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Posts from November 2014.

HUD housing and urban developmentRecent editions of the The Seattle Times (Sunday, November 16, 2014) and the Puget Sound Business Journal (November 13, 2014) discussed a new local "disruptive" company on the residential real estate brokerage scene, Surefield.com.  The Pacific Northwest, home to Zillow.com as well as Redfin.com, is known as an innovation hub in this industry.  Surefield is an online residential real estate brokerage, which plans on dramatically undercutting the traditional 6-5% real estate commission paid by sellers (usually divided 3 or 2.5% for the listing agent and 3 or 2.5% for buyer's agent), charging only 1.5% to sellers.

As quoted in the piece by Ben Miller, Contributing Editor of the PSBJ, David Eraker, Surefield CEO said:  "The U.S. real estate industry has been operating as a quasi-cartel for far too many years, just look at the high commission rates as proof of tacit collusion."   While commissions have been negotiable in theory, in practice, it has been challenging to find a good broker to vary greatly from the general price range and format.

Zillow primarily provides online property information rather than brokerage services, like Redfin, which allows property listings and has its own stable of agents to work on a seller's or buyer's behalf.  Redfin charges 1.5% for a listing (as opposed to the traditional 3 to 2.5%) and provides full service brokerage services accompanied by its online tools.  The commissions charged buyers are less than the traditional model, and based on the price of the property.  Redfin, like some other new firms in the space, pays its agents a salary rather than a share of the broker commission.

Other entrants into the tech brokerage market include UpNest.com, which allows residential real estate brokers to bid for a listing, competing by marketing proposal and commission rates.  There are also on line brokers like Shopprop.com, which have a set discounted listing fee, less than the traditional 2.5 to 3%, and a graduated buying commission based on the number of services provided and the price.  Seattle-based Findwell.com is another entrant into the growing online brokerage field.

What's the future of these and other online services, and how do you compare them to the traditional brokers?

In the past, one of the most important roles of the real estate agent was as gatekeeper to information about the market.  That is the most significant change.  Instead of asking your agent to locate and screen properties in the your price range and which otherwise meet your requirements, online tools now allow a buyer to view listings, filtered by price, bedrooms, location and amenities, often with interactive virtual home tours available.  The new portals, such as zillow.com, as well as sites from traditional brokerage firms, like windermere.com or johnlscott.com, have made the property search and identification process much more efficient.

Technology can also help foster competition and efficiency in selecting the agent who can assist you in the sale/purchase process.   One aspect of technology that I appreciate when I go out to dinner, stay in hotels or hire a contractor is the customer feedback/rating process.   Companies like Redfin and UpNest have internal ratings based on customer feedback.  I understand Redfin financially compensates agents who get great customer feedback.   I like that.  This screening function is helpful, but is not entirely new.   Brokers at good traditional agencies also screen agents working for them, a process I know takes place at Windermere and John L Scott.  Those that don't perform well aren't retained.  And as a real estate lawyer, I often get asked for and check with my colleagues about agent referrals.  It may be that with the right tools, quality will rise to the top even faster than in the past.

Is it good that there is a wider range of commissions offered?  Yes, unless you're on the receiving side of the equation.  There are times when a property will sell itself. In those situations, having the option of selling through a low cost brokerage with minimal agent involvement makes sense. More commonly, however, the process of properly pricing, staging and marketing/showing are as important as ever for a seller.  From the buyer's perspective, a skilled agent’s advice about the nuances of value, building issues, neighborhoods, negotiation and the buying process is also critical.   Working with smart, hard-working agents is as important as ever.   But from an agent's perspective, commissions are coming down.   The best agents will learn to use the technological tools to become more efficient, and will find platforms which cost less from which to deliver their services.  In residential real estate, as in most of the economy, the ground rules are rapidly changing, and for the most part, consumers benefit.   Here's to the future!

