Record-high commissions pump up SoFla preconstruction condo market

Speculative purchasing dominates in the South Florida preconstruction condo market, given the lack of verifiable facts regarding prices, sales contracts, and construction schedules that are readily available to buyers when making presale decisions.

It is against this backdrop that opinion is growing that South Florida’s newest preconstruction condo boom – which stands at 171 proposed new towers with nearly 22,500 units and counting – is being pumped up by real estate brokers pursuing record-high presale commissions of as much as seven percent of a unit’s contract price. After all, it seems unlikely to industry watchers that South Florida developers – who often resist paying sizable fees to real estate agents – would offer substantial fees if preconstruction sales were as strong as purported by the brokerage community.

Some developers have even eliminated “clawback” provisions in preconstruction commission agreements that require real estate brokers to return prepaid fees if their respective buyers fail to ultimately purchase the contracted units upon completion of the projects.

Developers in immediate need of preconstruction condo buyers are trying to spur a growing number of traditional real estate agents to refocus their efforts – and marketing budgets – away from the resale market that typically pays as little as a two percent commission.

It is not only the location-challenged projects that are offering attractive commissions to real estate brokers but also proposed towers slated to go up in popular locations such as Aventura, Greater Downtown Miami, Hollywood Beach, Miami Beach and Sunny Isles Beach, according to a survey by the preconstruction condo website CraneSpotters.com.

Preconstruction condo sales are a real-time market based on supply and demand so the terms constantly change. Additionally, some real estate brokerages negotiate their own exclusive commission deals that are much richer than the terms advertised by the condo developers.

Some of the more eye-catching broker commissions that are or have been advertised for proposed condo projects include a seven percent commission at the Echo Aventura in Aventura; a six percent commission at the 400 Sunny Isles in Sunny Isles Beach; a six percent commission at the 1010 Brickell, Centro, and Echo Brickell in Greater Downtown Miami; and a six percent commission at the Sage Beach in Hollywood Beach, according to marketing literature.

Overall, the average advertised preconstruction condo sales commission is about five percent for those towers that are currently selling units, according to CraneSpotters.com.

It is unclear if the commissions could increase going forward as the competition for buyers is expected to intensify as nearly 100 proposed towers have yet to launch presales as of Oct. 2, according to the website.

The aspect of today’s South Florida preconstruction condo market that is clear is that developers are dependent upon real estate brokers to bring buyers from around the world and smooth over the obvious objections.

No factor is more controversial to buyers in the South Florida preconstruction condo market than the current deposit structure that requires half of the contracted purchase price to be paid before a proposed tower is even complete.

If a developer were to ultimately fail to complete a project, only a portion of the buyer deposits would be secure under the current system.

Compare today’s structure to the last South Florida condo boom where buyers – faced with the same default scenario – were typically only asked for a 20 percent deposit on preconstruction projects.

Going forward, real estate brokers increasingly see the newest South Florida condo boom as an efficient way to recoup some of their perceived lost income from the last market downturn. The unanswered question is whether these same real estate brokers will put their clients’ needs ahead of their own personal goals.

Peter Zalewski is the founder of Condo Vultures LLC, a consultancy and publishing company, as well as Condo Vultures Realty LLC and CVR Realty brokerages and the Condo Ratings Agency, an analytics firm. The Condo Ratings Agency operates CraneSpotters.com, a preconstruction condo projects website, in conjunction with the Miami Association of Realtors.