Friday, May 24, 2024

Big Changes Coming For Real Estate Sales

The dawn of a new day for real estate will be upon us very shortly. Most of the details of the changes in response to the NAR lawsuit settlement appear to have been worked out and will go into effect this August. Among the major changes, buyer's broker compensation will no longer be advertised in the MLS and agents will be required to have a signed brokerage agreement with every prospective buyer prior to showing them a property. That agreement must detail how much the buyer's agent will be paid, whether from the buyer or the seller or both. Sellers will not be prohibited from offering buyer's broker compensation as they customarily have in the past, they just can't advertise it in the MLS. Buyer's agents will have to contact listing agents prior to showing to find out if and how much is being offered so their clients can craft their offers accordingly. A buyer with an agreement to pay their agent X% will need to know before they write an offer whether that's being paid by the seller or whether they'll be required to cut a check for X% to their agent's broker at closing.

As it stands right now, the agreement can't specify a range of commission only a fixed amount or rate. As I understand it this means that if a buyer has a buyer's brokerage agreement with their agent stating 2.5% commission to the agent's brokerage, the agent can't accept a higher amount if offered by the seller. The seller will just keep the overage beyond the buyer agreement's rate. This means that buyers who sign a brokerage agreement agreeing to 3% will be at a disadvantage to buyers who sign for 2.5% or lower (if the seller is offering the higher percentage) as the seller will have less expenses if selling to the buyer sporting a lower rate agreement. 

I suspect in the beginning most sellers will continue to offer a co-broke as not doing so might eliminate buyers with minimal cash to put down. Having to pay their agent out of pocket in addition to the down payment will be more than some buyers can handle. The big question right now is what rate will buyer's agents be going for. Do they dare ask for a high percentage when that might weaken their clients' negotiating power with sellers who stand to retain the difference between what they're offering buyer's brokers and what that client's brokerage agreement states? Will there be a price war among buyer's agents? Will buyers go to Zillow and sign a "touring agreement" thinking it won't commit them to an agent only to be presented with a buyer's brokerage agreement when they meet the "tour guide"? Will they just go directly to the listing agent and forego representation in order to avoid buyer's agent fees? This is going to take months to play out and it's going to be confusing in the short term. Long term I expect commissions across the board to come down and a lot of agents to leave the business. The coming condo reckoning this year will contribute to both.

One positive of this is that those agents who charge nasty "mandatory" transaction fees will have to address this shady practice on the buyer's brokerage agreement right at the beginning when buyers can simply refuse to accept them. Some of these details may change before taking effect in August but the overall theme of making buyer's broker compensation transparent to all parties will persist and the process of looking for and buying or selling a house will be quite different than it is now. There is a good chance that crafty listing agents will figure out a way to make this more lucrative for them. Buyers' agents have much less rosy prospects. Their pay will almost certainly come down in the mid to long term. There will be some unintended consequences and unplanned victims but it should be rather interesting as it plays out. 

"The tree isn't shaking but the leaves are falling." _Ian Rafalko

Sunday, May 12, 2024

Approaching 300

Summer has arrived in Cocoa Beach. Turtles are nesting, baby ducks, ospreys and bunnies all over the place and the sand is hot enough to burn your feet if you walk too slowly down to the water. Inventory in Cocoa Beach and Cape Canaveral is heating up as well. This morning there are 297 condo and townhouse units for sale in the MLS, more than twice the number one year ago. Sales have been slow so far in May with only 16 condos/townhomes going under contract in the first 11 days of the month, while at the same time 30 new listings hit the market. In the last 30 days alone, we've had 81 new condo listings, not good news for the over one hundred listings who've been hoping for a buyer for three months or longer. We typically get a lot of new condo listings after the snowbirds depart so that alone is not a big concern unlike the sharp disparity between sales and new listings.

Summer season will begin in earnest as schools finish for the year and vacationers begin arriving. I will be very interested in how real estate activity plays out through the summer season especially condos. I will keep updating here. Wear sunscreen, seek the shade when you can and stay hydrated.

