It has been a little over a year since Fannie Mae guidelines changed regarding condominium structural integrity inspections. If you recall, the guidelines were changed because of the Surfside Condominium collapse in June 2021. Towards the beginning of 2022, Fannie Mae issued the revision to their requirements (we covered this in a Broker Bit about 1 year ago) and the effects of the change has slowly trickled into our market. I am only aware of a few condominiums in the Gulf Shores / Orange Beach area that have actually engaged in the "milestone inspection," but I am certain that it will become more commonplace in the next few years.

As per the article below, if the condominium is within 3 miles of the coastline, a milestone structural inspection must be completed every 25 years. This is a pretty costly endeavor, not only to hire the structural engineers, but also to implement the fortifying recommendations.

This is a significant requirement that should be disclosed to your buyers interested in a condominium that is nearing the 25 year mark. For example, if a condominium is 23 years old, your buyer could likely be on the hook for a significant assessment within the next 2 or 3 years, an assessment that does not have much information available for disclosure yet.   Keep in mind that many condominiums were constructed in the 2000 – 2008 time period (Lighthouse, San Carlos, Admirals Quarters, Phoenix West, Phoenix West II, Island Tower . . . just to name a few), so there will be quite a few that will fall under the 25 year requirement very soon.

This article goes on to say that Realtors are sensing buyer delays in Florida while the outcome of the structural inspections are completed:

CLICK HERE TO READ "Condo Buyers Wait - Florida Realtors"

Even though only a few condos in our area have been exposed to these milestone inspections, certainly it will become more prevalent in a few years. As per the article, "A key part of the (Florida) law entitles buyers of certain buildings to a copy of the milestone inspection of the building when they enter into a contract, as well as a structural-integrity-reserve study." It is likely similar requirements will come to Alabama.

Another headwind that we are feeling right now in the condo market is the massive insurance cost increase. Many of you are aware of insurance renewals that have doubled, and even tripled in cost recently. Large assessments to cover insurance are happening everywhere along the coast in the condo market.  

Not to be a downer, but the future milestone inspections and insurance assessments will be, or already are, significantly increasing the cost of condominium ownership. It is our new reality, and very important to pay detailed attention to each individual condominium situation. These issues should definitely be part of a buyer's due diligence, and may require extensions of the condominium disclosure periods in contracts. 

A quick MLS check for closed Gulf-Front condominiums from January 2022 – May 15, 2022 turned up 458 transactions. For the same period in 2023, there were 255 transactions. This is a 44% reduction in the number of Gulf-Front condominium closings year over year. This decrease, of course, is not only because of the issues above, but of course the rise in mortgage rates and the general slowdown in the market, as noted in the article.

I believe that our condo market has remained fairly strong because of the continued relative shortage of inventory, which may be a blessing. The beauty of our free market is that transactions and pricing will certainly adjust to current conditions, and we will be involved whether prices move up or down. But while involved, we need to make sure that we do our homework for all buyers and sellers, and make sure we educate our clients, and disclose and disclose.