FloridaOcean Palm Golf Club Partnership v. City of Flagler Beach, 2014 WL 2217255 (Fla. App.) was an inverse condemnation act involving two tracts—one of 34 acres on which a 9-hole golf course existed and the other consisting of 2.94 acres completely surrounded by the first.  At one time, these tracts were in common ownership and used as a golf club with the smaller tract being used as a driving range.  The former owner threatened the City with a taking suit because the land use designations, in the owner’s view, were insufficient to provide a viable economic use.  To resolve the dispute, the owner entered into a Development Agreement with the city in 1989, whereby the golf course use would remain on the larger tract, which would be designated as open space, and the smaller tract would be used for condominium development for 84 units.  By its terms, the Development Agreement would remain in force until 2003.

In 1999, before any development applications were made, the original owner sold both tracts to different corporate entities in which there was the same principal.  The design of the condominium development uses were rejected on two occasions by the City.  That tract was then sold to different owners, but the purchasing entity contained many of the same principals as had an interest in the golf course property.  After the second proposal was denied in 2002 for the development of the condominium tract, the current Plaintiff, as purchaser, sought a further approval and an extension of the Development Agreement.  While the city approved the design of the proposal, it denied an extension.  The conditions placed on the design approval would not accommodate the applicant’s restaurant, pro shop and other amenities it was required to undertake according to the Development Agreement.  When the Development Agreement expired, the owners of the condo tract sought approval of yet another plan, which required the owner to purchase a 1-acre piece of land from the golf course site, which they were unable to do, so the plan lapsed.  The owners of the property originally designed for condominium development then sought to change the designation on both tracts to allow for a single-family development on both tracts to single-family residential.  The City denied the proposal and, on appeal, that decision was affirmed.

The owners of the condominium tract brought a takings claim, alleging no viable economic use of that tract could occur and that the City’s actions resulted in a partial or total taking.  At trial, Plaintiff introduced evidence to the effect that the golf course could not operate without the development of a condominium tract to support it, noting that the original golf course use never realized profit.  The golf course had closed in 2008 and the owners of that tract were unable to meet its mortgage payments so that tract was foreclosed upon and there was a $1.6 million mortgage outstanding.  As to the condominium property, there was testimony that it could not yield sufficient return that was economically feasible in the current condominium market.  The owners of that tract accused the City of rejecting its proposals as a way of “running out the clock” on the Development Agreement.

The expert testimony before the trial court focused on the economic viability of the tracts either together or separately.  Plaintiff addressed the two tracts separately due to the different ownership and uses.  Plaintiff’s expert testified that the economic viability of the golf course was untenable as it was too small to compete with nearby 18-hole golf courses, especially in such a small local market and valued the golf course tract at $170,000, assuming that the City would never re-designate that tract.  However, Plaintiff’s expert also said that if that tract were re-designated as low-density residential, it would be worth $8.125 million (as the resulting lots could be proximate to the ocean and near coastal waterway).  However, Defendant’s appraiser valued the golf course tract at $560,000 under current zoning regulations.  That appraiser admitted he had not considered whether it were economically feasible to rehabilitate and operate the now closed golf course and had no opinion as to what the difference in value would be if that tract were developed for single family use.  Defendant also presented evidence on the economic viability of the two tracts combined, notwithstanding objections to that evidence by Plaintiff.  That testimony concluded there was no appreciable difference between the two tracts as currently zoned and as zoned in the matter requested by Plaintiffs.  That appraiser also testified that a higher value would result if the owners of the two tracts would work cooperatively.  On cross-examination, the City’s expert testified the most likely development scenario was that the owners of the residential property would acquire the golf course and operate it as a loss but as an amenity to the residential use, adding that it made no economic sense for the golf course to sit idly otherwise.  That expert also testified that, given the costs already incurred, it was unlikely that the golf course would ever generate a profit.

In this non-jury trial, the judge found for the City and concluded that, whether the property was treated as a single or dual tracts, there was an economically beneficial use as a golf course, finding the losses for the last ten years were the result of the use of basis costs, which would be omitted in calculating economically beneficial use— thus, deducting interest and depreciation costs, there was a viable economic use of this tract.

