Doubts grow about presale condo commission “promises”
SoFla update: Since cycle began, 330 new condo towers with more than 42,000 units east of I-95
Question: Is there any truth to the allegation that some developers are not paying real estate commissions for preconstruction condo purchases as promised?
The South Florida preconstruction condo market relies upon trust.
Developers are asked to trust that their general contractors can construct their new condo projects as planned. Buyers are asked to trust that the developers will deliver the preconstruction condo projects as promised. Real estate professionals are asked to trust that the developers and buyers will fulfill their presale contract commitments so that commissions are paid as stated in the contracts.
If any aspect of the preconstruction trust triangle does not go as planned, varying degrees of repercussions are experienced by all parties involved in the transactions.
As this current South Florida condo boom has evolved from its beginning in 2011, a growing number of known and unknown condo developers have announced plans to participate in building nearly 330 new condo towers with more than 42,100 units east of I-95 in the tri-county region as of Friday, according to the preconstruction condo projects website CraneSpotters.com. (For disclosure, my firm operates the website.)
The pressure to succeed in the increasingly competitive South Florida preconstruction condo market has led to a variety of adjustments in recent years, including more favorable commission terms for real estate professionals.
After all, real estate professionals — rather than glossy magazine advertisements — are seen as vital conduits necessary to connect developers with savvy buyers who are being asked for deposits of up to 50 percent of the contracted purchase price.
At the onset of this current cycle, real estate agents who generated presale contracts in new condo towers were offered a 5 percent commission — based on the purchase price — that would be paid upon the completion of the sales, once the projects are constructed.
In the last four years, real estate commissions have increased to as high as 8 percent on presale condo price with payments being made to the real estate professionals every time buyers make additional payments towards the required deposits in the contracts.
At least one new project has even offered, in widely distributed marketing literature, to prepay the entire commissions upfront before the preconstruction condo transactions are even completed.
Conceptually, these offers of seemingly generous presale condo commissions sound tantalizing to the more than 40,000 members of the various South Florida Realtor associations. (For disclosure, I am a nonpracticing real estate broker.)
In practicality, real estate professionals in South Florida have limited — some would even say no — power to enforce the commission promises made by developers, short of hiring attorneys to file expensive lawsuits based on the presale contracts.
This column will not get into the specific preconstruction condo projects that are allegedly struggling to fulfill their commission promises. It is relatively easy to figure out, though, by simply trolling social media.
In general, the three primary complaints by real estate professionals about preconstruction condo commissions are related to allegedly not being compensated for introducing a buyer to a project, not being paid in a timely manner as scheduled and being strong-armed into slashing commissions to make up for unforeseen development cost increases that a surprised buyer refuses to pay.
Complaints by real estate professionals about preconstruction commissions are likely to be a big issue in the next three years as more than 18,000 new condo units are scheduled to be completed in South Florida.
The unanswered question going forward is whether the level of trust that real estate professionals have for specific developers will ultimately make or break particular preconstruction condo projects as the South Florida market grows increasingly competitive.
Thought Of The Week: Ultra-Luxury Condo Inventory Rises As Foreign Currencies Fall
As foreign buyers with international currencies find it more expensive to purchase local real estate, due to a strengthening U.S. dollar, more than five dozen units are listed on the condo market at a minimum asking price of $10 million each in South Florida.
The 61 ultra-luxury condo units are listed at an average asking price of nearly $3,000 per square foot east of I-95 in Miami-Dade, Broward and Palm Beach counties as of Friday, according to the Southeast Florida MLXchange.
A more-than 9,500-square-foot unit in the Regalia condo tower in Sunny Isles Beach has the distinction of having the highest listed asking price at $29 million as of Friday.
In 2014, as the U.S. dollar began to run up in value, buyers purchased 10 South Florida condo units listed on the MLXchange for at least $10 million each, according to the data.
Peter Zalewski is a real estate market consultant, non-practicing licensed real estate broker and columnist for The Real Deal who now answers reader questions about the South Florida real estate market in a new weekly Friday column. Questions and comments can be sent to email@example.com. The TRD editors will choose which submissions will be addressed.