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                17 DEC

                Condo Chaos or Condo Calm?

                What seems like Condo Chaos is leading to a Condo Calmness.

                “The calm after the storm” is the best way to describe what is going on in the condominium market.  Right now, HOA costs are going up. Some are significant increases and some not so significant. There are multiple reasons why this is happening, and both are because of needed changes with Reserves and needed reform with Insurance. Short term it seems chaotic. But long term is going to lead to much needed calmness. If you read this column often, its no different than putting the dishes right into the dishwasher rather than have them pile up in the sink. They are going into the dishwasher anyways so why not be organized and do it right the first time. The big headline is any increased money in HOA costs now are really costs that were going to happen at later dates and now you know them more upfront. That’s why condo associations who have boards with deep reserves aren’t seeing big increases.  And all boards should be organized, know when money needs to be put into place and have proper reserves.  This is the calm after the storm that is being put in place.

                In the past few months, we have seen larger price changes in condo quarterly dues and fees. This is due to several factors, some of which are also affecting the townhouse and single-family home market with insurance being the big one.  Fortunately, there finally looks to be some major breakthroughs in state laws which will eventually stabilize the insurance market.  Second though is really from Surfside. 3+ story buildings and those more on or closer to the water are now being forced to have reserves.  While regulations now cover more things, those condominiums that did not have reserves are now going to be forced to do so.  So, in the beginning this might feel like condo chaos but it’s really “condo calm”, because this is going to be something that should have been happening all along.

                ​Changes always are hard but in the long run the changes, to be discussed in this column, will lead to a calmness and more certainty.

                First, I’ll go over both Reserves and Insurance.  Then if you are thinking of purchasing a condo, what this means to you and what questions you must have your Realtor find out.  Andrea Roth is the leader in condo sales in the Palm Beaches. She has sold the most condos in the Jupiter & Juno Beach area for the past 10 years straight and really knows this market in and out. I asked her to help with this.

                1. Reserves. 

                Last year, we paid $30,000 for a new roof.  If we were smart, we would have had a separate bank account titled “New Roof Bank Account”.  But we didn’t and like most other single-family homeowners who don’t have a “New Roof Bank Account”, we just had to come up with the money.  Condominium associations really have run the same way (Homeowners Associations in SFH communities do too).  For condominium associations 3 stories or more and those especially by the water,  not having reserves like a single-family homeowner is just not going to be an option.  It will cause some condo associations to see large increases if reserves were too low, but conversely, there won’t be as many surprise special assessments.  That is why there should be more calm in the long run.   Florida Legislature passed Florida SB 4-D in May 2022, and it calls for inspections every decade if the building is 25 (within 3 years of coast) -30 years old. A structural reserve study needs to be done by the end of 2024 and associations are in the process of doing all of this now. 2 Reserves will actually take place.  One reserve will be for structural reserve (think roof, balconies, columns, foundation, etc) and the other a non-structural reserve.

                 

                2. Insurance

                The insurance business has been a mess in Florida. I wrote about in this June.  It was finally addressed this week.  Here is what one insurer told me.

                Hey Jeff,

                I like that they got rid of the Assignment of Benefits. Hopefully the changes in how mostly the insurance companies having pay the plaintiff’s attorney’s fees will calm everything down, but I think it will take a while for that to get sorted out and to be reflected in insurance premiums. The carriers are going to need some time to gather data on the amount of lawsuits filed and dollars spent before they start easing their guidelines and reducing the premiums. I don’t think the reinsurance is going to do a whole lot for premiums, either. I hope the arbitration provision election in a policy will create meaningful savings. We’ll see!

                To back up, this week approved legislation is a real strong positive step to overhaul the property insurance system to address bankruptcy, surging costs, and the reinsurance system. It should stabilize the market and lower it later. To recap the problem; Florida homeowners pay triple the national average.  12% of homeowners in Florida go without insurance compared to 5% nationwide. The insurance industry has had 2 straight years of new underwriting losses exceeding 1 billion.  7 insurers went out of business and others left the state. 76% of nations homeowners lawsuits from Florida and only 9% of homeowners insurance claims.

                The highlight of the bill is it should reduce litigation costs by removing 1-way attorney fees for property insurance which require property insurers to pay the attorney fees of policyholders who successfully sue over claims, shielding policyholders from paying insurers attorney fees when they lose. It will also create a billion-dollar reinsurance fund, compel some customers to leave a state created insurer, force insurers to respond more promptly to claims, increase state oversight of insurance after storms, force people with Citizens to pay for flood insurance, and require moves to private insurers if they offer a policy up to 20% more expensive than Citizens.  Contractors also won’t be able to have property owners sign over their claims to handle proceedings with insurance companies.  Although after all this was drawn up, the Insurance Commissioner of the State resigned.  Go Figure what that means?!?

                My take though on the Insurance Bill is its fantastic.  While lots of amendments did not get through, this is a giant acknowledgement and purposeful action plan to avert a bigger crisis. It should have been done way before now, but at least its being addressed and they are seriously addressing much of the major boxes.

                 

                Now on to advice if you are thinking of purchasing a condo……

                Andrea Roth, one of our veteran agents who has oodles of extensive experience in the condo market gives some great advice on what to look and ask for….

                Jeff,

                I’ve spoken with several Association managers over the last few days regarding special assessments, upcoming assessments and new regulations due to the Surfside issue.

                Here are the key things to know: 

                 

                How does this affect a potential buyer?

                1. Long term these changes will actually work in a buyer’s favor, and they probably will not be hit with large special assessments that we have seen in the past.
                2.  Most associations tell me that once they’re fully funded, they will not be raising quarterly dues again and may actually even decrease them.
                3. They are working to address the insurance (I talked with Andrea right before the insurance bill came out) issue but as I tell all my clients- it’s the same thing with single-family homes so that’s probably a “Wash” whether they have an increase in a condo complex or in a single-family home. This means they would face the same increase either way.

                 

                Key questions to ask if you’re representing the buyer:

                1. Make sure you get the condo docs but more importantly the following ones: approved budget, frequently asked questions, rules and regulations, application.
                2. Ask if there’s any upcoming special assessments that have already been levied or are being discussed.
                3. Get in touch with the association manager yourself so that you are not taking someone else’s word and you have the real story.
                4. Recent board meeting minutes give your buyer insight to the associations upcoming plans.
                5. Understand what the reserve situation is and how much percentage funded they are at this point.
                6. When was the last engineering study done and if it’s been quite a while when is one planned? I know a lot of buildings are in a queue and waiting to have theirs done.

                We have a few key negotiating tips for all of this, so give us a call and we’ll be thrilled to help.

                 

                Jeff Lichtenstein is owner and broker of Echo Fine Properties, a luxury real estate brokerage selling real estate in Jupiter  and homes in Palm Beach Gardens, Florida. He has 20 years of real estate experience, has closed over 1,000 transactions, and manages over 70 agents in a non-traditional model of real estate that mimics a traditional business model.  Some publications he has been quoted in.

                Feel free to ask him a question directly at [email protected] including a complimentary real valuation of your home.

                Posted in Jeff's Journal, Market Updates & Statistics, Real Estate Tips, Selling on December 17, 2022 at 6:56 am.

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