Agent bonus - Conflict of interest?

I've been thinking about agent bonuses and commissions for quite a while. As our market has slowed, we are seeing sellers offering higher commissions and bonuses, supposedly to get agents to push their properties. I received a postcard this week from a developer offering not only 3% commission but also a $1000 bonus to any agent bringing a performing buyer. This is troubling to me. It suggests to me that the seller offering the bonus thinks that I would steer my buyer to their property because I would make more money. Folks, if your agents are selecting properties to show you based on the amount of money that they will make, they need their butts kicked. This whole idea of paying a bonus to the selling agent seems to me to be a serious conflict of interest and an incentive to engage in unethical behavior. Without asking, a buyer may never know which properties are more lucrative for their agent, or, if they are even being shown all properties. As it stands, bonuses are legal and commonly offered. I'll go on record as saying the practice has a foul odor to me.

Activity has picked up somewhat with 28 total closed sales of MLS listings in Cocoa Beach and Cape Canaveral from Feb. 1 through Feb. 26. At that rate it's going to take quite a while to burn through the 1096 total listings showing on the MLS. Actual total is probably under 1000 because of dupes but in round numbers we are looking at a 3 year supply.

Portside Villas has begun closing the 3rd and 4th buildings and sellers are getting serious with prices hoping to finally cash in on the deposits they put down two years ago. Expect some great deals to be had in the next few months there. Call me at 321.917.5786 or email if you'd like to take a stab at a brand new condo, walking distance to the beach and Port for under $200,000.

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Zillow, more or less

The buzz surrounding the launch last week of Zillow.com was thick. This handy online tool aspires to be a user-friendly, automated property valuation machine but falls short, at least in my opinion. At this point Zillow is best approached as entertainment, but it is likely to be embraced by those whose unrealistic price expectations are confirmed by Zillow's faulty estimates. In my experiments with Zillow, I found quite a few errors and some valuations were off by hundreds of thousands of dollars. I suspect that both sellers and buyers with unrealistic expectations of property value who get a confirmation from Zillow may be even less flexible when faced with market realities.

Imagine that your real estate agent suggests a selling price of $500,000 for your condo based on research and adjusted comps. Being an astute, computer-savvy person, and having heard of Zillow, you run an estimate and Zillow returns a market value of $650,000 for your condo. Do you suspect that the agent is trying to get you to under price your property so she can make a quick easy commission? Sure you do. You immediately find another agent who will list your condo for the Zillow estimate of $650,000 and congratulate yourself on your wisdom, at least for the first few months.

Now imagine in another scenario that Zillow returned an estimate of $420,000 for that same property but you trusted your agent's suggested price and listed for $500,000. You can expect that any buyer who runs an estimate on Zillow will be very reluctant to offer close to your asking price even though it is backed up by adjusted comps.

Go to Zillow.com and do your own research, but, if you're buying or selling, don't trust these valuations to be anything other than broad estimates.

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No snow in Florida

It's been a busy beginning to the year for me, but, my activity is not representative of our market as a whole. Our MLS backs this up, with closed sales continuing to slow even from the tepid pace in January. As I've been saying, our new MLS is still unreliable for statistics other than actual closed listings, so, I will continue to limit my stats to that number. For the first 14 days of February, 2006 we have had the following closed sales of MLS-listed properties in Cocoa Beach and Cape Canaveral.

Single-family___4
Condominiums__3

The MLS shows 1079 active residential and condo listings but the actual number is probably 20% less than that due to duplicates and incorrect-status listings. Even with extremely slow real estate sales, Cocoa Beach is experiencing a busy snowbird season. Today is Tuesday and, according to the starter at the Cocoa Beach Country Club this morning, the first available tee time is next Monday. Go figure. With a forecast of mid-70s for tomorrow, I'll settle for a round on the mainland at the beautiful Viera East course.