Plaintiff contended the refusal to amend the plan in 2008 constituted a total taking of the golf course tract and that there was no competent substantial evidence to support a contrary conclusion because Defendant’s appraiser treated the two tracts as a single unit.  The Court turned first to the “relevant parcel,” i.e., to determine of the two tracts in this case should be treated as a single economic unit.  The Court used three factors to make that determination: physical contiguity, unity of ownership, and unity of use.  In addressing the unity of use issue, the Court considered

(1) intent of the owner, (2) the adaptability of the property, (3) the dependence between parcels, (4) the highest and best use of the property, (5) zoning, (6) the appearance of the land, (7) the actual use of the land, and (8) the possibility of tracts being combined in use of the reasonably near future.

(citing Town of Jupiter v. Alexander, 747 So. 2d 395, 400 (Fla. App. 1998)).

While the condominium and golf course tracts are two legally distinct lots and were both now undeveloped and unoccupied, there was a rebuttable presumption of separateness.  However, in this case, the unity of use rebutted that presumption, noting that the two tracts were one historically until 1989 when the Development Agreement first treated them as two tracts.  For development purposes, even after they were made separate, the two tracts were developed symbiotically.  The Court also noted that though the two tracts were in different ownership, principals in both had a substantial overlap.  Finally, there is a physical contiguity of the two tracts (the residential tract being within the golf course).  The presumption of separateness that thus has been rebutted and the Court upheld the analysis by Defendant’s appraiser which treated the tracts as one in concluded that Plaintiff was not deprived of all viable economic use.

The Court agreed that a regulatory taking could result from a public agency refusal to reclassify property, particularly in the light of changed conditions, but noted that the character of the area surrounding these uses has not changed.  All that changed was the real property market for golf courses.  There is no requirement that a public agency guaranty a profit for a landowner faced with a changing market.

Nor did the Appellate Court find grounds for a partial takings claim in the application of the three-factor test of Penn Central Transportation Co. v. New York City, 438 U.S. 104 (1978).  Plaintiff admits it did not meet the investment-backed expectations factor as it had purchased the tract with knowledge of its land use designation, but argued that the other two Penn Central factors weighed in favor of a partial taking.  The Court disagreed, for while the third factor, the character of the governmental action, favored Plaintiff because the burden of the regulation fell disproportionately on Plaintiff, the first factor, the economic impact of the regulation, was not met because, as the Defendant’s appraiser concluded, the two tracts, taken together, retained an economically beneficial use.  Thus, the Trial Court dismissal of the inverse condemnation claim is affirmed.

This case illustrates the point that a Court will not find a regulatory taking by focusing on a single tract if that parcel is really part of a larger parcel and no regulatory taking exists against the parcel as a whole.

Ocean Palm Golf Club Partnership v. City of Flagler Beach, 2014 WL 2217255 (Fla. App.)

 

Wireless TowerOn October 21, 2014, the Federal Communications Commission (the “FCC”) issued new rules addressing modifications of “wireless facilities.”  The new rules have not yet been published in the Federal Register and will not become effective until 90 days after they are published, so there is some time before they take effect, but wireless providers, neighborhood activists and local governments should be aware of the impact of the new rules.

The entire order is over 150 pages long (although the rules themselves only extend for 10 pages) and is intended to implement a 2012 Federal statute that required the following:

“A state or local government may not deny, and shall approve, any eligible facilities request for a modification of an existing wireless tower or base station that does not substantially change the physical dimensions of such tower or base station.”

The statute provided little further guidance, leaving that to the FCC, which has now set out how local governments must address modifications to existing wireless facilities.

There are several pieces to the rules, but generally, local governments must approve collocation, replacement or removal of wireless facilities, so long as the request does not propose a “substantial change to the physical dimension” of the facility.  For cell towers, “substantial change” is defined to exclude modifications that increase the height by less than 20 feet or 10% of the existing tower height.  For “support structures,” substantial change does not include installation of the “standard number of new equipment cabinets for the technology involved” or, if there are preexisting cabinets, cabinets that are less than 10% larger in height or volume than any other ground cabinet.

The new rules also address the review process and put in place a new “shot-clock” rule, limit local governments ability to request documentation and specifically prohibits a local government from requiring any documentation regarding the business need for the modification.

There is a chance that reconsideration of the rules will be sought or that the rules could be appealed.  But unless that happens, all involved in siting wireless facilities should begin thinking about implementing the new rules.

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