Friday, September 25, 2020

Evaporating Inventory

 

Middle of September 2020 and there are 137 existing condo and townhouse units for sale in Cocoa Beach and Cape Canaveral as reported by the Cocoa Beach MLS. There are another ten unbuilt units available, with just six units left for reservation at the soon-to-be-built, luxury oceanfront building downtown, The Surf of Cocoa Beach. The remaining unreserved units there range from $875,000 to $1,450,000.

The existing units for sale range from a $3,297,000 mack-daddy penthouse at Villa Verde on the river in south Cocoa Beach to a couple of efficiency units in Cape Canaveral asking under $100,000 with a median of $339,000. Buyers looking for a unit with at least two bedrooms and two baths in an oceanfront complex have 67 to consider with prices beginning at $230,000.

Activity so far in September is typical for this time of year with 57 units getting a contract so far in the month, three of those at The Surf at prices above one million dollars. Thirty nine previously-contracted units have closed so far this month. Notable sales included a modestly remodeled 6th floor NE corner 3/2 with wrap balcony at Royale Towers in Cocoa Beach that closed for $590,000 or $352 per square foot. Furniture may have been included but the Space Coast MLS does not require that included furniture be noted in a closed listing. A glaring omission, easy corrected but apparently not worth the effort.

Another notable sale was a mildly updated & furnished 5th floor, south facing unit at Canaveral Towers that sold for $385,500 or $336/sf. That's a rich price for a unit without a garage that isn't east facing but Canaveral Towers allows weekly rentals which means income potential is much higher than a non-vacation rental unit. Two other oceanfront units broke the $300/sf barrier, both east-facing with garages, one at Stonewood and the other at Windjammer.

Single-family home inventory has been cut in half since the start of the year with only 25 existing homes offered for sale in our two cities. Another 10 are offered as pre-construction reservations in a proposed development in south Cocoa Beach at prices around $1,000,000. Considering that 22 homes have closed since September 1, the current inventory isn't enough to last to Halloween. Buyers must be aggressive if they hope to purchase a fairly priced home with the current imbalance between demand and supply.

The tropical weather map at the top was from eleven days ago. We expected things to really heat up from that frightening time but today there isn't a single system or area of interest in the Atlantic region. Fingers crossed that we can cruise through the next four or five weeks without a significant storm. November always brings welcome relief  from the constant apprehension of peak hurricane season.

"When you're accustomed to privilege, equality feels like oppression." __unknown

Saturday, September 19, 2020

Sue the Association for Water Damage?



[This post originally appeared four years ago but I was reminded of it this week when a water leak issue surfaced in another condo building. The issues remain relevant.]

I woke up in the middle of the night to the sound of a huge crashing noise that sounded like it came from my bathroom. I grabbed the nearest weapon (a formidable broken post-hole digger handle) and tiptoed into the bathroom ready for imminent batting practice. I was relieved to find not an intruder but the entire ceiling above my bathtub resting peacefully and soggily in my tub in a pool of dirty water. Turns out the upstairs neighbor had forgotten to turn the water off when filling her tub and it had overflowed and leaked through the floor and walls onto my ceiling which eventually collapsed from the weight. It got way more interesting after the initial incident.

Who is responsible for damages in this sort of incident in a multi-story condo building; the offending unit owner, the damaged unit's owner or the association? I got lucky and my neighbor made the repairs to my unit at her expense without my even asking. Had she not, I would have had to make a claim on my unit insurance as the other owner's insurance does not cover my unit. Surprisingly, neither does the association's policy.  Unknown to me at the time, my insurance company would probably have paid me and then gone after my neighbor and her insurance company and possibly the association for recovery of the money they paid me.

A similar incident happened in a unit I manage when the washer failed and leaked into the downstairs kitchen causing damage. Like my upstairs neighbor I paid to have the electrical and sheetrock damage repaired. Unknown to me, that unit owner filed a claim with their insurance company for inflated damages and collected a check for far more than the actual damages including the items that I had already taken care of and paid for. Several months later, the owner of the unit I managed received notice of a suit for damages from him by the downstairs unit owner's insurance company.

