The Champlain Towers
South collapse emergency is ongoing, and some experts say
they expect condo sales, in what was a roaring condo market
in Miami, to struggle from the impact. What can agents,
sellers and buyers anticipate?
“The condo market was on fire,” said Eric Glazer, attorney
and founder of Glazer and Sachs, specializing in condominium
and homeowner association law, and host of the weekly Condo
Craze and HOAs radio show. “There is no question that the
condo market is going to take a hit because of the fear
factor. I’ve already seen it in closings.”
Condo sales since last year jumped 286% in May from a year
ago, where unit sales went from 563 to 2,176, according to
the Miami Association of Realtors. Property records show
that the Champlain Towers South had a total of 14 units sold
over the last three years. It was part of the sales bonanza.
Buyer hesitation has already started. A real estate
attorney, who requested anonymity, reported that a scheduled
closing at a Bal Harbour condo, the day after the Surfside
collapse, was put on hold, even though the building where
they were buying is only three years old. The buyers now
want a building inspection, the attorney said.
Many scheduled closings on older condo buildings are being
delayed, waiting for the mandatory inspections that
Miami-Dade County, Miami Beach and all the local barrier
island and waterfront government officials have demanded on
buildings over four stories high. While they wait, buyers
with active contracts can delay their closings, but they
can’t walk away from their contracts without losing their
deposits.
“You’re going to have more delays from buyers on closing
dates,” said Glazer. “Why would you close before you have a
building inspection and an acceptable report? This might be
a deal-breaker for some clients.”
The New York Times reported that a Miami real estate agent,
Cordelia Anderson, said five clients who had been looking at
units in older condo buildings on the beach asked for hefty
discounts after the collapse, or abandoned the coast and
instead wanted to search inland.
Glazer doesn’t expect the impact to the market to last
forever, but everything is going to get much more expensive.
“There’s going to be a lot more due diligence involved in a
sale,” said Glazer. “No longer is a seller and agent just
going to have to disclose issues on just the individual
unit. Buyers are going to want to see the latest building
repair records, a geologic survey of the foundation and if
the condo association has a large enough reserve fund to
handle repairs.”
Surprisingly, Florida law only requires disclosure on an
individual unit. There is no law that requires disclosure on
the common areas of a building or property. With the
additional stress oceanfront buildings have from the sun,
heat, wind, rain and salt-spray, beating on these structures
year after year, the concrete breaks down and leaks and the
steel inside the concrete rusts and dissolves inside the
walls, balconies, and throughout the property’s
infrastructure.
“Miami-Dade and Broward County condominiums are required by
law to undergo a 40-year certification process whereby an
engineer must attest that the building is structurally safe
and electrically safe,” said Glazer. “It would not surprise
me if we see a change going forward, reducing the 40-year
certification to 30 years or even less. I think engineers
are going to be busy.”
Changing the law won’t happen quickly because the Florida
Legislature isn’t due to meet again until next year, but
Glazer said the Florida Bar Association is already drafting
proposals to help with legislation. In addition, Florida law
allows condo associations to waive budget reserves each
year.
“Condo associations must make sure the property is always
safe and sound,” said Glazer. “Too many times you hear about
[associations] not being able to afford necessary repairs.
Too many times the can is kicked down the road as allowed by
law. The reserves are waived for the umpteenth year again
and again and again.”
Residents at Champlain Towers South were getting ready for
assessments from $80,000 to $200,000 per unit to repair
major problems with the building. In total, the repair
budget was $15 million, according to an engineering report.
Buyers will now be more sensitive to association fees, which
are expected to go up, potential future assessments and
checking the financial health of the association. They will
be looking more closely at the construction of the building.
This will lead to higher prices and discourage some buyers,
say experts.
The median sales price of existing condos in Miami-Dade rose
to $325,000, a 25% year-over-year increase as of May. That
price includes many older waterfront buildings, which
increased 475.4%.
The Miami Herald reported that buildings located near the
collapse site may be most affected. Ana Bozovic, founder of
brokerage and consulting firm Analytics Miami, in an
interview with the Herald, said resale prices might drop for
the ultra-luxury Eighty Seven Park, which is adjacent to the
site of the collapse and currently has seven units for sale
priced between $2 million and $11 million. She says condos
in the town of Surfside may be hard hit for the next year,
especially older buildings.
According to the real estate firm Condovulturesrealty.com,
1,660 units in buildings on the barrier islands built before
2000, before Florida’s building code was toughened to its
current standard, currently are listed for sale, with an
average price per unit of $589,692. During the first three
months of 2021, 779 sales were closed at an average price of
$487,384. Currently 491 units are under contract at an
average price of $484,821.
In comparison, the current 1,241 active listings of condos
in buildings on the barrier islands built after 2000 have an
average listing price of $3,141,845.
At Champlain Towers South, six days before the collapse, a
three-bedroom, ninth-floor condo with ocean views closed for
$710,000. A 4,500-square-foot penthouse closed for $2.8
million a month ago.
In the hot condo market, Champlain Towers South experienced
a notable 2021 with eight condos sold. Most sold for more
than double the purchase price. A 1,683-square-foot condo
sold for $800,000 in February, more than doubling its 2012
sale price of $370,000.
The age of the building didn’t stop buyers. One couple
bought a two-bedroom apartment for $750,000 in 2020 even
though the unit’s balcony had a cracked slab. The couple was
told that the building was going through a 40-year
inspection, an expensive building renovation, and the buyers
agreed to pay $112,000 for the assessment fee. Fortunately,
the couple was not in the building when it collapsed.
Ken H. Johnson quote condo volatilitySurfside’s real estate
value is already starting to turn. Realtors are reporting
that potential buyers have cancelled showings. And with more
buildings being evacuated because of structural issues that
have been found during the latest emergency inspections, the
near-term outlook isn’t promising.
“Condos have always been volatile,” said Ken H. Johnson,
Ph.D., a real estate economist in FAU’s College of Business.
“They are the canary in the coal-mine for the real estate
market. While the tragedy of a building falling down is new,
the market volatility for condos is not. We don’t have
specific research on something like this, but after
hurricanes and other market pressures like recessions, there
are going to be price impacts. It will probably last a year
or two.”
Johnson added that now is the time for brokers to take on a
consulting role and meet with condo boards to help them
through this crisis with their owners. Brokers can help by
giving them good guidance, to encourage the boards to get
deferred maintenance completed, build up reserves, get ahead
of their 40-year certifications and more.
“A property that has everything up-to-date and in good shape
will weather this crisis better than the others that have
been kicking the can down the road for years,” said Johnson.
In the meantime, according to Glazer, agents need to be
careful. “If during the sales process they gain knowledge of
something wrong with the building or common areas at a
property, especially if they are asked if there are problems
at the property, they must disclose it. If the agent
doesn’t, they are exposing themselves to be sued for fraud,”
he said.