Conflating luck and talent is dangerous...The Pareto principle shows that even if competence is evenly distributed, 80% of effects stem from 20% of the causes.” __Scott Galloway

Thursday, April 18, 2024

Smooth Criminals Strike Again

The ugly issue of brokerage transaction fees has come up again. While it's legal to charge anything you can get a client to agree to, the practice of adding a fee on top of the commission being paid is, in almost every situation, a distasteful and dishonest practice. As I've described it in the past, it's robbery by a smooth criminal. In discussions with other agents who charge these fees, the almost unanimous justification is that it's to pay the personnel who handle the paperwork and shepherd the transaction through to closing. Most have convinced themselves that what they're saying is true. It's not. As Jeff Goldblum's character Michael in The Big Chill famously said, "I don't know anyone who could get through the day without two or three juicy rationalizations." This one is as juicy as they come.

I wonder how the many brokerages that don't and have never charged transaction fees, like Walker Bagwell, manage to pay for the cost of handling their transactions without the fees variously called "regulatory", "brokerage", "transaction", "compliance" etc. The simple answer is, that's what the commission is for, to pay the brokerage for selling or helping you buy a property. These fees are often used by brokerages to offset high commission splits they offer to attract agents. Most of the time, when an agent charges their client a transaction fee they are having the client subsidize the higher split they are receiving from their broker. The rest of the time, they are simply profiteering at the expense of their client. Both of these reasons stink to high Heaven and are dishonestly presented to clients as a routine cost in a real estate transaction. Most people have not done enough real estate deals to know the truth. An ethical agent will eat the few hundred dollars out of the thousands they are receiving in commission rather than pass it onto their client if the brokerage will not waive it. An agent who will not drop a compliance junk fee when asked does not deserve anyone's business. Even trying to charge a transaction fee is evidence that the agent should not be trusted. There are plenty of agents like myself who find the practice abhorrent who will not rob their clients of an extra few hundred dollars. I would advise all sellers and buyers of real estate to refuse to pay these junk fees when presented with them. It is not normal practice and it is not done by the agent you want representing you. No agent is going to walk away from the thousands of commission dollars they are already being paid over a few hundred. As Nancy Reagan said, "Just say no." The junk fee will disappear.

There may be situations where the commission being paid is so low that a fee is called for, however, these types of deals are rare. Don't be fooled. With the changes proposed by NAR coming soon I expect junk fees to become more widespread as agents and brokerages position themselves to take advantage of the new rules whatever they turn out to be. 

Key takeaway here is that there should be no extra fees of any type paid to a brokerage for buying or selling a property beyond the commission being paid. An agent may tell you it's non-negotiable and must be paid no matter what. They're lying and will pay out of their commission when the client refuses, every single time. Don't be robbed. I will close out this rant with another brilliant quote from The Big Chill that perfectly applies to this practice;

Nobody thinks they're a bad person. I'm not even claiming that people always think they're doing the right thing; they may know that they're doing something dishonest or insensitive or manipulative but they almost always think that there's a good reason for doing it. They almost always think it will turn out for the best in the end, even if it just turns out best for them, because by definition what's best for them is what's best.” _Jeff Goldblum as Michael in The Big Chill

Saturday, April 13, 2024

Doubled and Rising

The inventory of residential properties for sale in Cocoa Beach and Cape Canaveral continues to increase. This morning there are 283 MLS-listed condo and townhome units and 41 single family homes for sale in our two cities. That total is over twice what it was last April. There have been 87 new condo listings in just the last 30 days while a quarter of the units for sale have been on the market for over six months without a sale. 

Sales activity so far in 2024 has been slow. The number of condo units sold in the first quarter of 2024 was the lowest in eleven years continuing last year's downward trend after the peak sales years of 2021 and 2022. April looks to follow the decline with 24 units closed so far at a median selling price of $460,000. Half of those units sold in the first 34 days on market with six of them selling in the first week. Three of those first week sales closed for over a million dollars and sixteen of the 24 sold for cash. Median condo fee of the sold units was $755 a month. Over a quarter of the remaining condo inventory has monthly fees exceeding $800.

