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

Saturday, June 13, 2020

Eight Weeks To Zero

The pre-dawn SpaceX launch this morning was spectacular. As the rocket rose into the sunlight the exhaust plume expanded into a giant circle in the eastern sky over the lights of the cruise ships anchored offshore. The payload was 57 Starlink and three Skysat satellites, an unbelievable feat of engineering without even including the safe return and landing of the rocket. You can spot the descending rocket just below the bright glow from the still-ascending stage.

Real estate activity in Cocoa Beach and Cape Canaveral has been brisk even as inventory continues to shrink. Since June 1 ten homes and 42 condo units have gone under contract. As of this morning there are only 47 existing single family homes and 170 existing condo and townhome units for sale on the MLS in our two cities. Compare that to the 1200 condo units for sale in May of 2006 at the peak of the pre-crash mania. At the rate condos are selling our existing meager inventory will be gone in eight weeks. All price ranges are active with the bulk of activity for condos in sub-$300,000 units. Homes are equally divided with half of the ten contracts under $400,000 and half over.

Florida continues to set records of another kind with coronavirus case growth. There is controversy over how cases are counted with some saying cases are being overstated and others saying the opposite. Testing has decreased from 36,740 average daily tests three weeks ago to 23,948 this week. Whatever the truth, we are wide open, people are out and about and Florida's reported three day moving average of new cases has tripled in two weeks to 1657 daily new cases as of yesterday. [edit] One day after I wrote this the 3 day moving average surged to 2075.] I'm hoping that's overstated but the hospitalization rate doesn't support that narrative. As a high-risk individual I appreciate the efforts of everyone wearing masks and observing distancing. Your mask might save my life. Thanks.
"Prevention is physically rewarding in the long term, but not emotionally rewarding in the short term. People who stay home won’t feel a pleasant dopamine kick from their continued health. Those who flock together will feel hugs and sunshine. The former will be tempted to join the latter. The media could heighten that temptation by offering what Lincoln calls “disparity in spectacle.” __Ed Yong from The Atlantic


Wednesday, June 03, 2020

Will It Sell? Will It Close?

Dawn Patrol
This is loosely based on a real story that happened a couple of months ago.

After enjoying many years in their Cocoa Beach condo a couple decides to sell it and buy a property closer to their grandchildren in another state. The unit has been remodeled and is tastefully furnished. The recent sales of similar units nearby suggest that they will be able to sell for enough to fully pay for the new property. They list the unit, get a contract quickly for the price they were hoping and begin making plans to move. Two weeks before closing the buyer's lender tells the buyer they can't do a loan in that complex because the condo questionnaire completed by the association has been rejected by the underwriter. The sellers are surprised as they know the association is well-funded, has reserves and the building is in excellent condition. Unfortunately for the sellers, the requirements are specific. It's not uncommon for a condo sale to fail because of hidden issues within the association that disqualify the condo for mortgage approval. Disqualifying issues include absence of or an insufficient percentage line item in the budget for reserves, too many units owned by the same person, too many condo fee delinquencies, insufficient insurance coverage and existence of ongoing litigation. Condo sellers are advised to know whether their association has any disqualifying issues and what can be done to solve or circumvent them.

Luckily for condo sellers, about half of all sales here are cash deals so the questionnaire never rears it's ugly head. None of my suggestions matter if the buyer is paying cash. In addition, not all mortgages require the same questionnaire. What disqualifies one mortgage might be OK with another one with higher down payment. Knowing what matters in advance might prevent a failed deal.

Most residential mortgages must conform to Fannie Mae guidelines. Looking at a Fannie Mae condo questionnaire prior to listing is a good idea for both buyers and sellers. Had the sellers known the issues in advance they would have known that the particular loan their buyers were applying for would not fly. If their agent was sharp enough to know the difference in full and limited review loans she could have guided the buyer's agent towards a strategy that would have had a chance at approval. Had the buyers' agent known, she could have done the same and not wasted hers and her clients' time in a complex that wouldn't pass.

Those thinking of selling in the future might consider finding out if there are any issues in their complex and take steps towards remedying the easy ones. In our story above, the issue was the amount of the line item for reserves in the budget. Had they known prior to the current year's budget meeting, they could have encouraged the Board to increase the line item by a couple of percentage points to squeeze into the acceptable range.

The governor of Florida has extended the eviction and foreclosure moratorium until July 1. As of today those who are late on their rent or mortgage payment can't be served notice of eviction or foreclosure. We can probably expect a flood of both in July. Rental inventory in Cocoa Beach and Cape Canaveral is almost equal to the for sale inventory. Of the 190 rental listings on the MLS there are but 13 asking less than $1000 a month. If a renter wants two bedrooms and two baths, there is one unit in our two cities asking less than $1300.

