Developers are tracking down buyers who want to flip units before closing.
They scour the Multiple Listing Service, classified ads, and Web sites for units listed for their properties. When they find them, the developers are sending cease and desist orders to the would-be flippers and their brokers.
“The Trump Dezer Development group at the Trump Grande and the Related Group at the Icon have been especially active sending out cease and desist notices,” said Kevin Tomlinson, a real estate broker at Esslinger Wooten Maxwell in Miami Beach.
He said he doesn’t condone the tactics, but sees it as a natural reaction to the market.
“Flippers are violating a major provision of their contracts by trying to flip before closing,” Tomlinson said, “and they risk forfeiting their deposits as a result.”
A sampling of developer contracts makes it clear that flipping is prohibited.
Tomlinson will not take a listing from a flipper prior to closing, as it could trigger a buyer default and a possible forfeiture of buyer deposits.
Even a listing broker could be held liable for damages via a lawsuit from both the developer and the flipper.
“It could be argued that it is tortious interference with a contract by the listing broker, but the developer would have to prove damages,” said Richard Zelman, partner in the Miami law firm of Sacher, Zelman, Van Sant, Paul, Beiley, Hartman, Rolnick & Greif.
Developers have two reasons for their anti-flipping provisions, he added: “Firstly, they must comply with their own lender’s restrictions on not selling to speculators. And more importantly, to lessen the competition to their own continued sales.”
A tighter market may be spawning the tougher developer attitude.
“Developers have had anti-flipping provisions in their contracts for the last three years that prohibit assignments without the seller’s prior permission – and they can charge an assignment or transfer fee if they do agree to an assignment,” Tomlinson said.
Selling the unit twice
Some developers have set up their own sales organizations to process pre-closing flips, which only they can approve – for a commission.
Assignment fees, transfer fees and flipping commissions may be the key to developers’ anti-flipping mania. They just want another bite.
Venturing boldly into the fray is Miami Beach broker Mark Zilbert, who has announced the launch of www.condoflip.com, a Web site for buyers and sellers of flipped condos.
Zilbert plans to claim a commission if sales result from the Web site’s free listings.
Like many of its predecessor dot-coms, Condo Flip is currently more concept than full-blown reality. There are no properties listed for sale and a notice says “its database is being loaded” and should be operational by October.
“We didn’t want to start with just five listings,” Zilbert said. “I am talking to developers about using the idea of Condo Flip for both their resales and their new product. If we don’t change the old rules, there could be a condo market collapse in 2007-2008. I expect to have a news release soon that will list a number of major developers who will embrace Condo Flip.”
Meanwhile the tsunami of condo flipping continues.