By: Diana Boyesen

You can watch the podcast here.

Over the last several decades, retiring and buying a condominium in Florida has been a highly desired plan for millions of Americans entering their golden years. Unfortunately, a combination of high insurance rates, high homeowners' association fees and high interest rates is scaring off buyers and turning Florida's once highly sought after condominium market into a possible disaster zone.   

Traditionally, a condo has been a choice for buyers looking for either a more affordable property or a low maintenance property.  The collapse of the Champlain tower south in 2021 where 98 people died caused lawmakers to make major changes to the condominium laws.  Florida lawmakers have since adopted measures aimed at ensuring the safety of aging buildings. Condominium associations are now required to regularly assess the structural integrity of their building and fully fund reserves necessary for maintenance and repairs.

Under SB4D, condo developments over 30 years old — two-thirds of all condos in Florida — must undergo inspections and immediately address critical defects. SB4D also eliminates the ability of COAs to waive reserve contributions, instead requiring that they collect the annual cost needed to repair and replace certain elements by the end of their life span, as determined by a 10-year Structural Integrity Reserve Study (SIRS).

The deadline to complete these inspections is Dec. 31, 2024. As inspection results come in, many condo associations and owners will realize the scale of the problem. Many associations may face repair costs in the millions.  Even after allocating those costs among all unit owners, many owners in older buildings may not be able to afford the increased maintenance fees and special assessments to make immediate repairs.   

Condo owners need to understand: they’re going to be on the hook. The state legislature is going to be enforcing these new laws.

According to a recent Redfin report, Florida's condominium market is in a state of freefall. Every indicator shows evidence of a market struggling to come to terms with a new reality. First, condo listings have increased by 30% in comparison to the same period one year ago. Another shocking aspect of the report is the extent to which prices in some of Florida's largest markets are retreating in comparison to condominiums nationwide.

  • Tampa condominiums are selling for an average of 1% less ($235,000).

  • Miami condominiums are selling for an average of 2.5% less ($385,000).

  • Orlando condominiums are selling for an average of 4.8% less ($200,000).

  • Jacksonville condominiums are selling for an average of 6.5% less ($254,000).

More alarming is the fact that pending sales of condominiums in four of Florida's largest markets are significantly down, or at best flat, compared to a year ago. That means Florida condos are losing their luster in the eyes of many prospective buyers.

What the report doesn’t address is that two of the biggest mortgage players Fannie Mae and Freddie Mac have also tightened their guidelines on loans for condominiums.  They have a condo questionnaire that is required for loans and they increased the criteria drastically.  They want a reserve study done every 3 years.  So, there is now a “battle” between property managers and/or board members and their attorneys and the lender who needs the questionnaire answered.  The managers don’t want to answer questions that could open them up to more liability and the lenders won’t make the loans without the questions being answered.

Many Florida condominium communities have been dramatically raising HOA fees to cover both the cost of rising group premiums and assessments for needed maintenance, and money to pay for the new requirements that are now in place.  To further muddle the waters, HOAs are having difficulty finding an insurer willing to write a policy for the community. In many cases, insurers will only cover communities after they make numerous (and costly) repairs or upgrades to existing facilities.

So, the condo world has gotten even more confusing- not only for professional lenders and realtors, but for the seller and buyers as well.  

If you are still listening, you probably think “Well, dang, I would never buy a condo now.”  And, we don’t blame you!  However, we do have some factors to consider. 

Most people talking about all the issues with condos are ignoring the fact that ALL properties in Florida are dealing with rising insurance costs and maintenance costs.  And, the maintenance costs for homes have risen as well. 

If you do want to buy a condo and we haven’t scared you off- the benefits of low maintenance living and possibly being in a location that you could not otherwise afford, might still be of interest to you. Also, the amenities offered by an association can be very attractive.

There are also different types of condos:

  • High-rise apartments with common interior hallways (usually over 9 stories)

  • Mid-rise condo (5-9 stories)

  • Low-rise condo (1-5 stories)

  • Garden-style apartments with outside entrances

  • Multi-Story townhome style condos

  • Condo-hotels and condo shares

  • Detached condos

So- let’s talk for a minute about how buying a condo is different than buying a single family residential property.

1)   When you are purchasing a property there are two things that need to be approved: the borrower and the property.  In the condo purchase there is an added approval needed- and that is the condo association. 

2)   A single family is owned “fee simple” and you own the land that the property sits on.  A condo is owned “condominium” and you do not own the land that the property sits on.

Just like the purchase of a home- the buyer will also do an inspection on the property and likely an appraisal and will go through the loan process.

If you want to purchase a condo it is really important to do your research up front

Gather all the documents you can so you have time to look at them before your inspection period expires. 

If you are using the condo rider from the FL Realtors and Florida Bar properly, then these documents are requested when you submit a contract.

  • Declaration of the condominium

  • Articles of incorporation of the association

  • Bylaws and rules

  • Most recent year end financial statements

  • FAQ

Financing for a condominium involves approving the borrower (your income, assets, job history etc), the property (the appraisal, the insurance) and the condo association.  In order to do a loan with less than 25% down the lender is going to review the following:

  • The condo questionnaire

  • The budget (including reserves)

  • The 6 months most recent board meeting minutes

  • The condo insurance and flood insurance if required

  • Any reserve studies

There is usually a cost to the borrower up front for these documents when ordering the official versions..

The review of these documents will determine the Loan to Value that the lender will offer on the property and what type of loan.  If the condo association can’t meet the requirements then there is the possibility of doing what is called a “non-warrantable condo” loan. The Department of Housing and Urban Development also keeps a database of warrantable condos that will be applicable for an FHA loan. This resource is also available for VA loans here.

Doing a loan will require a questionnaire filled out by the management association. For less than 25% down the full condo review will need to be done.  If you are putting 25% or more down then the limited review will suffice.  And, non-warrantable condo lenders will have their own review process.

It isn’t an easy journey to navigate, but if you would like an expert to guide you through it, reach out to us!