As expected, the number of closed sales in the month of May was low because of reduced traffic in the preceding months. There were 33 condo and townhome units closed in the two cities, only two over $400,000, both in downtown Cocoa Beach. Highest price paid was for a remodeled 16th floor direct ocean SE corner Stonewood 3/2 that closed for $840,000. The other was a remodeled Beach Winds 6th floor NE corner 3/2 with a two car garage that sold for $450,000. While closings were slow, sales activity was surprisingly heavy. A total of 82 condo and townhome units went under contract during the month, median price $260,000.

Vacation rentals are back up and renting in spite of vague rules from the County. Traffic in Cocoa Beach has been heavy on sunny days with a lot of beachgoers crowding downtown on weekends.

Cocoa Beach and Cape Canaveral have added no new coronavirus cases as of yesterday and are standing at 10 and 2 confirmed cases respectively. At a glance, the restaurants that have reopened appear to be busy, some of them packed. Turtle nesting continues to be heavy at the south end and the surf has been fairly consistent with quite a few fun days recently. Y'all stay safe, hydrate and use your sunscreen.

"The war has been incited and guess what? You're all invited."
Matty Healy - "Love It If We Made It"

Monday, May 25, 2020

Low Tide

And just like that, it was gone. No, not the coronavirus, I'm talking about the 2100 Towers NE corner penthouse I mentioned in my Thursday post the day it hit the market. By yesterday, three days after listing, it was under contract. This unit is a one-of-a-kind property and even at more than a million dollars and $462 per square foot asking, I am not surprised that it sold so quickly. It was not the only penthouse unit to sell yesterday. The top (5th) floor SW corner unit at the new Flores de la Costa building in north Cocoa Beach was also contracted yesterday. It is a brand new, never lived in 4/3 unit with luxury fixtures and finishes and two garages. Asking was $789,000.

In addition to those two units, ten other residential properties in Cocoa Beach and Cape Canaveral have gone under contract since last Thursday. Prices and types are varied; oceanfront, riverfront and landlocked, condos and homes, prices from $105,000 to $650,000.

Cocoa Beach now has ten confirmed coronavirus cases and Cape Canaveral is holding steady at two. This even as Florida posts the sixth highest daily count of new cases in the nation. Because of the virus, Cocoa Beach High School graduation was different this year. Rather than crowd everyone into the school courtyard like we usually do, the seniors made their walk over the boardwalk and along the beach with a spaced out crowd of family and well-wishers cheering them on. It will be a great memory for these seniors whose senior year was interrupted. I suspect we will see future graduating classes continue the tradition. Seems fitting for a school that is 1.4 miles from the beach.



It is being reporting that the Governor has lifted the vacation rental ban for Brevard County as of Friday but I can't find an announcement from the County confirming that. In addition, they have yet to publish the procedure changes that are going to be required as rentals resume. Our County Commission has never been known for fast action demonstrated most recently by taking four days longer than other counties to submit a coronavirus vacation rental plan to the State. I got to see this inefficiency in action and up close when the River Falls neighborhood tried to block Magnolia Bay from being built.

Memorial Day weekend got off to a busy start here in Cocoa Beach on Friday afternoon but we woke this Monday morning to rain squalls and overcast skies. That lost day of holiday business is going to be missed by the just-reopened businesses here. Regardless the weather this is a day that we remember those who have sacrificed their lives for our country. We remember them and hope not to take for granted what it was they died for. We are in this together.

In other news, the local band, Hot Pink, performed a concert from the upper deck of the paddlewheel Indian River Queen to a big crowd of fans aboard over a hundred scattered boats in the Indian River on Saturday. This was probably one of the safer gatherings around the state this weekend. Crowds elsewhere were not so distanced.

As of right now, the first launch of astronauts from American soil since 2011 is scheduled for Wednesday but weather is looking to be iffy. Whenever it does go, this is a huge thing for American space exploration. Even as the astronauts go to the space station this week on the SpaceX Crew Dragon spacecraft, the Boeing X-37 space plane is already in orbit, unmanned but ready to carry humans on a future mission. Our sights are on the red planet on a yet-to-be-built craft.

“The truth will set you free, but first it will piss you off.” ___Joe Klaas

Thursday, May 21, 2020

The Price Is Right, Or Maybe Not

The Brevard County Commission finally got around to addressing the vacation rental shutdown and voted on Tuesday to submit a procedure plan to the State asking for the go-ahead to reopen. Their plan is based on the Panhandle counties' plan that has already been approved. Among the procedures are safety protocols including masks, gloves and temperature checks for staff who interact with guests. In addition the Brevard County plan indicates that, for vacation rental reservations from areas the governor identifies as high-risk, guests occupying those vacation rentals "must adhere to the quarantine restrictions or be subject to established criminal and civil penalties." Considering the total lack of enforcement for rentals already operating I suspect this will be equally ignored.

