Condo living in South Florida could soon become much more expensive.
Many condo associations will soon be required to submit two structural inspection reports that could reveal potential building repairs and deficiencies, and inform owners what it will cost to fix them.
The two new reports are the Milestone Inspection Report and the Structural Integrity Reserve Study. Both are in response to the Champlain Towers South collapse in Surfside, Florida in June 21.
After that tragedy, “authorities discovered that many associations that controlled older condo buildings routinely waived structural repairs and weren’t collecting enough reserves to pay for them” reports Ron Hurtibise for the South Florida Sun-Sentinel.
The Milestone Inspection Report is required for buildings 30 years or older and 3 stories or higher. The Structural Integrity Reserve Study is required for buildings at least 10 years old and at least 3 stories high.
Here’s how this could impact current condo owners and potential buyers:
Current owners will be alerted to potential structural building repairs anticipated over the next 10 years and how much they could cost residents to repair. If current building reserves are insufficient, owners should expect additional assessments to build up reserves, driving up monthly living costs and causing potential financial hardship to owners.
For buyers, the new rules will provide greater transparency. Current owners wishing to sell their unit will be required to provide the structural reports to potential buyers.
“For buyers, the documents will help to inform you of the actual costs of ownership over the coming decade,” reports Hurtibise of the Sun Sentinel.
Experts suggest that buyers ask to see copies of the reports before entering into a contract to purchase, so they can adjust or reduce their offers on properties slated for substantial future assessments.
“If the structural reserve study finds that each owner will be assessed hundreds of thousands of dollars to maintain structural soundness of a building, they can use that information to negotiate lower prices. Sellers can use the information to help determine whether their buyer will even be able to find a lender willing to issue a loan for the seller’s asking price,” advises the Sun Sentinel.
The new structural and reserve reports are expected to be closely scrutinized by insurers and mortgage lenders, who may decline to underwrite mortgages on units in certain buildings. “Disclosure of the inspection reports will reduce the selling price of condo properties that are in poor condition and require substantial repair and boost values of properties in good condition,” says Orest Tomaselli, CEO of a New York-based company providing structural and reserve studies for condo associations, who was quoted in the Sun Sentinel article.
The Takeaway: Condo owners could soon find out if that apartment they’ve been living in has hidden or deferred costs that threaten to unexpectedly blow up their housing budget. Potential buyers need to understand the new condo dynamics, so they are not crushed to find out after months of searching that the building they favor is not eligible for a mortgage or has hefty pending assessments. In fact, potential sellers and buyers will both want to coordinate closely with their real estate agent and mortgage lender to avoid unpleasant surprises as the market adjusts to the new regulations.