Denial or Optimism?

This is a timeline of a condo sale that is typical of many current listings. The seller hit the market last summer at a price that seemed high but within the ballpark considering similar sales months earlier. The unit was first listed last July which was about the time we were starting to see some areas of softening in our condo market. Asking price started at $575,000 but was dropped to $549,000 just three weeks in and cancelled a week later. Three months later, in November, it came back on the MLS asking $545,000 and was dropped to $535,000 two weeks later. On New Years Day it was dropped to $519,900 and again to $499,900 three weeks later. One month later another small drop to $495,000 and two weeks later to $485,000 and $475,000 two weeks after that before being cancelled in early May. It came back on the market in mid-June at $474,900 and dropped a week later to $449,900 where it sat until mid-August when it finally got a contract after being on and off the market for slightly over a year. We won't know the actual contract price until it closes. Sticking with a higher-than-market-value asking price "just in case" despite descending prices of comparable sales is a costly strategy as this seller found out. 

A timeline of multiple price drops is not uncommon. Almost half (47%) of all condo listings in Cocoa Beach and Cape Canaveral have been for sale for over 100 days and, of those 126 listings, 90 have had price changes. Much of the inventory is overpriced and will need price adjustments if the sellers hope to attract a buyer. Condo buyers, who may find a promising looking listing after wading through a predominantly overpriced inventory, are then faced with rising condo fees, higher down payment requirements and increasingly expensive insurance, the very things fueling the declining prices.

What could this seller have gotten for this unit last year had their price been better earlier? It's anyone's guess but the fact that the condo market was changing and softening was obvious to anyone who was paying attention. Paying close attention to closing prices and asking prices of other units that were attracting buyers might have hinted to this seller that their price was the problem but they either didn't bother to know or denied what they saw. Buyers and sellers alike will benefit from knowing the recently sold prices of comparable properties. Selling prices are retreating and asking prices for the majority of active listings aren't in line with selling prices. What any unit sold for in 2023 is probably not a good indication of what that unit might sell for now. Homework pays off, people.

PSA for current condo sellers. Please check your MLS listings to make sure your condo name is correctly entered into the MLS. There are eleven current condo listings with incorrect or missing condo names. This means that all prospective buyers who have saved searches with your condo name included have not gotten an alert that your unit is for sale. I was reminded of this last week when I was checking my saved search of all short-term rental oceanfront condos in our market. I was aware of a new listing but it wasn't included in my results. I checked and, sure enough, the condo name, in this case, was misspelled excluding it from search results. Several of the other offenders appear to be agents unfamiliar with our MLS who don't know how to plug in the correct condo name. This ain't rocket dentistry level complexity but then again the real estate licensing process does not screen for ability or aptitude for learning and sometimes rewards incompetence with sheer blind luck. Don't be a victim of your agent's mistakes and oversight and proofread your listing for errors. 

How about accuracy of your condo fees? There are a few condo listings with grossly misstated condo fees which will ultimately threaten an executed contract when the truth becomes known before closing. Don't expect your buyer to be cool with $1100 a month condo fees when he's expecting $650 as advertised in the MLS at the time he wrote his offer.

"However beautiful the strategy, you should occasionally look at the results." _Winston Churchill

Unintended Consequences

After producing a bumper crop earlier this summer, my Thai chilis have pushed out a new set of leaves and blooms and are well into the second crop of this year's season.

Some of the unintended consequences of the new rules have shown themselves already. How about the person who's been talking to a neighbor about buying their condo whenever they're ready to sell but who goes to look at a different investment property nearby. The agent who shows them the investment property has them sign a buyer broker agreement for six months and leaves the property address/description blank since they expect to be looking at various types of investment properties in the coming weeks. One day after signing the agreement the neighbor calls and says he's ready to sell the condo. There is now a contract in place that obligates the buyer to pay the agent that showed them the other property even though they aren't and won't be involved in the neighbor's sale at all.      

Scenario 2: Buyer is looking to upsize from the condo they currently own. They meet with an agent and sign a BBA for one month and begin looking at units. Shortly after beginning their search, a bigger unit in their complex that is perfect for them goes under contract and they have an opportunity to exercise their first right of refusal and take over the contract for that unit. Just like the other example, these people are now obligated to pay the agent with whom they were looking at other buildings even though the agent is not and won't be involved in the first right purchase.