Inventory in Cocoa Beach and Cape Canaveral has shrunk to 196 existing condo and townhome units and 45 single family homes as reported by the Cocoa Beach MLS this morning. Sales activity is strong with 25 residential properties going under contract in the last seven days. Closings, not so much. The reduced activity during March and April is being felt now and we are averaging just one condo closing per day in our two cities so far in May. Only two closed units so far in May were asking more than $400,000.

The NE corner penthouse in one of Cocoa Beach's tallest buildings hit the MLS this morning. I remember when this unit was for sale in 2004 for $1.675 million while in original 1975 condition. It didn't sell and was eventually relisted after the crash and eventually sold in 2015 for $670,000. The new owner gutted it and did an amazing total and beautiful remodel and it is offered now for $1.175 million, a fair price in my opinion. This is a good lesson in skewed expectations. The unit could have probably fetched over a million in 2004-2005 but the market rejected the $1,675,000 number. Ten years and over $300,000 lost because of unrealistic expectations. I see this same mistake being repeated right now with a large number of our active listings. Barring some other unusual condition, any properly-priced listing in our current market should sell. Those that have been sitting for six months or longer (a fifth of our current inventory) are almost certainly overpriced. Sellers, take note. Buyers, do your homework on valuation before making your offer. Your agent is probably willing to let you overpay but, hopefully, only after talking to you concerning current fair value. There are some situations where overpaying might be called for. Ignorance is not one of those situations.


Cocoa Beach now has nine coronavirus cases and Cape Canaveral is still at two. Most of our restaurants have reopened at reduced capacity and weekend daytripper traffic has been strong. Safety precautions are being taken seriously in most. The Cocoa Beach Country Club is to be commended for their approach. If this week's weather is any indication, it's going to be another hot summer. Interesting related observation: the coconut trees seem to have an unusually large number of coconuts this year and the sea turtles have been making their nests very high up the beach. Legend tells us this is an indication of a busy hurricane season. I sincerely hope not.

Is it a dog whistle if everyone can hear it?”  __unknown

Thursday, May 14, 2020

Cautiously Reopening

A couple of Black Skimmers hanging out with their Royal Tern cousins yesterday

Under Phase 2 of Florida's reopening plan, (undetermined start date), vacation rentals will be allowed to open but only for Florida residents. Anyone who is traveling internationally or from an area considered a COVID-19 hot spot will not be allowed to rent. There must be 72 hours between guests checking in so units can be thoroughly cleaned and disinfected. Whether this will be enforced is not known but the Phase 1 total shutdown is already being ignored by some vacation rental owners so I imagine Phase 2 restrictions will be widely ignored as well. The wording "should consider" in the governor's guidelines is partly to blame. There are not similar strict restrictions for hotels for some reason.

With the beginning of Phase 2 restaurants will be able to increase seating to 75% capacity with six feet separating parties of no more than ten people. Restaurants are advised to screen workers before work and to "consider" requiring employees to wear masks while indoors or in close proximity to guests. Gyms will be allowed to reopen at 75% capacity with six foot distancing and cleaning of equipment between usages. There are no restrictions on beaches other than those imposed by local governments. Hopefully Cocoa Beach will continue to try to stop the massive littering problem we suffer at the hands of daytrippers with $250 littering tickets. I predict lukewarm enforcement with little impact.

Cocoa Beach has had one new case of Covid-19 since my last post bringing our total to eight. Cape Canaveral is still at just two confirmed cases.

Real estate activity is already picking back up with 16 condo units and four single family homes going under contract in the last seven days in Cocoa Beach and Cape Canaveral. For sale inventory remains virtually unchanged. Those looking for a direct ocean unit above the ground floor with at least two bedrooms and two baths have four possibilities under $400,000, two of those at Stonewood of Cocoa Beach.

Many of our local restaurants have reopened for dine-in guests. Among those, The Fat Snook reopened yesterday with a few intriguing new menu items for returning guests. Takeout is still offered. Kudos to them for sharing their safety protocols. Looking forward to the yummy Instagram posts resuming. Reservations are required at most of the newly reopened establishments. An almost complete list of restaurants with links and phone numbers can be found here.

In other news Delta announced today that they are retiring permanently all 18 of their Boeing 777 aircraft.

If the brain were so simple we could understand it, we would be so simple we couldn't.” ______Lyall Watson

Sunday, May 10, 2020

Compromise. Anything But My Desires.