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Half full / half empty

Before I begin with this update, I'd like to share a photo I took at the Cocoa Beach golf course yesterday. Notice the ball under the back leg. Makes for an interesting golf shot. Now back to your regularly scheduled program.
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The housing market has become as discussed as America's foreign policy and, like that touchy subject, is home for many differing opinions. The following are news stories from the last week about Florida's housing market. Even though some writers are bold enough to express reservations about the continued upward trend, the tone of most Florida newspapers is still optimistic. That is understandable considering the amount of advertising revenue that the real estate industry generates for them. Of importance when reading these stories is the fact that the new condo markets and the single-family home markets are distinctly different. The level of investor involvement in the condo market has contributed to a disconnect from fundamentals. Personally, since the first of the year, I have seen greatly reduced investor interest but strong end-user buying activity. Investors may stop speculating, but those who want a place in Cocoa Beach for the weather, the ocean and river and the un-hurried lifestyle continue to buy.


from the Palm Beach Post "Some froth, no bubble"
Sarasota's Herald Tribune, "Real estate market is steady"
South Florida Business Journal, "Broward home prices continue rise"
Miami Herald "High home prices settle down"
Reuters "Florida median home prices dipped in December"
Commercial Property News "'Soft Landing' for Condo Investments"
Tampa Tribune "Anybody Home?"
Tallahassee Democrat "The forecast: sunny and stable"
WESH2 News "Florida's Real Estate Market Gets Cooler"

Our new MLS is still unreliable for statistics other than actual closed listings, so, I will limit my stats to that number. For the month of January 2006 we had the following closed sales of MLS-listed properties in Cocoa Beach and Cape Canaveral.

Single-family____4
Condominiums__29

If you want a place on the beach or near it, there have been some excellent buys recently. How about this one, a 3 bedroom, 2 bath direct ocean unit at Royale Towers that sold Jan. 10 for an incredible $325,000, or $225 per sq.ft. Still active is a 3 bedroom, 3 bath direct river unit at River Lakes, 2 blocks from the beach with a boat slip available for $299,000. No matter what happens to the investor-dominated new high-end condo market, properties like these represent great value and an opportunity to own in desirable locations in our great little beach town. Email me if you'd like a list of my favorite current listings.

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Crunch time for new projects

In lieu of accurate MLS stats, here are housing start stats as reported by Florida Today this week. Click here for the whole article.

Single-family home permits in Brevard County in 2005:
7,273 compared to 6,180 in 2004

Median sale price of an existing home in Brevard:
$234,400 in December, up 25 percent from a year earlier.

Although this was a record for single-family home starts in Brevard County, a slowdown was obvious by December when the monthly number dropped to 551, less than the 2003 and 2004 December totals.

In other real estate news beachside, several new condo projects are approaching completion and other new projects are just breaking ground. Equipment has been moved onto the site of the old Cocoa Cabanas in South Cocoa Beach and the small condo project to be built there is offering pre-construction units starting just under $1 million. Across the street on the river, the first building of the 77 unit, Magnolia Bay project has topped out at the fourth floor with the construction crews making fast time. Investors who bought units there at pre-construction prices starting at $549,900 will soon be marketing their units as closing approaches. If any of them have researched nearby activity on the MLS, they must be nervous. In the Crescent Palms, a new 15 unit building just south of this project, 14 of the 15 units are on the market with, so far, no takers.

Crescent Palms


Those investors will soon be closing on their luxury riverfront units and making mortgage payments and paying taxes on their investments. Hopefully, everyone made plans for the possibility of not being able to flip their contracts.

I've been talking about the risks of pre-construction for a year now and the reality of over-supply and optimistic pricing that concerned me last year is in full bloom. If you are holding a pre-construction contract for investment purposes, you need to make some contingency plans. You may be forced to close unless you are willing to drop your price to a point at which the unit will sell. Many of the current group of investors are unwilling to accept that the profit they expected is not going to happen. Many of them will be closing and carrying debt hoping to sell at some point in the future when the market has digested the current crop of new units. Selling now for break-even may be more prudent for some of them.