In both these scenarios even though the buyers are contractually obligated to pay the agent per the letter of the agreement, if I was the agent, I would not expect to be paid nor would I accept payment. Unfortunately, not all agents would feel that way. These scenarios should serve to encourage buyers to select their buyer's agent with care. Being able to trust your agent is probably going to be more important than which agent will agree to the lowest pay. If I didn't feel like I could trust an agent for whatever reason, I would not be inclined to sign an exclusivity agreement with them. The new agreements were drafted for Realtors and they are heavily slanted in the Realtors' favor. Before signing I would spend enough time talking to a prospective buyer's agent to get a feel for how fair I could expect them to be and whether I feel like I can trust them to look out for my best interest. I'm willing to pay the agent that passes that test more than the guy who can't pass the gut check of a short conversation. Be smart, y'all, and exercise caution when price shopping for a buyer's agent. They are not created equally nor will they represent you equally well. Any agent who presents a BBA asking for a percentage plus an extra dollar amount for some random "fee" has just failed the gut check.

It's been two weeks since the new rules went into effect and I'm seeing lots of listings marked as "No" seller concessions. I wonder if the listing agents are charging more for the listing side commission and advising sellers that they don't have to offer a buyer's broker anything. Agreeing to pay 4% to a listing broker and zero to buyer's broker seems like a deal compared to the pre-August 17 range of 5% to 6% split between selling and listing brokers. However, when every offer arrives with a request for a 2 to 3% concession to cover the buyer's broker's fee then the 4% turns out to be not so great a deal. One other thing I'm noticing is that these "no seller concession" listings aren't priced any lower than those who are offering concessions. 

Sellers don't be deceived by larcenous listing agents trying to profit from the new rules and the public's misunderstanding of the same. Choosing to advertise that you aren't willing to offer a concession is adding unnecessary friction to the selling process. Better to leave the seller concession field in the MLS blank rather than chase away buyers who are obligated to pay their agent and who take your "No seller concession" at face value.

“Sufficiently advanced ignorance is indistinguishable from malice.” _unknown

Summer of Love, 55 Years Later

Tracks of hatchling turtles who scrambled for the ocean for their first swim after hatching one night this week in south Cocoa Beach.

I could never have imagined during the summer of love, that 55 years in the future, the same August weekend as Woodstock, I'd be talking about being required to have a signed compensation agreement with a buyer before I am allowed to show them a house, yet here we are. We can walk into a store in some states and buy a joint but we can't show a house to a buyer without said agreement. Progress does not move in a linear or even sensical fashion. Today, August 17, 2024, is D-Day for implementation of the new rules relating to the National Association of Realtors settlement. It is already, shall we say, interesting.

The inventory of properties for sale in Cocoa Beach and Cape Canaveral has been shrinking since peaking in May. There are about 13% fewer properties for sale this Woodstock weekend than there were three months ago. There are currently 268 condo and townhome units for sale on the MLS and 47 single-family homes. Median asking price for the condos is $394,000 and for the single family homes, $962,000. Median time on market for condos currently listed is 94 days and for SF homes, 83 days. Median condo fee for the listed units is $650 monthly. Of the 240 condo listings older than two weeks, 158 have dropped the price at least once and there are six listings that have been optimistically listed for over a year without a price drop. Only 22 units have gone under contract so far in August.

There were a total of 50 closed condo and townhome units in the two cities in July with a median selling price of $390,000 and a median time on market of 43 days with a median condo fee of $600 monthly. Contrast that 43 days on market with the median of 94 for the remaining inventory and it's obvious that properly-priced new listings are stealing the bulk of the buyers from the older listings with overly optimistic sellers who are clinging to prices that the market is rejecting. Highest selling price was $975,000 for a 2419 square foot, 7th floor direct ocean unit at The Constellation in south Cocoa Beach. Close behind was a 9th floor corner, direct ocean Stonewood downtown Cocoa Beach with 2170 square feet that closed for $950,000.

In July there were seven single family homes closed with a median selling price of $807,000 and a median time on market of 95 days. Only one home sold for more than $815,000.

From this point forward, no buyer's broker compensation is displayed in the MLS but there is a new Y/N field for "seller concessions". On this morning's hotsheet I noticed four listings that are advertised as "No" seller concessions. That means that buyers of these listings will either have to pay their buyer's broker out of pocket or their offers to the sellers will have to include a request for a concession to cover some or all of the fee they agreed to pay their agent. The sellers who are advertising 'No" concessions can be assumed to be disinclined to agree to one. Buyer's agents are about to become seen as an impediment to a sale for the listings that are unwilling to offer a concession. I can easily see scenarios where a seller counters an offer accepting the price and terms but rejecting the concession and, by doing so, painting the buyer's broker's fee as the sole barrier to a sale. I knew this was going to be interesting but I didn't count on seeing many "no seller concession" listings so soon. I welcome your stories which are sure to follow. My email is at the top of the page. Good luck out there. Things are different now.