Our market is noticeably different than a year ago. Sales didn't begin to slow down until mid-summer last year and that slowdown is continuing. The 126 listings that are older than 90 days are not listening to the market. Recent years' prices are not working now except for exceptional properties. Sellers that are clinging to what their neighbor got in 2022 are likely to see their listings continue to languish.  Sellers that bought before 2021 are probably in a position to eek out a profit but those that closed in 2021 and 2022 are unlikely to be able to recoup their purchase price in today's market should they want to sell. There are quite a few listings that were just purchased last year and year before. Unfortunately for them, buyers are once again in the driver's seat in our market and can afford to be patient and selective with rising inventory and declining comps. 

Just when we thought the season was over a huge wave of visitors rolled into town this past week. Traffic on the roads, sidewalks and at Publix has been thick and nine holes at the Cocoa Beach Country Club might take two and a half hours if your timing is unlucky. You won't know until you're on the course. Either way, the weather has been superb and rockets have been launching at a rate we've never seen before. Cocoa Beach is a special little surf town sandwiched between the river and the ocean and spaceships are a common sight. Not a description that applies to many places. Cheers, all.

"The best lack all conviction while the worst are full of passionate intensity." William Butler Yeats

Saturday, March 30, 2024

Longer and Lower

The average time it takes to sell a residential property in Cocoa Beach and Cape Canaveral has been rising steadily since December when the average time between listing and accepted contract was 69 days. By the end of February the time to sell had doubled to 138 days. During the same time the average selling price as a percentage of original asking price had dropped to 90% from 94%. 

Looking at the current for sale inventory, the median time on market is 109 days for single family homes and 106 days for condo and townhome units. In addition to taking longer to sell and at a lower percentage of original asking price, condo fees have been rising steadily in response to higher master policy costs and funding for newly required structural reserves. The median condo fee for units closed a year ago was $500. Median monthly condo fee for units for sale in oceanfront complexes is $785 and for all currently-listed condos it is $642. The number of units in older two story buildings with lower fees that aren't subject to the new legislation is keeping this number misleadingly low.

Condo units contracted since first of February had a median time on market half as long as the unsold inventory. That suggests to me that newer listings have been pricing more competitively and have been picking off the existing buyers while older listings have clung to prices that the market is rejecting. I would encourage hopeful sellers to examine their asking prices and weigh them against recent selling prices and adjust accordingly. Inventory continues to grow while the impact from the new reserves remains unknown for many condo complexes. By the end of the year when all affected complexes must be in compliance, the median condo fee is certain to be higher than at present and substantially so in many cases. The impact on the total condo market does not look to be positive except for units in one and two story complexes. The much-lower fees make these units attractive in comparison.

This month marks the 20 year anniversary of this blog. I started writing it in 2004 on a whim and soon realized that I enjoyed it. There was a lot to write about then. There were lots of new construction condos and mortgage money was there for the taking  for anyone regardless of their assets or income or lack of same. We now know how that worked out. By late 2006 the signs were there that the end was near. The market began crashing in earnest in 2007 and we endured eight years of distressed sales after prices collapsed. In 2007 there were zero distressed sales (Foreclosures and short sales). The peak was 2010 when 56% of all residential sales in Cocoa Beach and Cape Canaveral were distressed. It took six years to work through all the short sales and foreclosures and by 2016 we were back to a single digit percentage (5%) of distressed sales.

The rest of 2024 looks to be eventful for our local real estate market with the looming condo inspection deadline and the proposed changes to the fundamentals of how real estate is transacted. I look forward to the outcomes and will continue to report on both. Happy Easter, everyone.

"Being famous on social media is like being rich in Monopoly." _Terry Hayes

Tuesday, March 19, 2024

The End of the World As We Know It or Is It?