If you're looking for a second home or vacation condo, this same scenario is to your advantage. Stay tuned and contact me if you'd like a list of soon-to-close projects.

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Bottom Fishing for Bargains

Things have picked up considerably since the first of the year. I have written offers for 4 different buyers in the last 2 weeks with 3 of those buyers getting accepted contracts. I am seeing sellers more willing to respond to low offers than last season but I haven't found any seller yet willing to sell for under market value. Two bits of advice if you're making a lowball offer; first, don't expect a warm reception from the seller. Second, if you're offering considerably lower than asking price, the terms of your offer better be attractive to be considered. A seller will be more tempted to respond to a low, cash offer with a quick close than an offer contingent on a high loan-to-value mortgage or other troubling contingencies such as the sale of another property or a delayed close. If you plan to do some bottom fishing, get pre-approved for a mortgage, make your offers as clean as possible and be prepared to lose out on a few.

Our inventory is still climbing with each week seeing a new record high number of listings. Here are our current stats for Cocoa Beach and Cape Canaveral. One caveat; there are many duplicate listings as agents learn our new MLS, so, the actual number of listings is less than the numbers below. Even adjusting for the errors we are still at record high inventory.

MLS listed properties, Jan. 19, 2006

condos all prices__815
_over $500,000___206

homes all prices__117
_over $500,000__58

New condo listings since Jan. 1 - 182
New single family listings since Jan. 1 - 34

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Sellers get aggressive with pricing

I'm still not convinced of the accuracy of our new MLS but I will report the stats as they are showing in the system.

I have seen a burst of activity in the last four weeks with serious buyers out and making offers. There is a disconnect at the moment with both buyers and sellers seemingly on different pages. Buyers are somewhat over-confident in their power to make low-ball offers and many sellers are still clinging to the idea that each new sale must be higher than the last. That is the reality in many of the scenarios that I directly observe. Of significance at the moment are those motivated sellers who have priced their properties to sell. I showed several condos yesterday and two of them are priced well under the market. One is a 3 bedroom, 3 bath, 1574 sq.ft. ground floor unit at River Lakes in Cocoa Beach that was just reduced to $299,000. That is a lot of direct waterfront condo in a great complex with boat slips for $299K. The other priced-to-sell unit was a direct ocean, 3 bedroom, 2 bath, 1753 sq.ft. unit at Waters Edge in south Cocoa Beach for $459,900. That is $263 per sq.ft., a rate we haven't seen for oceanfront in quite some time.

Whatever you believe about the future of the real estate market in Florida, if you want to own a waterfront condo, now is the time to get out and start looking. Although I believe that the high-end condo market will see even more downward pressure on prices because of too much investor involvement and increased supply, I think that quality units in existing complexes that are primarily resident-owned represent a great opportunity at these prices, at least the ones that are aggressively priced like my 2 examples above. You can choose between a brand new riverfront condo at $402/sq.ft. or a nice older unit on the same shoreline for $189/sq.ft. The difference leaves a lot of money for upgrades.

Here are our stats for today. Remember that our new MLS lists properties somewhat differently than the old one so some of these numbers will appear to have changed dramatically from my last stats reporting in December. For instance, some townhomes now appear under single-family homes. The important number here is the combined number of all listings. It is at an all-time high at 887 total listings in Cocoa Beach and Cape Canaveral.


MLS listed properties, Jan. 12, 2006

condos all prices__785
_over $500,000__196

homes all prices__102
_over $500,000__53



Another significant number is the 57 price reductions in the last 7 days. Don't think that you can get a great deal on most of the listed properties because of our high inventory levels. A large number of sellers are willing to wait as long as it takes to sell their properties or even not sell at all. Others don't have that luxury and may have to sell because of a relocation or simply because they are over-extended. These are the ones you want to buy from. They're there and I'll be glad to help you sniff them out. I can be reached by email at larry@southcocoabeach.com or at my new office, Walker Bagwell Properties in downtown cocoa Beach at 321.868.3151.

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