The contract was signed, the mortgage was approved and the buyer was set to close on the $299,000 home in Royal Palm Beach.
Then the buyer, on the cusp of becoming a first-time homeowner, learned how much insurance would cost: $4,700 a year. The big premium pushed his monthly payment past the lender's comfort level, and approval for the loan was yanked.
The scotched sale is a scenario that's becoming all too common amid Florida's housing hangover, say real estate brokers and affordable-housing experts. Even as some sellers have lowered their asking prices, skyrocketing insurance premiums and property taxes have killed deals and sent buyers to the sidelines.
The owner of the Royal Palm Beach house struggled to find a buyer who could stomach the insurance premium and property taxes that accompany what would seem to be an affordable home in Palm Beach County's pricey real estate market. He eventually sold the home to a relative for far below the list price, said Douglas Rill, owner of Century 21 America's Choice Realty in West Palm Beach, which listed the house.
Rill calls taxes and insurance, once little more than an afterthought for home buyers, "a double whack on the head" — and countless homeowners are feeling the pain.
"It's squeezing buyers," Rill said. "At least it's not a triple whack. Insurance and taxes are going up, but prices are softening."
Those softer prices finally came to roost last week, when the Florida Association of Realtors said August prices in once-sizzling Palm Beach County and the Treasure Coast had fallen 6 percent from a year earlier. Realtors now hope that area home sellers finally are facing reality after months of denial that plummeting sales and ballooning inventories foretold a weaker market.
But is it too little, too late?
From all directions
After two years of destructive hurricanes, insurers have been sometimes doubling or even tripling premiums. Meanwhile, soaring property values are catching up with home buyers, whose tax bills are based on higher prices.
Just hit with an unexpected $5,000-a-year increase in the tax bill on his Royal Palm Beach home, high school teacher Jim Cox is scrounging for after-school and weekend teaching assignments.
"It was a shock," Cox said of the increase that kicked in the year after he bought his house. "You've got to work extra hours just to pay the taxes."
Tax hikes, at least, are an expense homeowners can plan for. If you buy a home this year, its taxable value will adjust next year to something closer to what you paid for it. But how much the insurance bill will rise is anyone's guess.
After her homeowners insurance premium more than doubled to $5,050 a year, Teresa Badillo of suburban Boca Raton plans to cut the modest donations she gives to charities. The costs of caring for her autistic son leave little room in her budget for unexpected increases.
"I have enough expenses," Badillo said. "Anything added to our budget just kills us."
Jo Nagorka of Tequesta got an even bigger shock from her insurer. Her bill soared to $8,595 a year, and Nagorka is looking for a part-time job. The mother of a 10-year-old boy, she's feeling the squeeze on both ends: As her ownership costs rise, her income as a part-time real estate agent has fallen, thanks to a housing market she calls "dead as a doornail."
Now, Nagorka is counting the years until her husband, a teacher, retires so they can move to a cheaper part of the country.
"We'll definitely leave Florida when he retires," Nagorka said.
Arthur France of Palm Beach Gardens wants out, too, after his insurance bill tripled to $6,034.
"I would like to sell my home and leave the area, but the high cost of insurance, not to mention taxes, will make my home very difficult to sell," France said.
In another eye-popping increase, Joan Rosenberg of suburban Boca Raton received her renewal notice from State Farm last week. Last year's premium: $7,500. This year's price: $23,500.
"It's utterly absurd," Rosenberg says. "I understand it has to be more, but who can afford that?"
Rosenberg already has a multiline discount with State Farm. To cut the bill, she plans to raise her deductibles, making her yet another Florida homeowner who's forking over more cash for less coverage.
As these homeowners can attest, the Sunshine State has lost its luster as a low-cost state where homeownership was easy even for those of modest means. But selling isn't as easy as it was a year ago. Today, the number of homes on the market continues to swell and sellers can wait months to sell a house that once would have sold in weeks.
