Are special assessments the latest headache for the US real estate market? The Wall Street Journal published an in-depth report featuring Florida condo owners listing their units for sale at steep discounts because they could not afford the tens of thousands of dollars in fees needed to pay for building repairs. While this may seem like an exceptional opportunity for households trying to get their feet in the state’s much-desired housing market, prospective homeowners might not be so excited if they knew about the special assessments.
Florida’s Special Assessments
Before 2021, Florida condos could waive reserve funding necessary for unforeseen circumstances, lowering buy-in costs for residents but also leaving empty coffers during rainy days. However, following the June 2021 collapse of a Surfside condominium that killed 98 people, the state implemented a structural safety law, which included requiring buildings to pass structural inspections 30 years after they had been constructed. Additionally, the government requires condo associations to charge unit owners special assessments on top of the regular monthly fees. By January 2025, building reserves must be 100% funded to comply with state law.
Families residing in older buildings bear the brunt of these costs, with reports suggesting tenants are paying as much as six figures. This has forced many owners to sell their suites before the deadline and endure a substantial haircut. The Journal alluded to Ivan Rodriguez, who liquidated his 401(k) to purchase a 1,500-square-foot condo in North Miami for $190,000 in 2019. After receiving a special assessment totaling $134,000, he sold the unit for $110,000.
Considering that three-quarters of Miami's condos are at least three decades old, others are paralyzed in the same predicament. But is this an opportunity for buyers? New data from brokerage ISG World found that prices for 30-year-old units are down close to 12% since 2020. At the same time, individuals will need to purchase the suites in cash since, according to the newspaper, "mortgage lenders are increasingly unwilling to take on the risk associated with these units."
Other Florida cities are enduring similar circumstances. Local news outlets report that owners at the Regency Gardens Condominiums in Orlando, experiencing a reserve funding gap of more than $17 million, have been handed special assessments between $11,000 and $22,000. The total balance is due on July 31.
If tenants do not pay, they face eviction. It is a catch-22 as Sari Papir, a retired real-estate agent who has lived in a half-century-old building, told the newspaper: "These units are practically being given away. Even if we found a buyer, what could we buy with the pennies we'd receive for our units?"
Special Assessments Everywhere
These huge fees are happening everywhere. In one of the world’s most expensive real estate markets, Toronto, special assessments are becoming more common in new and older buildings. The problem has been the paucity of reserves. Property developers have advertised condo fees as low as $200 per month, which, based on what has happened throughout Toronto’s condo sector, might be a disaster in the making in the coming years. Homeowners in a community of roughly 200 townhouse-condo units were given a special assessment of nearly $20,000. Other condo associations have avoided special assessments, choosing to double monthly fees, such as one building that experienced a 113% spike following a flood.
It is not surprising, considering that an Ontario Auditor-General's report in 2020 discovered that many property developers sold units by using understated amounts for condo fees.
Decades-old buildings across the city are facing millions of dollars in debt amid deteriorating internal and external structures. After charging next to nothing in monthly fees for many years, condo corporations inside these ancient buildings are now catching up and requiring tenants to pay thousands of dollars. Like Florida residents, these people are taking drastic actions, from selling their units to taking out high-interest loans.
Insurance: What a Calamity!
Special assessments are not the only challenge for Florida condo owners. Since 2020, US home insurance costs have rocketed more than 14%. Of course, it is higher in places with fire, flood, and hurricane zones, such as California, Florida, and Louisiana. It is estimated that average annual insurance premiums in Florida are $6,000, three times what they were in 2018. Natural disasters have resulted in more damage because of more significant development, and major insurance carriers have fled the state. Ultimately, acquiring home insurance in these jurisdictions can be quite costly.
The age-old wisdom has been that it is cheaper to own a condo than a detached house, which would be welcomed advice as millions contend with housing affordability challenges. However, from special assessments to higher condo fees to growing insurance costs, it turns out that everything we have been taught is wrong. Wait until the “green” building code runs wild across the United States!