I was reminded of this last week when a lender's search of court records for a condo purchase in Cocoa Beach turned up a lawsuit against the association by a unit owner's insurance company in a similar water leak incident from one unit into another. I understand that it makes sense in a lawsuit to name as many parties as possible to increase odds of eventually settling with someone. Being named in a lawsuit even where no liability exists can be more than just a hassle for a  condo association as we found out. An unsettled lawsuit against an association will stop the mortgage process faster than a Stop Stick in the path of a speeding 69 Camaro.

In our case, the underwriter refused to sign off on the file that was otherwise approved because of unknown liability to the association, Florida law be damned. Florida Statutes appear to actually prevent an association from insuring the interior of units. For your reading enjoyment as applies to the association's insurance coverage requirements from the Statute (below); Make your own interpretations and decisions.

718.113(2). 3. The coverage must exclude all personal property within the unit or limited common elements, and floor, wall, and ceiling coverings, electrical fixtures, appliances, water heaters, water filters, built-in cabinets and countertops, and window treatments, including curtains, drapes, blinds, hardware, and similar window treatment components, or replacements of any of the foregoing which are located within the boundaries of the unit and serve only such unit. Such property and any insurance thereupon is the responsibility of the unit owner.

Hopefully we will overcome the underwriter's objections and close. Takeaway: A specific person/entity's liability may matter less than the implications of a lawsuit initiated by an owner or her insurance carrier in the absence of an equitable settlement between involved unit owners. In my original experience, no insurance company was involved, remedy costs were minimal and no other owners were affected. In my second experience and in last week's incident, all unit owners were affected by the route taken by the affected owners. Sales involving a mortgage in a complex with an unsettled lawsuit against the association even if frivolously filed as in this case may be put on hold until the suit is settled and recorded.

It may not seem fair but if you're involved in a water leak incident in a condo building you may want to weigh the costs/benefits of settling without insurance company involvement against the unintended effects of an insurance company lawsuit's scattergun approach. The damages to you or one of your neighbors from a lost or delayed sale could be far more than the cost to repair the water damage.

"There are downsides to everything; there are unintended consequences to everything."  __________Steve Jobs

Friday, August 21, 2020

Squalls Out on the Gulf Stream

It is interesting that the Miami condo market is experiencing an over-supply problem at the same time that Cocoa Beach languishes with record low inventory. While downtown Miami has a 30 month supply of units, Cocoa Beach currently has about a two month supply. Conditions that allowed Miami to overbuild do not exist in Cocoa Beach. First of all our restrictive height limit means even a four story building like the new Surf condo building downtown needs to win a variance before building. Add strict density limits and the likelihood of an oversupply in Cocoa Beach becomes a near impossibility, at least from the addition of new units to the market. Absent some macro event that would have hundreds of existing condo owners putting their units on the market simultaneously I think it's safe to assume that our condo market will always suffer from short supply. Conduct your search and negotiations accordingly.

As of this morning there are a total of 151 condo and townhome units for sale in Cocoa Beach and Cape Canaveral as reported by the Cocoa Beach MLS. Fifty four units have gone under contract since August 1 meaning the current supply will be exhausted in 59 days if that sales rate continues. About a third of those were asking $400,000 or more and a third were asking $200,000 or less. That sales rate is appreciably higher than in recent months. 

Seven direct ocean units have closed so far this month. The majority closed at prices that were in the mid to high $200s per square foot. Units that allow short term rentals continue to command a significant premium with one nicely remodeled upper floor, corner unit at Canaveral Towers bringing over $400 per foot despite having no garage. Looking through the current inventory I can find 29 that are asking over $300 per square foot, all but a handful in serious lala-land with their expectations. About a quarter of the current inventory has been listed for over six months, a sure sign of overpricing in this tight market. Consider that almost half the units closed so far this month were on the market less than 30 days.

The tropics are heating up and we expect to have two storms in the Gulf of Mexico at the same time next week. Cocoa Beach looks to be spared this time from these minimal storms but the season is young. If you're new to the area, now is the time to have your plan in place for protecting your property should a strong storm threaten us and have contingency plans if evacuation becomes necessary. 

Agents who have a closing next week need to get their buyers' insurance binder today as by Monday we will have a named storm inside the "box" and the insurance companies will not bind new policies while a named storm is in the box. You're welcome.


"He's the one/Who likes all our pretty songs/And he likes to sing along/And he likes to shoot his gun/But he knows not what it means." __Kurt Cobain

Wednesday, August 12, 2020

The Inspector Said...

