Condo Assessment - Condo Budget

Florida Condo Assessments, Florida Condo Assessment

A simple way to think about a Florida condo assessment is that the assessment represents each unit's share of the costs incurred by the condo association. These are often due on a monthly or quarterly basis.

Common Expenses, Operating Expenses

The 2022 Florida Statutes 718.103(1) shows: “Assessment” means a share of the funds which are required for the payment of common expenses, which from time to time is assessed against the unit owner.

FS 718.115 further expands on common expenses, what they may include, what may happen when expenses are unpaid, how expenses are collected, and other related points. Condo expenses can include: insurance, elevator repairs, pool supplies, utilities, and landscaping. These types of expenses are commonly referred to as "operating expenses".

Reserves

In addition to operating expenses, Florida condo assessments can (and must per FS 718.112) include a component for reserves. Refer to the page on reserves for more but a very simple way to summarize reserves is that reserves cover capital expenditures that exceed $10,000.

One example of an expenditure that would be covered by reserves vs operating expenses is roof replacement. A roof replacement project might occur every 10 to 20 years and cost tens of thousands if not hundreds of thousands of dollars. Compare a roof replacement to pool supplies, which might be incurred every day and total hundreds to a few thousands of dollars a year. Reserves handle expenditures like roof replacement. Operating expenses handle expenses like pool supplies.

Assessment Trends

Some Florida condo buyers wish they had looked at more than just the current assessment amount before making a decision to buy a condo. Some additional aspects of the assessment to consider may include:

The last several years of a condo association's assessments.
Whether the assessment changed over the last several years.
Whether the last several years of operating expenses were significantly over or under budget.
Which expense lines items, sometimes called accounts, showed notable deficits or surpluses over the last several years.
Which condo expense line items changed by large amounts from year-to-year.

The most recent association financial report, often published monthly, provides the most current representation of the financial health of the association. Determine whether the current budget is on target.

Questions to ask can include:

Does the budget included a line item for reserves?
And if so, how hold is the reserve study?
Has the association waived reserves for any year in the last five years?
Why has the condo assessment increased by more than inflation?
Why has the condo assessment not increased by at least inflation?
Why has the condo annual reserve contribution not changed?
Why has a specific condo budget line item, for example, landscaping, changed by more or less than inflation?
Why did a condo budget line item, for example, insurance or elevator repairs, double?
Why did a condo budget line item, for example, window washing, go to zero?

Some condo buyers owners and buyers think that it's better to keep assessments "lower". Sometimes a relatively low assessment is a sign of large problems. For example, an association that waives reserves or uses an outdated reserve estimate or relies on "optimistic" reserve estimates may find that when it's time to make repairs, for example, replace the roof, that the association does not have the necessary funds. This can create a huge impact on condo values since buyers may expect to pay a "below market value price" to adjust for future higher assessments.

Special Assessments

FS 718.103(24) shows “special assessment” means any assessment levied against a unit owner other than the assessment required by a budget adopted annually.

When would a condo association incur a special assessment if the association budgets for operating expenses and reserves?

Association boards sometimes pass special assessments when an unexpected event takes place that requires funds that are not available in the budget or in an account that the association could use to fund the need. Examples include:

Unexpected increase in insurance premiums
Unexpected legal disputes
A capital expense, such as a roof repair, that was not covered by reserves

The article "A Primer on Special Assessments" by Florida law firm Becker & Poliakoff covers several questions about special assessments.

Some Florida condo buyers wish they had known about what special assessments the association incurred over the last several years and why.

Prospective Florida condo buyers should, if they don't understand condo association assessments, engage licensed and reputable attorneys and advisors to guide their buying decision.

Allocation of Assessments

Does condo size matter? Should smaller condos pay the same assessment as larger condos? As condo assessments continue to grow as the cost of living in Florida condos continues to increase, condo owners sometimes try to find creative ways to lower their share of the costs. One idea that owners of smaller condos consider is to have owners of larger condos pay a larger portion of the assessment.

This article, Changing Allocation Of Assessments from the Shipp Law Legal Blog, Law Office Ryan S. Shipp, shows that "One area of contention that surfaces between unit owners, is how assessments are allocated between different sized units. Allocation of assessments are set forth in the declaration of condominium."

The article further references Florida Statues 718.110, stating that "Different from the traditional amendment to a condominium declaration, the only way to change how assessments are allocated is for the Association to abide by Florida Statutes 718.110."

Here is what that section showed when this blog post was written, with what appears to be the relevant portion highlighted:

(4) Unless otherwise provided in the declaration as originally recorded, no amendment may change the configuration or size of any unit in any material fashion, materially alter or modify the appurtenances to the unit, or change the proportion or percentage by which the unit owner shares the common expenses of the condominium and owns the common surplus of the condominium unless the record owner of the unit and all record owners of liens on the unit join in the execution of the amendment and unless all the record owners of all other units in the same condominium approve the amendment. The acquisition of property by the association and material alterations or substantial additions to such property or the common elements by the association in accordance with s. 718.111(7) or s. 718.113, and amendments providing for the transfer of use rights in limited common elements pursuant to s. 718.106(2)(b) shall not be deemed to constitute a material alteration or modification of the appurtenances to the units. A declaration recorded after April 1, 1992, may not require the approval of less than a majority of total voting interests of the condominium for amendments under this subsection, unless otherwise required by a governmental entity.

You can find the current version of the FS 718.110 statues at leg.state.fl.us

Rising Florida Condo Costs Unaffordable for Many.

