Saturday, July 13, 2024

Pay Now or Pay Later

This picture is from a better time on Union Island in the Grenadines. Hurricane Beryl destroyed almost every structure on the island as it did on several small neighboring islands. Imagine your entire community being wiped out with not a single neighbor escaping major damage. A charity that I trust to prudently use my donation is Direct Relief, donation link HERE.

There are currently 285 condo and townhome units and 50 single family homes for sale in Cocoa Beach and Cape Canaveral as reported by our MLS. Inventory has pulled back from it's recent highs and has been more or less static since the beginning of summer. Fourteen condo units and two homes have found a buyer in the first 13 days of July which is a noticeable slowdown from our pace of sales earlier this spring. Median time on the market for the remaining 50 single family homes is 64 days and for the condos, 79 days.

There seems to be a sense of increased caution about condos among buyers. The uncertainty about condo fees for the condos that have not yet completed their structural reserve studies and determined the funding necessary to comply is adding friction to the offering process. After seeing some of the fee increases among the buildings who have done their inspections and begun funding the new reserves I understand the reticence. 

Buyers are quickly finding themselves in a conflicting position with incentive to wait for reserve studies before offering and another incentive to hurry to get under contract before they find themselves responsible for paying their agent because of the new buyer's broker compensation requirements slated to go into effect on August 17. On one hand I might contract a condo before August 17 only to find myself staring at a healthy increase in fees by the end of the year. On the other hand I might wait for the new fees to become known and, if after August 17, find myself owing my agent out of my own pocket. I think it's safe to expect many sellers to continue offering buyer's broker co-broke but I also think it's reasonable to expect quite a few to refuse to offer anything. After all, real estate commissions are loathed by pretty much everyone except agents and their families. Having to possibly pay or even discuss agent commission is not going to be embraced by buyers but that discussion is going to be required come August 17. Remember my previous appeals to reject junk fees? Now all buyers are going to get to reject them before they ever see the first property. Keep in mind that what you agree to pay your agent is entirely negotiable and there is zero reason to pay your agent a junk fee on top of a percentage of the purchase price. I shouldn't have to say this but don't let a real estate agent rip you off with a made-up junk fee.

There are several new houses in a riverfront development in south Cocoa Beach that have been under construction for over three years. Construction has started and stopped several times during those three years and appears to have stopped again. None are completed although three of them look to be close. They've been at that "close to complete" stage for over a year. Several of these sluggish builds already closed in the MLS two and three years ago, several of them before the first block had been laid. I'm sure there's a reasonable explanation. Reckon how long these buyers are going to wait for their keys? Meanwhile buyers at The Surf oceanfront downtown should begin closing on their new units by the end of the month.

Lots of things happening downtown with the old Yen Yens building torn down and construction beginning on the new brew pub/food court at the same site. The new Cocoa Beach City Hall one block away is coming along nicely. The old International Palms has been reduced to piles of rubble and construction on the new Westin resort complex there is supposed to begin in August, hurricane season allowing. There are several other projects being discussed and construction is under way on a few. 

Cocoa Beach is changing but the population holds steady at the 12,000 number as it has for fifty years. It's hard to increase population when there is no vacant land. Something has to come down for something to go up. We didn't always realize how fortunate we were that we ran out of land long ago. I can relate to John Cougar's "I'll probably die in a small town." Take care out there in the heat. Seek shade and stay hydrated.

"I shall not commit the fashionable stupidity of regarding everything I cannot understand as a fraud." _Carl Jung

Saturday, June 29, 2024

Trying to Reason With Hurricane Season

 After peaking in early June, the inventory of residential real estate for sale in Cocoa Beach and Cape Canaveral has pulled back somewhat. There are currently 278 condo and townhome units and 47 single family homes for sale on our MLS. Those levels are about 10% less than they were three weeks ago.

A total of 54 condo units have gone under contract since June 1. Median time on market before finding a buyer was 49 days and median price was $350,000. The median time on market for the remaining condo inventory is 79 days with a median asking price of $405,000 and a median monthly condo fee of $642. 

Forty nine condos and townhomes have closed so far in June with a median time on market of 61 days. 63% of them sold for cash. Only five of them sold for full original asking price or higher with the majority of sales at substantial discounts to original asking price. Median condo fee for the sold condos was $705 a month.

We are seeing more condos completing their milestone inspections and reserve studies with fees adjusting to fund the new reserves. Fees across the board including one and two story buildings which are exempt from the new reserve requirements continue to rise. The main driver pushing fees higher for the exempt buildings has been insurance premium inflation. For everyone else, in addition to more expensive insurance, it is funding the new structural reserves. One other expense facing some condo owners is paying for a new roof required by their insurance company to keep coverage. Our takeaway; the golden years of cheap Florida condo living are effectively over.

The median asking price of the 47 single family homes for sale is $875,000 with a median time on market of 64 days. Lowest asking price for a Cocoa Beach single family home right now is $599,000 and highest is $4.7 MM. Only seven homes have closed so far in June with a median price of $770,000. Three of those sold in the first five days on the market.

We are about six weeks away from a tidal change in the way buying and selling real estate will happen. Buyers will not be able to view properties without a signed representation and compensation agreement with the agent showing them the property. Buyers can no longer count on their agent being paid by the seller and will be faced with the responsibility of paying their agent at closing whatever they agreed to in the buyer's broker agreement. Some sellers may agree to pay some or all of the buyer's broker compensation but it is reasonable to expect some of them to offer nothing, pushing the burden of buyer's agent's pay onto the buyer. It's going to be interesting and seems reasonable to expect a lot of agents to fail in this new landscape.

Buyers, read that buyer's brokerage agreement carefully and know that it's all negotiable. This is especially true of the transaction (junk) fee so many agents try to push on their clients. Do not agree to transaction or brokerage fees despite an agent telling you that they are not negotiable. They are lying. Just say no or find a new agent. 

"History can definitely repeat itself if everyone concentrates very hard on making the same stupid mistakes." _Nelson DeMille

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