Social media has been aflame with speculation about the implications of the proposed settlement just announced by NAR for the lawsuit about commissions. The suit, filed in 2019, alleged that agents and brokers conspired to keep commissions artificially high. In the proposed settlement, NAR would pay over $400 million in damages and make changes to the way buyers' brokers are paid and how that payment is advertised. Key takeaway right now is that this is a proposed settlement and not an actual settlement. If accepted, changes would likely go into effect in July.

The way things are now, a seller hires a listing broker and agrees to pay an amount to that broker, usually a percentage of selling price, and the broker agrees to share part of it, usually half but not always, with a cooperating broker who brings a buyer. That co-broke amount is posted in the MLS and buyer's agents know what they can expect to be paid if their buyer client closes on the property. The total amount of commission paid to both brokers is paid out of the selling price and the buyer does not have to come up with additional cash to pay their broker. It is effectively folded into the mortgage, if any.

Under the proposed settlement, MLS listings will no longer advertise a co-broke, if any, being offered to a buyer's broker. An MLS will, however, still have the option to include compensation if it is presented as a seller concession. Sellers have always had the choice to offer as little as they like to a buyer's broker but most listings in our market have typically offered some percentage to buyers' brokers to incentivize showings of their property. Buyer agents will now have to find other ways to be compensated, either by their clients directly (see below), or through seller concessions or negotiations outside the MLS.

The proposed settlement includes the requirement of signed buyer's broker agreements. With no co-broke being offered in the MLS, these agreements will need to include a stipulation for payment to the buyer's broker if they hope to be paid. Here is how it's handled on one of the buyer brokerage agreements currently in use in Florida. Note that retainers have not commonly been used for most residential transactions in our market although we might see that change as well.

With the possibility of handling a sale and being paid nothing, this will be the only way a buyer's agent can be certain of being paid should there turn out to be zero co-broke. Like a lot of consumer protection actions, this looks like it could harm consumers with the unintended consequence of excising the buyer's broker's commission from the mortgage and adding it to the cash needed to close by buyers. In addition, I think it's reasonable to expect all sorts of creative new fees. Unscrupulous agents and brokers are already charging clients junk transaction fees on top of commission received so maybe other less larcenous agents will be tempted to relax their ethical standards and start charging transaction fees, too. I think total transaction costs are more likely to increase than decrease in the aftermath of whatever settlement is ultimately agreed upon. That's just the way it is.

This can go one of two ways; brokers and agents find a reasonable work-around to ensure they get paid and buyers can finance commissions as part of a mortgage, or residential real estate is about to go through a paradigm shift that will decimate the ranks of agents, not necessarily a bad thing in itself. As of right now, nothing has changed and, if the settlement is accepted, the changes detailed above will probably go into effect in mid-July. Until then, everything you hear is speculation. Meanwhile the condo market is dealing with its own issues. For the time being, all we can do is wait and watch.

"Any regulatory framework emerging from closed door meetings will benefit those in closed door meetings." _Denver Riggleman

Wednesday, March 13, 2024

It's On

Real estate sales are picking up as we move into peak snowbird season in Cocoa Beach and Cape Canaveral. In the last four weeks 77 condo and townhouse units have gone under contract in the two cities. Median asking price was $415,000 and median time on market was 50 days. Fifteen of those contracted in that period have already closed with eight of them closing within two weeks of contract. 

Current inventory of condos and townhomes is 261 units with a median time on market of 70 days and a median asking price of $430,000. Of interest to potential buyers, a quarter of the condos for sale have monthly fees over $800. We are seeing more and more fee increases as condo associations complete their milestone inspections and begin funding their new structural reserves. This trend of rising fees will continue through the end of the year as everyone comes into compliance by the Dec. 31 deadline.

During the same four week period, eleven single family homes found a buyer. Median asking price was $740,000 with a median time on market of 72 days. There are currently 41 SF homes actively for sale with a median 60 days on market and a median asking price of $970,000. A sad reality of our current market is the fact that there are no homes for sale asking less than $550,000. Potential new residents with a budget of less than a half million dollars are forced to look at condo or townhome units if they want to purchase a home. That condo alternative is not as attractive as it was in the recent past. 