This is beginning to feel like my encore song. Just a few posts back I had this to say:

A buyer who makes an offer already intending to renegotiate the price after inspections has a very tall first hurdle. It's not unreasonable to renegotiate if a hidden defect is found but planning to renegotiate later for obvious defects is not a good strategy. It's a rare seller that's going to consider a price concession for something that was plainly visible or disclosed before the offer. The offer price should reflect all visible defects. Hidden defects like a leaking swimming pool or failed AC system justify asking for concessions after their discovery. Speaking of AC systems, unless the exterior AC unit is brand new it's going to be rusted and showing signs of age. This is the beach and everything is rusty. Exterior AC compressor units typically last from five to ten years on the beach depending on where the unit is installed (ground or roof) so asking for a price concession for a functioning unit showing wear is not reasonable.

Renegotiating a contract after inspections is a common occurrence with a wide spectrum of outcomes, cancellation of the contract among them. A buyer should expect a reasonable seller to make concessions for hidden defects found during inspections. As noted above, being the beach with a salty environment, AC units are at the top of the list for trouble items found during inspections. Most condo buildings of more than two stories will have AC compressor units installed on the roof. The condition of this unit can't be known during a typical condo showing unless the seller disclosed its condition. Inspections can often reveal a unit that is barely holding together after years in the salt air and is poised to fail. Renegotiating the contract price or asking for a credit from the seller is reasonable in this situation. Asking a seller to replace a functioning unit in apparent good condition that is showing some rust or signs of age is usually not. Inspectors will often note a unit as "nearing the end of its useful life" or "consider replacement" or other language that can spook a buyer who hasn't seen an inspection report before. I have never seen a report that didn't mention "further evaluation" at least once about something. I have seen buyers walk away from a contract on a property that perfectly met their expectations and at a fair price because they wanted unrealistic concessions related to inspection report language. It is unrealistic to expect brand new anything in a used property unless the seller advertised something as brand new or unless the existing appliance or system is not functioning as designed or is obviously one breath away from failure. Used properties have used systems and appliances and a buyer's initial offer should take that fact into consideration. Offering high intending to whittle down the contract price post inspection is a recipe for disappointment. Buyers would be well-advised to expect inspection reports on used properties to reveal issues related to the age of the property and to keep that in mind during initial negotiations. They should also keep in mind their alternative targets, if any, should they decide to cancel. Low inventory does not favor buyers.

There are 146 existing MLS-listed condo and townhome units for sale this morning in Cocoa Beach and Cape Canaveral. There are another 13 offered as pre-construction reservations most of them in the new oceanfront Surf in downtown Cocoa Beach. Twenty seven units in CB and CC have accepted contracts since Aug 1 with a median price of about $300,000.

Single family home inventory is in similar depleted condition with but 42 existing homes offered for sale in our two cities. Both these inventory numbers, condos and homes, are at all-time lows and showing no signs of recovery. There will never be a large number of new units added to our inventory in Cocoa Beach as there is no vacant land upon which to build. Like the new Surf building downtown, for any new buildings to be built, with very few exceptions, something old has to be torn down. Cocoa Beach, at about 70% water, has a higher water percentage than the average human body. The remaining 30% has been almost entirely developed. 

Buyers need to keep this low inventory in mind when looking and offering. The more stringent one's must-have list the more crucial it becomes to shoot for success when offering. This is not the time to offer low and work up to fair. If the perfect property becomes available now is the time to be aggressive. Considering the pace of new listings, it could be a long time for another acceptable listing to appear and by that time, prices are likely to have increased. If you hope to buy a property in this market at this point in history, be bold and quick with your offers or be prepared to never buy. I don't like it either but, as I heard a high-ranking figure recently say, it is what it is. Know that if you do have to overpay for your perfect beach getaway, the tight inventory and vigorous demand will likely push the value up to your purchase price and beyond in short order. 

"The very powerful and the very stupid have one thing in common. They don't alter their views to fit the facts. They alter the facts to fit their views." __the Doctor, Doctor Who 


Sunday, July 26, 2020

Doldrums

Fatty tuna for those so inclined. Yes, it was as good as it looked.

