poor soul who is asked to complete the questionnaire as is the question about "planned" special assessments. That expands the existing requirement to disclose special assessments from those that have actually been issued to any that are "planned". There are also new questions about date of last reserve study and balance of the reserve account. It's safe to expect some Board members and managers to refuse to complete the new full-review questionnaire.

One bright spot in this (so far) is that the limited review condo questionnaire has only limited changes so buyers in buildings that can't satisfactorily answer the full-review questions can put 30% down and hope to be able to pass the shortened review questions. Note that limited reviews will still contain broad questions about "planned" assessments and deferred maintenance. Owners in older buildings with deferred maintenance would be well-served by pressuring their Board to address structural issues sooner than later. Inability to satisfactorily answer the condo questionnaire will limit a seller to cash offers only, potentially impacting selling prices. However all this plays out, I stand by my prediction that expenses for owners in older Florida condos are going to continue to soar. 

Sellers of condos need to know whether or not their association can pass the full (or limited) condo review so they don't waste time accepting a low down payment mortgage offer that is destined to fail. Same goes for owners in the not-few local buildings that can't pass any questionnaire. Those buildings have been relegated to cash deals only for years but I still see the occasional contract go contingent with a mortgage knowing that it will be back on the market soon. This is always an inexperienced or out-of-town agent who isn't familiar with the building. Sellers should ask prospective listing agents what issues buyers seeking a mortgage will be facing in their building so that they can avoid the disappointment of a failed contract. A listing agent who can't answer that should be removed from consideration.

I'd love to hear from readers who've renewed their flood policies since April 1. Have your rates gone up? How much? I expected substantial increases especially for those in flood zones but haven't heard anything in the two months since the changes took effect.

Anyone who'd like to read the new full review condo questionnaire can email me at for a copy. I would advise any Board members or owners planning to sell to familiarize themselves with the questionnaires.

"Money is a lot like alcohol.  It doesn’t change a person.  It amplifies who they are." _anonymous