Have condominium fees in Fort Lauderdale gone up or down?
Last week I made a comment in the post named "April 2013 Housing Market update for Broward County". The comment was "Buyers are having a tough time getting financing in condo complexes that have HOA’s with questionable finances. However, with all of the cash sales taking place since the market crash, I think the fears are overblown. That’s another rant for another day." I received a number of emails from readers, so I thought I would explain what I meant in some detail.
At the same time many people stopped paying their mortgage, they also stopped paying their condominium (or homeowners) dues. The most common reaction to this was for a condominium association to raise the monthly fee's on those that were paying. If I had to venture a guess I would say that most associations raised their monthly fee's anywhere from 25%-50% of what they were charging prior to the bubble bursting. In 2010 things changed a bit in order to help associations. A statue was passed that would now allow associations to collect rent directly from tenants if the owner was renting the unit out, but not paying dues to the association. It's around this time that the tide turns towards condominium associations that were running out of money. Laws began to favor associations and enforcement actions against non paying tenants. Things even went so far as to allow the association to rent out some units (this practice has been fraught with abuse).
Skip ahead to 2013. As noted in my housing market update, 79% of condo and townhouse (townhome) sales now taking place are done so in cash. Why are cash sales good for condominium associations? Should an owner not pay the HOA, or condominium association, is allowed to lien the unit for past dues. If someone owes more on their mortgage than the unit is worth, then placing a lien on the unit isn't going to do anything. However, should the unit owner not have a mortgage, any lien placed by the association would be in first position. This allows the association to easily capture any backed dues. Unit owners that have bought in cash know this and rarely, if ever, miss a payment of dues.
So why do I think fears of investing in condominiums, or financing within them, is now overblown? Skip back to April of 2012, 83% of condominium sales in Broward County were cash sales. It's not like cash sales in condominium complex's are a new thing in South Florida. They've been happening since the market turned for the simple reason that you couldn't find a bank that would write a loan on a condominium in Florida. Every sale that took place had to be a cash sale. So when you look at ownership in condominium complex's in Fort Lauderdale now, you find the vast majority of units are owned for cash and delinquency is way down.
What I keep wondering is at what point is the stability going to be passed back to the unit owners. Fee's keep rising, despite lower delinquency. At some point this begins to totally defy logic. The most common answer I get from an association when I ask them if they plan on raising or lowering dues is "we need to build our reserve account so we can't lower fees yet." If you're part of an association take a look at the budget, see if it makes sense. Look for waste, excess, and numbers that just don't add up. It's my feeling that we're at a point in the cycle where any loss that took place should have been far surpassed by the rise in fee's over the last few years. Once the associations begin to turn over financials that show little waste and proper management, the banks will come running back. The banks aren't going to look to offer financing if fee's keep rising and the associations still claim they're cash strapped. Current owners should be begging the banks to begin financing again. Prospective buyers requiring financing will typically pay a higher price than a cash buyer for the same unit. In short, financed offers help sellers (by receiving a larger sale price) just as much as buyers!