National and local news media have reported that Florida condo fees are going up, up, up. Rising condo insurance fees can lead some condo owners to complain that "something" needs to be done to keep costs affordable for them.

Why are Florida condo costs and condo association fees rising?

In 2022 and 2023, news media reported the following as drivers of rising condo fees:

Surfside Condo Collapse
Rising Property Insurance Costs

Here are examples of some of these types of stories: (Note: Some of these stories seem to misrepresent condo associations as HOAs). Learn about the distinction between Condo Associations (CA) and Home Owners Associations (HOA) on the Associations page.

Surfside: More questions than answers a year after condominium collapse by 60 Minutes
The high cost of ignoring Florida's insurance crisis by Sarasota Herald Tribune
Florida condo owners brace for rising insurance rates by WPTV News, West Palm Beach, Florida
Florida high-rise condo owners feel financial pinch by ABC News
Condo insurance crisis in South Florida could push owners to sell by The Real Deal

An internet search will show additional reasons for rising Florida condo fees. These reasons include the following, and others may exist:

High Demand: Even with rising condo costs, Florida remains a popular destination for retirees, vacationers, and individuals seeking warmer climates, leading to a high demand for condos. The influx of people looking to purchase or rent condos increases competition, driving up prices.
Limited Supply: While demand for condos is high, the supply is limited, especially in desirable areas such as beachfront locations, urban centers, and upscale residential communities. Land scarcity and zoning restrictions can make it challenging to build new condo developments, leading to a constrained supply and higher prices.
Desirable Location: Florida offers a desirable lifestyle with pleasant weather, beaches, and recreational opportunities. This attractiveness increases demand for condos, particularly in sought-after locations, and contributes to price appreciation.
Development Costs: The cost of constructing new condo buildings or renovating existing ones can be substantial. Factors like rising construction material prices, labor costs, and permitting expenses can drive up the overall cost of development. These increased costs are often passed on to buyers or renters. The 60 Minutes television series episode Surfside: More questions than answers a year after condominium collapse (see the link in the list above) included a segment about how developers are buying out owners that cannot afford the higher fees.
Property Appreciation: Over time, real estate values in Florida have tended to appreciate, making condos an attractive investment option. Investors and speculators entering the market can further drive up prices as they anticipate future gains.
Economic Growth: Florida's strong economy, fueled by sectors like tourism, healthcare, and technology, attracts businesses and individuals to the state. Economic growth can lead to increased employment opportunities and disposable income, which, in turn, can contribute to higher housing demand and prices.
Association Fees and Maintenance Costs: Condo owners are typically responsible for monthly association fees and maintenance costs. If these expenses increase due to factors like rising insurance costs, property taxes, or necessary repairs, it can lead to higher overall costs for condo owners.

It's important to note that these factors can vary across different regions within Florida, and the specific market conditions at a given time can also influence condo costs. These regional differences may provide a solution to those condo owners faced with rising condo fees.

How can Florida condominium owners respond to rising condo association fees?

Florida condo owners and prospective condo buyers can respond to rising Florida condo costs in several ways. Here are some actions that people can take:

Personal Budgeting and Financial Planning: Evaluate your financial situation and create a budget that accommodates rising condo costs. Assess your income, expenses, and savings to ensure you can afford the associated expenses, such as mortgage payments, association fees, and maintenance costs. This may be the single biggest mistake that condo owners make. Perhaps much too often, buyers, sometimes unknowingly, overextend themselves financially because they do not understand that condo costs can rise for a variety of reasons (see the Assessments page for more info).
Research and Educate Yourself: Stay informed about market trends, housing policies, and regulations that affect condo costs in Florida. Understand the factors influencing price increases and how they may impact your situation.
Consider Alternative Locations: Explore condominium options in areas outside of high-demand, expensive locations. Look for emerging neighborhoods or suburbs where prices may be more affordable while still offering desirable amenities and proximity to necessary facilities.
Explore Different Property Types: Expand your search to include other property types like townhouses or single-family homes, which may provide better value for your money compared to condos in some cases.
Rent Instead of Buying: If purchasing a condo is financially challenging, consider renting as an alternative. Renting can provide flexibility and lower upfront costs compared to homeownership.
Shop Around: When purchasing or renting a condo, shop around and compare prices to ensure you're getting the best value for your money.
Community Engagement: Get involved in local government organizations that advocate for affordable housing and address rising condo costs. By joining forces with others, you can work together to raise awareness and push for policy changes that promote housing affordability.
Seek Financial Assistance Programs: Explore available financial assistance programs, grants, or subsidies that can help offset some of the costs associated with purchasing or renting a condo. Research government programs or nonprofit organizations that provide support for affordable housing.
Consider Co-Ownership or Co-Housing: Explore the possibility of co-ownership or co-housing arrangements where multiple individuals or families come together to jointly purchase a property. This can help reduce costs and make homeownership more affordable.
Explore Housing Cooperatives: Investigate the option of housing cooperatives (co-ops), where residents collectively own and manage the property. Co-ops often have lower costs compared to traditional condos, making them more affordable for residents.
Advocate for Policy Changes: Engage with local elected officials to voice your concerns about rising condo costs. Advocate for policies that promote affordable housing, increase housing supply, and protect the rights of renters and buyers.

Remember that individual responses to rising condo costs will vary based on personal circumstances, financial capabilities, and long-term goals. It's important to assess your situation and make decisions that align with your needs and resources.