Increasing carrying costs are impacting those who may be considering a condo as an alternative to a SF home. Of the condos asking between $300,000 and $500,000 with at least two bedrooms, over a fifth have monthly fees in excess of $800. Someone purchasing one of these units in the mid $400s with a 20% down payment will be looking at combined condo fees, property taxes and mortgage payment approaching $4000 a month. I suspect a lot of home searches are coming to a screeching halt once the potential buyers add up their likely costs.

Despite the higher carrying costs, sales are happening. I don't know if there is a point at which increasing costs will slow the condo market but if there is, we haven't gotten there yet. Good luck to all those looking. It would be prudent to be aware of the factors affecting condo fees and to do one's homework. If the fees are lower than average, there is a good chance that the new reserves are not being funded yet. They will be by the end of the year and that could turn a currently attractive $500 month fee into a $1000 a month burden. An exception to all this are the exempt condos, those in complexes with no buildings over two stories. Those condos do not have to do milestone inspections nor do they have to fund structural reserves. A nice unit in a well-maintained one or two story building is worth consideration if one can be found. 

"All mushrooms are edible, some of them more than once."

Sunday, February 18, 2024

Full Snowbird

Halfway through February and sales activity in Cocoa Beach and Cape Canaveral is typical for this time of year, slow but picking up. After closing 28 condo and townhouse units in January, we've already closed 24 so far in February. Median time on market for all closed units since January 1 was 54 days with a median selling price of $323,000. Slightly more than half of the purchasers paid cash for the property. The median association fee for the sold units was $660 per month. There are currently 254 total units for sale with a median asking price of $435,000 and median time on market of 75 days.

Single family home activity has been sedate with a total of ten homes closed since New Years Day. Median selling price was $925,000 with a median time on market of ten days. There are a total of 34 houses for sale this morning in the two cities plus another three offered pre-construction. Median asking price of all homes is $980,000 with a median time on market of 60 days.

We are just now entering the busiest season of the year for visitors and real estate activity. In March we have a crowded confluence of snowbirds, school baseball teams with families in tow and a sprinkling of lost spring breakers. Some of those visitors will use their time here to look for a property and several will find one and go under contract. Should we expect anything to be different this year? 

Maybe. The substantial increase in condo fees has been reflected in rising rental rates. Snowbird rental prices have been steadily increasing in recent years with extra large increases the last two. There are modest 2/2 oceanfront units commanding $6000 a month rent this season that rented for $3500 just three years ago. The specific units in my example are paying over $20,000 annually just for property taxes and condo fees when those expenses were just $10,800 in 2020. The snowbird who may have thought about buying one of these units this year will be looking at a $600,000 purchase price and monthly expenses of around $2000 a month before any mortgage payment. Does it make sense to own with those numbers rather than pay $18,000 rent for a three month stay? Add to that the risk of further depreciation as selling prices in our example complex have pulled back substantially in the last two years. I don't know the answer but the math is likely to exclude some from our pool of potential buyers. Maybe dropping prices will pull those reluctant buyers back in.

How about the market at large? Sales volume remains in line with historical volume for this time of year so any concerns about higher carrying costs, if any, are subdued. Even so, I don't think the market will continue to shrug off higher taxes, insurance and condo fees without some compensating pull back in selling prices. I will be surprised not to see a decline in most condo selling prices similar to the pull back in my example above. Many smaller complexes have not had any recent sales so owners in those complexes have been unaffected and unaware of the declines in other bigger complexes. The next sale in those buildings might reveal that the decline has metastasized.

Single family homes, resilient in their scarcity, do not appear to be as affected by increasing costs as the condo market. That market is far smaller and responding to a different dynamic. Insurance costs have accelerated at a similar rate to condos but with no apparent effect, yet. Perhaps the always-low inventory will continue to support that segment of our market. We shall see as the season unfolds.

"The fact that some people can't distinguish between etymology and entomology bugs me in ways I can't put into words." _Gemma Amor