Insurance and taxes are hitting moderate-income buyers especially hard. Charlotte Castle works at Wal-Mart's distribution center in Fort Pierce and was able to afford a home only with the help of a $75,000 loan from the city of Port St. Lucie through Florida's State Housing Initiatives Partnership.
Castle paid $210,000 for a house in Port St. Lucie, and she said taxes and insurance account for nearly half of her $1,300 monthly payment.
"It's a struggle," Castle said. "For first-time buyers, it's almost overwhelming."
Castle said many of her co-workers are leaving Florida for cheaper areas. Real estate agents see an exodus of homeowners to states such as Georgia, North Carolina and Tennessee, which offer lower home prices, affordable insurance and cheaper property taxes.
Charles and Anna Blankenship made the move last year, selling their Wellington home for $375,000 and buying a larger house near Charlotte, N.C., for $260,000. The threat of hurricanes, the equity in the home they owned for three years and a strong job market in Charlotte made the decision an easy one, Anna Blankenship said.
"Homeowners insurance was outrageous. Car insurance was outrageous," she said. "The price of houses here was unbelievable compared to Palm Beach County. We ended up getting a lot more house for less money."
Many Florida homeowners with houses on the market hope to follow the Blankenships out of the state, said Roberta Stobin, an agent at Exit Realty Premier Properties in suburban Lake Worth. But with sales slumping, those sellers are finding it difficult to cash out their real estate gains.
Stobin sees no end to the affordability crunch that began with soaring home prices. Now that prices have flattened, insurance and taxes are conspiring to price out buyers, Stobin said.
"People can afford the house. They can't afford the insurance and taxes," Stobin said.
The good old days
Today's dark mood is a stark contrast from the real estate euphoria of a year ago.
In 2005, Florida homeowners could scarcely believe their good fortune. A historic real estate boom sent prices soaring and turned countless teachers, bartenders and handymen into overnight real estate speculators.
From May 2004 to May 2005, the median price of an existing single-family home in Palm Beach County rose by $100,700. That means the typical homeowner added nearly $2,000 a week to his net worth for doing nothing more than paying the mortgage.
After the party ended — last call was in November, when home prices peaked — came the hangover. Sales slowed, prices flat-lined and the focus shifted to the twin budget busters of insurance premiums and property taxes.
In August, sales of single-family homes plunged 50 percent in Palm Beach County and 48 percent in the Treasure Coast compared with the same period last year, according to the Florida Association of Realtors. Real estate experts say insurance premiums and tax bills are a big reason for the decline.
"It's absolutely decimating people," said Mike Dooley, president of the Florida Association of Realtors and a broker in Hobe Sound.
The double whammy of insurance and taxes leaves buyers with little choice but to rein in their expectations.
"The buyers are coming in and lowering their sights," Dooley said. "Someone who was looking for a $1 million home now might be looking for a $700,000 home."
Dooley recently saw a buyer walk away from a $6,000 deposit on a $1 million home after he learned just how much insurance would cost.
It's even harder on first-time buyers. Paula Ryan, head of West Palm Beach's Department of Economic and Community Development, worries that programs to help moderate-income buyers afford homes might only be setting up buyers for foreclosure once the insurance and tax bills arrive.
Bob Graeve, an agent at Illustrated Properties Real Estate in Palm Beach Gardens, points to one of his clients, a first-time buyer paying $189,000 for a home.
The only way the buyer can afford the taxes and insurance is by taking out a risky type of adjustable-rate mortgage — one on which the payment could spike next year.
"That's a dangerous option," Graeve said.
No matter how much buyers earn, skyrocketing insurance bills easily can outpace their ability to pay. North Palm Beach insurance agent John Farr says he's telling anyone who will listen to get an insurance quote before signing a contract on a home.
"Be very careful about signing a contract with earnest money before you shop around for insurance," Farr said. "That can come as a terrible shock."