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

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 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

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

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

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."

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

Chugging Along

There are currently 28 existing single family homes for sale in Cocoa Beach and Cape Canaveral plus another three offered for preconstruction reservation. Median asking price of the active listings is $986,000 and the lowest priced home available is $577,700. Median selling price of the three homes closed so far this month is $1.06 MM. Last January the highest selling price of the five homes sold was $600,000. 

Condo inventory in our two cities is ramping back up and is at 254 units for sale this morning with a median asking price of $425,000 and median time on market of 81 days. Seventeen units have closed so far in January with a median selling price of $313,000 and median days on market of 45 days. Slightly over half of those sold for cash. Another 33 condo sellers have found buyers since January 1 as have seven single family home sellers. 

It's still too early into snowbird season to get any kind of meaningful read on the direction of our market in 2024 but with 40 new contracts in the first 23 days the prospects are promising. We began last year with 135 condo units for sale compared to our current 254 units and single family homes inventory was just slightly less than it is now. I'm usually happy to offer a prediction on market direction but I'm stumped with this market. Higher inventory and longer time on market seems a negative indicator but sales activity is right in line with a normal January so far. Interest rates, though less than a few months ago, are still higher than they were at the beginning of last year. Shockingly high insurance premium increases and ballooning condo fees have yet to be reflected in sales activity. I do expect a reckoning in the condo market as the fee increases become more widespread but it might be after summer before we can get a feel for that impact. Selling prices have pulled back significantly in a few larger condo complexes but there are many smaller complexes that haven't had any sales by which to judge price direction. For now, it's wait and see. 

The first wave of snowbirds have arrived with many more to follow in February and March. Those who got here early have had to deal with a wetter and colder start to a year than is normal. The golfers among them had to find other activities during the many course-closed days at the Cocoa Beach Country Club. Hoping for more sunshine and less wind moving forward. 

Speaking of colder, check out the temperature map above. A difference of 40 degrees between Destin and Cocoa Beach on this January day. Cold fronts routinely cross northwest Florida in the winter but lose their strength as they move further south and many either don't make it to Cocoa Beach or arrive with much less intensity. We certainly get our cold spells but nothing like the frequency or intensity that our Pensacola to Panama City people experience. Snowbirds considering a Florida beach town as a getaway spot from the winter cold would be prudent to choose their Florida destination wisely.

“Sufficiently advanced ignorance is indistinguishable from malice.” 

Winding Down 2023

Shuttle Atlantis cooling down on the runway after it's return from ISS twelve years ago.

It's been a busy year for residential real estate in Cocoa Beach and Cape Canaveral although total closed sales are lagging 2022's numbers. Last year we had a total of 684 closed condo units. As of this morning, two days before Christmas 2023, there have been 541 closed condo and townhome sales in the two cities so far in 2023. Inventory stands at 244 units for sale. Median closed price was $370,000 and 61% of the sales were cash deals and 23% of closed units sold in the first 7 days on the market. Median days on market for the current inventory is 70 days.

Single family home sales were robust in the year with 122 homes closed so far. Median sold price was $744,000 and cash buyers represented 40% of the closed sales with 23% sold in the first 7 days on market. Median days on market for the sold properties was 35 days and is 67 days for the current inventory of 29 homes and two pre-construction offerings. Median asking price of the current inventory is $1,2000,000.

Highest price condo to sell this year was a stunning 45 year old, 8th floor direct ocean penthouse at Beach Winds downtown Cocoa Beach that closed for $2 MM. The completely and tastefully remodeled unit had 4560 square feet, 5 bedrooms, 4.5 baths and two garages. Twelve units closed for a million dollars or more in ten different buildings, all but one of them in Cocoa Beach.

Highest selling price for a single family home was $4.2 MM for a two story, six year old, direct ocean home in downtown Cocoa Beach. This 5 bedroom, 4.5 bath beauty sold just three years ago for $2.3 MM. Thirty four homes closed during the year for a million dollars or more with five of those selling for over $2 million. Of the 34, all but two were in Cocoa Beach.

Mortgage rates declined again this week and we are currently over a point lower on the 30 year fixed rate than we were in October. Average national rate for a 30 year fixed this week is 7.06%. Whether this pullback in rates is enough to get undecided buyers off the fence is anyone's guess. Selling prices in several condos have retreated from the peaks earlier this year but a lot of current listings are still asking close to those peak prices with indifference from the market so far. We'll get a sense of what the new year might bring by mid-February when the snowbird season will have cranked up in earnest. The effect on buyers of recent and pending substantial increases in condo fees has yet to be revealed. I will be reporting and commenting on this as those effects become apparent next year.

Best wishes to all for the coming year and hopes for a hearty, happy and drama-free holiday season. Don't forget the Surfing Santas Christmas Eve morning behind Coconuts at the end of Minutemen Cswy. Activities begin at 7:30 and the Santas hit the water en masse at 10. Be there or be square. elDubya out for 2023.

"It appears my hypocrisy knows no bounds." _Val Kilmer in Tombstone