I've recently heard about two local condo associations trying to change rental restrictions via rule changes. As we found out in an outrageous incident a few years ago, an association can't merely add a new rule to change property use. That particular incident was a Cocoa Beach association that attempted to limit how many units a person could own by burying a new rule in the existing rules and regulations. It doesn't work that way. Property use can only be changed by a properly announced and voted amendment to the condo docs. Any properly administrated new amendment that changes property usage does not apply to owners who vote no or abstain from voting on the new rental restriction. The condo docs determine the process and majority required for such changes. As always, I am not a lawyer and unit owners should seek qualified legal counsel if they think their Board is operating outside the law. Rogue Boards are not an uncommon occurrence in the Sunshine State.

From the Florida Statutes:
The Florida Condominium Act, in Section 718.110(13), Florida Statutes, limits the ability of a condominium association to amend its documents to impose new rental restrictions. The statute states that “an amendment prohibiting unit owners from renting their units or altering the duration of the rental term or specifying or limiting the number of times unit owners are entitled to rent their units during a specified period applies only to unit owners who consent to the amendment and unit owners who acquire title to their units after the effective date of that amendment.”

I'm always interested to hear stories of condo association shenanigans. Feel free to send me an anonymous email of shady goings-on at your association. I can share them or not, your call.

All beach parking in Cocoa Beach is open and beaches are open for all activities with social distancing being enforced and alcohol is banned on the beach. An unexpected thing happened during the time that beach parking was closed. Litter disappeared from the streets of downtown. On a typical Monday morning, our streets are covered in food containers, broken styro coolers, piles of beer cans and bottles, dirty diapers and all the other crap that beach-goers feel compelled to throw on the ground rather than look for a trash container. Apparently it wasn't the locals doing the littering. Shocker. Because of extent of the problem prior to shutdown, CB Police have cracked down on littering and are aggressively enforcing a zero-tolerance policy with $250 tickets for littering. Over on the west coast Naples just re-closed their beaches after beach-goers refused to practice the mandated distancing rules when their beaches reopened.

Only 37 condo and townhome sellers found a buyer in the month of April in Cocoa Beach and Cape Canaveral. Single family home activity remained strong with eleven contracts in the month. A total of 64 residential properties closed in the month boosted by some pre-shutdown contracts. Rental inventory remains high at 207 properties offered for rent. At the same time rental activity is moderate with 45 properties rented in the month of April.

Cocoa Beach and Cape Canaveral have had no new confirmed cases of coronavirus in four weeks now. Hopefully that will hold steady as visitors from more highly infected areas begin returning to the beach.



Before anyone asks, the post title is from the Rush song, Resist.

"I feel like you're running out of all the things I liked you for." __Matty

Tuesday, May 05, 2020

What Do You Have To Lose?

The first weekend in May was gorgeous and crowds of stir-crazy Floridians took to the beaches. Downtown Cocoa Beach was swarmed with people, probably inland Floridians considering that vacation rentals and motels are virtually empty. From casual observation it appeared the majority were practicing some version of distancing. Dat B Good BBQ food truck at the south fork was doing a brisk business with a long line of appropriately spaced customers when I passed by. I am encouraged by what I'm seeing that we can safely resume our lives with minor behavior changes. Might be a long time before I'm willing to go to a concert or ball game but I can live with that.

I have been wondering about the future of rentals locally since the shutdown began. Many of the renters who lost their job in March have now missed two rent payments. The suspension of evictions on most property types will expire in our county on May 17. Tenants in some properties with federally backed mortgages are protected from eviction notice until July 25. Whether landlords will begin booting renters who are past due remains to be seen. With a drastically reduced pool of gainfully-employed renters and a higher supply of rentals, landlords are in a tough spot. There are 206 rentals offered on the Cocoa Beach and Cape Canaveral MLS this morning.There are probably several dozen others that aren't listed. Some of the MLS listings are former weekly rentals being newly offered long term. Median rent of the listed properties is $1800 a month. Will the new dynamic force rents down? It's too early to tell but increased supply and reduced demand is usually negative for prices.

Local restaurants began reopening yesterday. I haven't visited any yet but I know of at least two Cocoa Beach restaurants that are not requiring workers to wear masks. Political considerations aside, requiring food workers and servers to wear masks is a reassuring sign to customers that the restaurant is taking safety seriously. Hand washing policy is already in place for customer safety. Food safety goes way beyond coronavirus concerns and masks on servers at this time in history signals an aware management's attempt to mitigate customers' risk. If I've overlooked some obvious reason for not wearing a mask while handling a customer's food I'd enjoy being schooled. Otherwise I'd encourage restaurant owners to review their mask policy. I realize this has become a political issue but my reluctance to expose myself to possible infection knows no ideology. Hey, I don't want to catch a cold if I can avoid it. I'm for wearing masks forever but that's me. I wear one for sun protection when I'm on the water. Doesn't make me a bad guy.

"Now, having sown the wind, we are reaping the whirlwind."  __a mashup of several Old Testament verses