There are but 152 existing condo and townhome units listed for sale in Cocoa Beach and Cape Canaveral this morning as reported by the Cocoa Beach MLS. We began the month with a similar inventory and 52 of those sellers have accepted a contract since July 1. So far in July 2020 a total of 58 condo units have closed, 17 of them at prices over $400,000. Seven direct ocean units sold for over $300 per square foot, all of them above the ground floor and most remodeled with garages. The majority of direct ocean units of average size in good condition are closing at prices in the upper $200s per square foot. 

Thirteen single family homes have closed in our two cities so far in July, most at prices between $300,000 and $400,000. One large, open water beauty in Cocoa Beach closed for $1.29 MM. There are only 41 single family homes for sale in Cocoa Beach and Cape Canaveral today. With sales exceeding new listings and barring a surge of new inventory the already-depleted inventory will continue to shrink. Showing activity remains strong despite virus concerns. I imagine there will be some impact on our second home market as fallout from job losses and business closings spreads but, so far, the real estate market locally doesn't seem to have been affected.

With a total of 127 confirmed Covid cases, little Cocoa Beach continues to lead all beachside communities in Brevard County, most of them more populous, with number of cases. Cape Canaveral was reporting 69 cases as of yesterday's report. Y'all stay safe and hydrated. The high temperatures have been somewhat masked by the tropical southeasterly flow the last couple of weeks but when that ends look out. Sea turtle activity continues at a brisk pace in south Cocoa Beach with new nests and hatches of existing nests almost every night. It's been a good year for the turtles in Cocoa Beach.

"Concentrated risk is not compensated in the long-run." __unknown

Monday, July 20, 2020

You think everyone is stupid but you???

It's been a while since I had any crazy agent stories worth sharing but the drought ended this week with a doozy of an interaction with an Orlando agent. A client asked me to check out a Cocoa Beach condo that was listed for sale on Zillow but not the local MLS. The unit had an Orlando brokerage and agent displayed as the listing contact. This is not uncommon as our MLS is not part of the Orlando MLS and agents there have to join our MLS if they want to add a listing here. Some of them risk listing on Zillow for free without the MLS to save the membership fees. I contacted the agent through his real estate broker's website identifying myself and my brokerage and this was the exchange with the condo name omitted:

Me: Sir, I'm trying to find out about showing your listing in Cocoa Beach. At least, it appears to be yours. Your name was posted as the listing agent on Zillow.

AgentBest to Text and I will let you know when it is available.  What day is your client available?

MeThey are not in Cocoa Beach and will want me to preview without them. My office is a few blocks away so I am flexible on when. Let me confirm with them that they are interested enough for me to check it out. I'll let you know. Thanks.

AgentI wished there was some honesty in this business.  You lie to me about having a buyer.  It is realtors/brokers like you that make this a difficult mean business that wastes a lot of time.  You are the type of person that gives real estate agents a bad name!!!

It got worse after I pointed out that I contacted him specifically because my client had asked me to but he was committed to being angry and there was no turning back. He went on to accuse me of trying to insert myself into the middle of a deal, called me greedy and asked if I thought everyone but myself was stupid. He finished up with "The only time I want to hear from another Realtor is when they have a buyer!!!!!!!!" Turns out after all this that he is the owner of the unit and has been solicited for the listing by Cocoa Beach agents in the past which, I'm guessing, was his reason for unloading on me. He did not apologize when he eventually realized that he had jumped to the wrong conclusion. It's hard not to take something like this personally and I'm left wondering if I could have worded my inquiry in a manner that wouldn't have triggered such a response but I have to assume that there were other issues going on with him and I happened to pass through the crosshairs at the wrong moment. He did not allow me to see the unit because he thought my initial inquiry was an agent trick trying to get the listing by making up a phantom buyer. If I'm to see the unit for my client, it appears I'm going to have to be willing to endure more abuse in the attempt to convince him that the client is indeed real. No donut for me on this one. I've heard real estate sales described as an easy job. At times that is accurate. Other times...

The huge leatherback sea turtle nest behind my house hatched last week along with several other loggerhead and green turtle nests nearby. According to the turtle people who monitor nesting activity, there are over 300 turtle nests so far in a two mile stretch in south Cocoa Beach. With an average of a little over 100 hatchlings per nest we're talking about over 30,000 baby turtles beginning their lives this year in south Cocoa Beach alone.

