Update on our local real estate market
How do you buy or sell a condo under the new rules?
It’s no secret the condo market has been awful this 12 months, in Clearwater condo sales are down around 14% from this time last year. Some sales are going through and some units are selling, so how do you sell your condo in this market or how do you buy one without getting hit by unforeseen costs after closing?
What has happened?
Florida Statute 553.899 requires that every condo or cooperative building that is 30 years old or more and is three stories or higher has a Structural Milestone Inspection completed every 10 years. For any building that fits this criteria, these requirements had to be completed for the first time by the end of 2024. The condo is then required to schedule contractors to repair the items identified in the report. In addition condos must have a Structural Integrity Reserve Study (SIRS) completed. SIRS assesses the remaining useful life and cost of replacing major structural items in the building, eg roof, elevator, painting/waterproofing. Associations are required to accrue funds to cover 100% of the cost of these items, they can no longer ignore them and deal with them in a special assessment when, for example, the roof is leaking.
The Result
As a result of not addressing maintenance and not saving money to pay for maintenance and replacement of major items, many condos have outstanding maintenance items or major structural components that need to be replaced, and no money to do any of the work. The legislation required them to be compliant by the end of 2024, many have completed the requirements but many have not.
Why was this legislation introduced?
Just like with a household or business budget, if you know a roof is going to last 15 years and cost $15,000 to replace, you should be saving $1,000 per year to cover the cost of the new roof when the time comes to replace it. Condos have always had the option of not saving to replace major items, and often members voted against saving in order to keep monthly costs monthly, maybe hoping they will have sold the unit before some of the major replacements are due. The other thing that was happening is that condos were not addressing structural deterioration in their buildings – structural inspections cost money, and having an inspection done would likely lead to more cost to address issues found, so it was all too easy for condo boards and members to not take any action regarding some significant maintenance items. The legislation was introduced to prevent another tower collapse like Champlain Towers in Surfside in 2021.
Current State
Many condos have done the inspections and studies already and have plans in place to make repairs or replacements, and make whole their reserve funds. Some have done the inspections but haven’t scheduled work yet, and others haven’t done their inspections. There were news reports a few weeks ago that DeSantis was considering extending the deadline and the same reports said there are a huge number of condos who haven’t met the requirements yet – in my experience, most buildings have done the inspections so maybe the problem is more outside of the Tampa Bay area. I’ve heard nothing further on DeSantis extending the deadline and allowing them to kick the can further down the street – the legislation was introduced in 2022, so I’m not sure what allowing more time would achieve.
Insurance Adds to the Woes
On top of the costs to be compliant with the legislation, insurance companies have significantly jacked up rates this year. I’ve heard of rate increases of well over 50% in some cases.
What is a Condo Association To Do ?
Insurance costs and the legislation both drive up the cost for a condo. They really don’t have many options to raise the additional revenue to cover these costs. They can increase monthly assessments or raise a special assessment. Obviously both ways just increase the cost of ownership for owners. How much are we talking about? I’ve seen monthly association dues go up by more than 50% in many cases – at the lower end of the price range, many condos in the $100 – $200,000 price range now have monthly assessments of $550 and upwards. I’ve also seen special assessments levied of over $10,000 per unit. Some owners have the means to pay the increased assessments and some are opting to sell, and if owners don’t pay the assessments the associations will ultimately foreclose on delinquent owners adding to the problems of the buildings.
Selling the condo to a developer
One final option is for the unit owners to sell to developers who will either convert the building to apartments or reuse the land. The condo’s Articles of Incorporation usually spell what is needed to sell the building, all unit owners’ agreement or just a percentage. Just handing over the keys to a developer and taking a check sounds easy, but it is a complex process with many moving parts. I am currently working with a developer who has converted over 1000 condo units to rentals, call me if this is an option that interests you.
How do you sell a condo in this environment?
I’ve closed several condo transactions this last year on both the buy and the sell side, first thing to note is don’t be in a hurry! Every buyer has wanted to know the status of Milestone Inspections and SIRS very early on in their search process, often not even wanting to see a condo until they understand where these items are. On the Seller side, I’ve seen a lot of cases where the relevant information has just not been made available. Agents have told me they and the seller don’t know the status, they’ve given out partial info such as the study was done but results are not available, or they’ve sent me to understaffed management companies who don’t want to answer the same questions over and over again, or they’ve just flat out declined to give any info at all! Just in case there is any doubt about what needs to be disclosed by whom, the new Condo Rider (disclosure about the association) calls out that the Seller must provide Milestone, SIRS and current financial information, including special assessments in place or planned, or the buyer can cancel the purchase contract.
First rule for selling a condo
Be transparent. This means doing homework before listing – get all the financials, Milestone and SIRS info together and make sure your agent understands it and is making it available to potential buyers. Some agents are even calling out in listings that Milestone Inspections and SIRS are all complete. At some point your agent will need to convince a buyer or buyer’s agent that while your condo may have some high costs now, the financial and structural diligence is complete and there are no more surprises to come. Buyers will make informed decisions, and if the information is not available buyers will cross your condo off their list and keep looking elsewhere. Focus on buying and selling, not on spinning how to present financials. I can guarantee buyers will pass you over if they can’t get financial information, but if they have that information they can start an informed discussion on a possible purchase.
Second rule for selling a condo
Know your competition, same as you do when you select a price to list at. Know your condo costs compared to similar buildings in your area. Your agent should be able to compare your building to others in terms of monthly fees and special assessments, and be able to discuss the merits of your building. Some buyers will just want to be in that area, convince them that the financials of your building are better than for other units for sale, and if they are not then consider discounting on the price to offset. Again, just be open about current state and know your market.
Third rule for selling a condo
Be patient. The condo market has slowed as a result of these changes, and interest rates have piled on to the challenges as well. There are fewer condo buyers now than there was this time last year. Buyers are aware of the legislation and are cautious. Be prepared for lots of questions and slower decision making.
Condos are selling right now, but there are challenges. Strong and knowledgeable representation is probably more important than ever. If you or someone you know are looking to sell your condo, or buy one don’t hesitate to reach out!
Realtor Commissions – What’s Changed?
In August 2024 the National Association of Realtors introduced new rules in response to a lawsuit claiming unfair practices around commissions. The new rules prevent commissions from being advertised on the MLS, and also mandate a buyer broker and their client have a signed agreement in place before showing any property. Five months later, what’s changed?
The short answer is very little. There is another step added to the purchase process where a Realtor figures out how they are going to get paid – the seller, the buyer or a combination. Whoever ultimately pays, the cost is still in the middle of the transaction. Previously it was implied to be the seller, now that has to be established at time of the offer. In every sale I’ve closed under the new rules, the Seller has paid commissions, this is the same for 99% of the other realtors I’ve discussed this with.
Despite another step being added to an already stressful process, there is some value. Buyer broker agreements must be signed before showing property to a perspective buyer. These detail the responsibilities to each other of a buyer and buyer’s broker and more transparency and reinforcement is always good.