"The Woodstock Music and Art Festival will surely go down in history as a mass event of great and positive significance in the life of the country ... That this many young people could assemble so peaceably and with such good humor in a mile-square area ... speaks volumes about their dedication to the ideal of respect for the dignity of the individual ... In a nation beset with a crescendo of violence, this is a vibrantly hopeful sign. If violence is infectious, so, happily, is nonviolence." _Michael Lang, Boston Globe

Buyer Beware

We are three weeks away from new rules going into effect as a result of the NAR settlement. I have commented on these changes in previous posts and wanted to discuss in more detail the two changes that will have the biggest impact.

(1) Buyer's broker compensation will no longer be displayed in the MLS after August 17. The way it works now is that sellers offer compensation to the buyer's broker (through the listing broker) and that is displayed in the MLS listing and is folded into the asking price. Usually, but not always, the rate offered the buyer's broker is half the total commission the seller has agreed to pay to their listing broker. I have seen offerings as low as a few hundred dollars to as high as 5% to the buyer's broker. The majority of listing right now in our MLS are offering between 2% and 2.5%. Historically in our market, buyers agents represented their clients, found and closed on a property and were paid at closing whatever the seller's broker was offering in the MLS. Sometimes the agent would get 3% and sometimes much less. Agents usually just accepted whatever was offered and it worked out overall, good pay on some sales, not so good on others.

As of August 17, agents will no longer see on the listing what compensation, if any, is being offered and will have to find out from each listing agent what they can expect from the seller at closing. I think we will probably begin including buyer's broker compensation as a written part of the offer. This will make the buyer's agent's commission an inconvenient but integral part of the negotiating process which brings us to the second big change.

(2) Agents will, after August 17, be required to have a signed buyer broker agreement BEFORE viewing any property outlining compensation due the buyer's broker. The agreement will define exactly what the buyer will owe their agent/broker. The agreement allows for that amount to be paid partially or fully by the seller. This (below) is the exact wording concerning that in our new Buyer Broker Agreements as provided by our local Realtor association:

• Compensation received by Broker, if any, from an owner or owner’s broker for services rendered to Consumer will reduce any amount owed by Consumer per this paragraph.  

If a buyer's agent has an agreement with their client for more pay than the seller is offering, the buyer can either negotiate for a seller concession large enough to cover the commission or they will have to pay their broker the difference at closing. This is going to become awkward very quickly.

Imagine negotiating with a seller to within a few thousand dollars and knowing that your agent's pay is the only thing keeping you and seller from agreement. For instance; a buyer's top number they're willing to pay for a certain property is $500,000 and their agent has presented an offer for $500,000 with a request for a 3% concession from the seller to cover the agent's pay. The seller tells their agent they will accept the $500,000 but with no concessions, take it or leave it and figure out the commission however it pleases the buyer. The buyer can either walk away or take the $500,000 and pay their agent another $15,000 out of pocket or possibly negotiate a lower rate with their agent if they'll even consider it. 

Note that the commission has always been built into the price but it wasn't part of the negotiations between the buyer and seller. I have done many deals where I or I and the other agent agreed between ourselves to accept lower pay to bridge the gap and make a deal work out. Those agreements between agents to the benefit of their clients will be less likely to happen now and I suspect more of these close deals will just fail to come to agreement.

There is some interesting wording in the new agreement concerning exactly when a buyer owes their broker. Check out the highlighted phrases:

If using this agreement form, buyers will owe their broker once they contract to purchase and will still owe if they default on that contract and never close. I'd be very hesitant to sign an agreement with this wording and, if I did, I'd be sure to at least negotiate a reasonable rate. Notice in the last paragraph that the agent can select either a percentage or an amount OR a percentage or amount PLUS an additional amount. That last blank is tailormade for junk fees. Buyer's agents are going to be sliding this agreement across the desk to their clients for signatures agreeing to pay the agent a percentage PLUS their "non-negotiable" transaction or brokerage fee which is a fancy way to spell junk. If there is a number in that last blank on the buyer brokerage agreement you signed, you agreed to be robbed.

I would advise buyers to carefully read whatever agreement their agent presents them with and to question anything they don't understand. There is no set commission or rate. It's all negotiable. If you think $1000 is plenty for your agent for the transaction you hope to have, ask for it. There is little reason to agree to pay them 3% plus $395 just because they asked for it and told you it wasn't negotiable. I might consider paying the $395 junk fee if they'd drop the percentage by a point or two.

It's going to be wild and probably not a lot of fun for buyers and their agents. Agents in our market have always gotten occasional calls from people on vacation wanting to see properties while they're here. That's part of real estate in a vacation destination. Now those folks are going to have to have a discussion about the agent's pay and sign an agreement to those terms before they can get in to see that little beach condo that caught their eye. Awkward. Best of luck to everyone on all three sides. We are entering uncharted waters.

"Against profitability, morality is overmatched." _Jay Busbee 

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

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

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

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