As of yesterday's report, Cocoa Beach has the highest number of confirmed virus cases of any beachside community in our county with 117 cases. Cape Canaveral has 53. Indoor mask use is now mandated in Cocoa Beach and appears to be accepted by the majority of people based on casual observation. The Country Club golf course has reopened with distancing and masks required in the pro shop.

On a related note, three weeks after opening their borders to foreign visitors the Bahamas are closing again to American visitors after an outbreak of Covid following the reopen. I'm hearing that the Bahamas strict mask mandate is not being enforced in businesses on the outer islands in Abaco where tourist dollars are desperately needed after last year's devastation from Hurricane Dorian and the earlier border closure this year. This is an especially crippling development for the special place that is Abaco and the people who call it home as we approach the active months of hurricane season in 2020.

"What we've got here is failure to communicate. Some men, you just can't reach. So you get what we had here last week -- which is the way he wants it. Well, he gets it. And I don't like it anymore than you men." __"Captain" - Cool Hand Luke

Saturday, July 11, 2020

Uncertain Times

I think the huge corn snake that ate a rat on my porch has reproduced. Found this little guy in the yard and while he's not orange like the other one, the pattern looks the same. All rats visiting the neighborhood are hereby on notice. We have a zero tolerance policy and enforcement patrols are to be assumed nearby at all times.

Even as coronavirus cases explode in Florida, real estate activity remains brisk. A total of 72 condo and townhome units closed in Cocoa Beach and Cape Canaveral in the month of June, almost exactly the number of new cases diagnosed in Cocoa Beach during the month. We stand at 100 cases in Cocoa Beach this morning and another 46 in Cape Canaveral. There were 10 and 2 respectively when I wrote my June 3 post.

Exactly half of the 72 June condo sales were cash deals and half sold in less than 43 days on the market with 20 of them selling in 10 days or less. Median price was $250,000 with only four sales over $500,000. That pace of sales has continued into July with 25 units going under contract since July 1, with sales concentrated in the $150,000 to $400,000 range. Inventory has been stuck at 156 units since late last month. It's easy to see that with 72 units selling in a month and 156 for sale we're going to be out of inventory quickly without a fresh infusion of new listings. As it stands now a large part of existing inventory is the priced-too-high-to-sell listings. They are the last few peanuts left in the bottom of the bowl of mixed nuts at the end of the party. If we add some cashews they'll be gone immediately. If you're looking for a cashew of a condo you better have an agent who knows this market and can react quickly when the cashew hits the bowl.

Prices for oceanfront condo units are higher across the board than I can remember seeing them. Of the nine sold east facing units above the ground floor with garages the average selling price per square foot was $317. Three exceptional side view units commanded over $280 per foot, one Sandcastles weekly rental north side unit going for $337 a foot. This is a result of more demand than supply.

Single family home sales have been strong also with 16 homes closing in June in our two cities, median price $525,000. Seven of the 16 were cash deals and half were on the market for 36 days or less. Inventory of single family homes this morning stands at 40, less than three month's supply. Three quarters have been on the market longer than a month with four over a year. We know what that likely means; overpriced.

Reluctance to travel has made property shopping difficult for out of town buyers. Typically with clients that trust me, if I find and look at a property that checks all the boxes, we could hammer out a deal with a long enough inspection period for the buyer to get here to personally inspect the property. With reduced flights and the exposures of air travel that strategy is not working except for those close enough to drive or those willing to fly during a pandemic.

Cocoa Beach has finally mandated mask wearing indoors or in situations where distancing is not possible. They waited until after the holiday weekend (July 8) and after several restaurants and City facilities had to be closed because of coronavirus cases. Even with the reality of spreading cases two of our Commissioners voted against the mask mandate. The virus is here and it's spreading rapidly through our town. Please be aware and considerate to those of us who might not survive should we contract it. Masks, y'all.

"You can't reason someone out of a position they didn't reason themselves into." __unknown

Friday, July 03, 2020

Deal Killers

I have compared closing a real estate deal to completing a 100 meter hurdle while carrying a tray of full martini glasses without spilling anything. Those hurdles represent all the possible deal killers that exist between the contract acceptance (starting line) and the closing table (finish line). It's difficult enough knowing that the hurdles are there. Not anticipating those hurdles makes successfully clearing them much more difficult. Regardless the hurdles, a transaction that begins with unreasonable expectations from any of the principals is usually doomed from the start.

