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."