Unreasonable expectations: This is a big one. A buyer who makes an offer already intending to renegotiate the price after inspections has a very tall first hurdle. It's not unreasonable to renegotiate if a hidden defect is found but planning to renegotiate later for obvious defects is not a good strategy. It's a rare seller that's going to consider a price concession for something that was plainly visible or disclosed before the offer. The offer price should reflect all visible defects. Hidden defects like a leaking swimming pool or failed AC system justify asking for concessions after their discovery. Speaking of AC systems, unless the exterior AC unit is brand new it's going to be rusted and showing signs of age. This is the beach and everything is rusty. Exterior AC compressor units typically last from five to ten years on the beach depending on where the unit is installed (ground or roof) so asking for a price concession for a functioning unit showing wear is not reasonable.

Appraisals: This one is legitimate. With so many properties overpriced to begin with, the incidence of low appraisals is fairly high. Buyers who have struggled finding a suitable property might offer more than the comps tell them the property is worth hoping that the appraisal will save them from overpaying. Problem here is sellers tend to become married to their contract price even when advised that it is optimistic. Asking the seller to renegotiate the price after the appraisal comes in low is justified and is often resolved if the parties are reasonable. It doesn't always require a seller to match the appraisal. A buyer may be satisfied with some price concession as a show of good faith and make up the difference out of their pocket, especially if there isn't a suitable alternate property available at the moment.

Condo Association: This is one that tends to drop out of the sky unexpectedly. The buyer is approved by the lender, the inspection went well and the appraisal matched the contract price. Then the underwriter rejects the loan because the association only has a line item of 5% of budget for reserves. Or it is discovered that there is some unresolved litigation involving the association, or one owner owns multiple units or too many owners are delinquent on their monthly dues. This is one reason that cash buyers are more attractive than mortgage buyers. Disqualifying criteria may be fewer for a high down payment loan. Requirements are different for primary residence than for second home or investment property purchases. It is a good idea for condo sellers to get their hands on a condo review questionnaire and know how their association will answer the questions before being blindsided several weeks into a deal.

I suggest that anyone in an association without a line item in the budget of at least 10% going to reserves needs to consider that that fact eliminates a lot of potential buyers from buying any unit in the complex. Changing the budget after a mortgage has been denied will probably be impossible but alerting the other owners to this issue at the next meeting might encourage them to vote to change the budget to compliance before they are the ones affected. If one entity or person already owns more than 10% of the units in the complex it may not matter. In that situation, a full review mortgage will likely not be possible even if the other requirements are met.

Cocoa Beach and Cape Canaveral property inventory is at an unprecedented low level. There are just 156 existing units and a mere 31 single family homes for sale this morning on the MLS. Consider that we closed 17 homes and 77 condo units in June. That pencils out to about a two month supply of both homes and condos. Slim pickings.

Coronavirus has arrived with a vengeance in Cocoa Beach. In the three weeks since my last post we have increased from 15 to 105 confirmed cases in our two cities. Several restaurants and the Cocoa Beach Country Club are shut down due to positive test results among employees. We are headed into the July 4th weekend with no additional restrictions other than limiting beach groups to 10 people and distancing between groups to 10 feet. It's disappointing that the City didn't take a more careful approach knowing that our little town would be packed this weekend with visitors from inland areas with high prevalence of virus. I understand the political ramifications of trying to limit parking and crowds. The decisions that matter the most are always the hardest to make.

At the time of that last post on June 13 Florida's 3 day moving average of daily new cases was 1657 having tripled in the previous two weeks. It has more than quadrupled since then and is at 7588 average new cases daily after yesterday's record 10,109 new cases. Y'all might want to reconsider wearing masks as a tool to reduce the spread even if you think it's a unfair imposition. They work to reduce the spread and we desperately need that right now. It's but one slice of Swiss cheese in our protection strategy. To the businesses in Cocoa Beach who have maskless employees. What y'all thinking? It's sending a bad message.

"In risk management it’s called the swiss cheese model. Stripped down, it means many layers of overlapping imperfect security can add up to an effective solution." __unknown