Monday, June 23, 2014

Welcome To Summer

The tally on closed condo sales for last month in Cocoa Beach and Cape Canaveral wound up at 73 units according to the Cocoa Beach MLS. That total ties with last July as the most condo sales in nine years. That's a big deal. Back in June 2005, the last time we had more closed sales in a month, there was three times the inventory for sale and mortgage qualification was still in the "need only fog a mirror" level of scrutiny. In June 2005 four out of five condo sales were financed. In May 2014 only one third of the condos and townhouses sold were financed. In 2005 condos were selling for a huge premium to today's prices, some for more than twice today's price. Those crazy prices began retreating in late 2006 for most buildings and, after bottoming a couple of years ago, are inching their way upward in most complexes.

A few examples:
  •  In June 2005 a Cape Winds 4th floor 2/2 closed for $413,000. A similar condition 2nd floor unit recently closed for $220,000.
  • Windjammer 3rd floor 2/2 sold for $450,000. Two units are available today asking below $300,000.
  • 5th floor Stonewood 2/2 sold for $495,000. A 16th floor same floor plan unit sold recently for $275,000
  • A 5th floor partially remodeled Stonewood Sand Dollar 2/2 closed back then for $530,000. An exquisitely remodeled 5th floor Sand Dollar just closed for $384,700.
Those of you hoping to buy have a much reduced supply of units to pick through. Don't despair. Prices aren't running away and we are getting just enough new listings to handle the demand. There are 262 existing units currently for sale in our two cities with right around 100 in ocean complexes. Know what you're looking for and be realistic with expectations for price. You're not going to have to pay anywhere near 2005 or even 2010 prices but don't expect to pay less than the last similar unit. It pays to discuss recent sales of similar properties with your agent so you'll be able to recognize a fair deal when one presents itself. As always, if planning to get a mortgage, talk to your LOCAL lender before you start the process. Know what's going to be required for a down payment and don't waste your time looking in complexes that won't qualify. That cute little Cape Winds unit may be perfect for you but Roger at First Muskellunge National might not realize that there is no secondary market for condo-tels until days before closing. He'll apologize but he won't be able to close. A local lender would know that your hopes for a 20% down mortgage on that unit are not likely to happen. He might offer alternative financing solutions before letting you waste money on appraisal and inspections. Your buyer's agent, if she knows her stuff, will be able to tell you which complexes won't or might not qualify and can save you wasted time. If she can't, pink slip.

"I've learned that self-interest is the most powerful force in the world. People in unethical, predatory, and nonsense jobs will do mental gymnastics to convince themselves they're doing the right thing. Those who criticize the behavior of  "greedy Wall Street bankers" underestimate their tendency to do the same thing if offered an eight-figure salary."  ___Morgan House

Friday, June 20, 2014

Are You a Tax Evader?

Unless you have a written lease for longer than six months, when you rent your Florida property you are required to collect 6% tax for the State of Florida and the appropriate tax for the county, 5% here in Brevard County. That tax must be remitted with the tax returns by the 20th of every month to both the State and the County. The State has employees who regularly cruise the vacation rental websites like VRBO and Homeaway looking for owners whose properties are being offered for periods of less than six months. If you'd like to come into compliance before you get the nasty letter or phone call, visit for state license application and sales tax number. You'll also need to check with your county (Brevard County info here) and city to make sure you're in compliance with everyone. Here is the form for Cocoa Beach. It's a pain in the butt but it's the law.

Locals with kayaks and the knowledge have been catching giant tarpon and monster jacks off the beach in the calm conditions of the last few weeks. A hundred pound plus silver king out of a kayak is an experience not soon forgotten.

Monday, June 09, 2014

The End of the World as We Know It

The ground that the US real estate industry is planted upon has begun to shift. The tremors we've been experiencing in the online world of real estate seem to predict a major event sooner rather than later.

Just a few years ago, was the number one website that consumers used to search for real estate. Most MLS systems including ours share their listings with Not long ago the Brevard MLS began sharing listings with several other websites with the thinking that more exposure was better. These outside sites, Trulia, Zillow, among others, took our listings (freely given by us, BTW) and presented them on their websites that were usually more user-friendly than the clunky consumer side of our MLS. They built traffic and popularity quickly. Zillow cleverly created an automatic estimate of value of all properties, the Zestimate. It has been notorious for inaccuracy and Zillow has admitted as much. However, the inaccuracy, whether intentional or accidental, has been a brilliant viral tool as it is one of the most discussed topics on practically every online real estate forum. Zillow is now firmly in the number one spot as the highest trafficked real estate website and is getting twice the monthly visitors of

Once they gained traction and traffic these websites began selling advertising back to the very agents whose listings made up the content of the site. For a fee, any agent, listing or otherwise, can have their smiling Glamour Shot placed in the margin next to listings that consumers view. Consumers can also search for agents and read reviews supposedly from past clients. Agents have to sign up (for free) to show up in the list of agents. Once signed up for free the sales reps begin repeatedly calling to sell upgraded placement. One agent told me that a sales rep at one of the sites told him that they would remove any bad reviews if he signed up.

Let's test the agent search on one of the sites I mentioned. Searching for an agent in Cocoa Beach I get 492 results. Holy cow! That's like 4% of the population of Cocoa Beach. Nine of the thirteen agents listed on page one of the results work out of offices in cities other than Cocoa Beach or Cape Canaveral. I have never been involved in a transaction with nor even heard of any of those nine agents. [Note: When choosing an agent online, it makes sense to make sure they actually work in the market they are claiming to service. Big red flag is an office in another city.] Guess who isn't among the 492 Cocoa Beach agents? Yep. Yours truly. Representing hundreds of buyers in Cocoa Beach over many years is not enough to show up in a list of Cocoa Beach agents because Homey won't play their game and do the "free" sign-up. It doesn't really matter because very soon the agent advertising revenue will become inconsequential to these sites.

Now that they have the traffic, there appears to be a much more lucrative business model looming. It will be a simple shift to offer listings directly to home sellers who aren't listed with a local real estate broker. I can see the local MLS quickly becoming irrelevant if all listings (including non-MLS-listed properties) can be found on another easier to use website. Why would a home seller pay a real estate broker thousands to market and sell their home if they can get adequate exposure and an acceptable selling price elsewhere for a few hundred bucks or even "free"? We are currently in the transition. At the moment, as a seller, I couldn't be sure I'd be getting exposure to all buyers by only being offered on a non-MLS website. I might leave money on the table without exposure to all potential buyers. Certainly most buyers are looking for property online, but no one can be sure which website they are searching ... yet. That is changing and the eventual 800 pound gorilla may just be an under-the-radar chimp charging in from left field.

A couple of years ago Nationstar Mortgage began running some of it's short sales through prior to negotiating the short sale. After receiving a short sale package from a seller's agent, they would require the owner of the property to turn over the listing to or their short sale would be refused. If a bid above the short sale contract price was received at auction Nationstar would accept that one instead of the original contract. The buyer would pay a 5% premium on top of the winning bid and would be allowed no financing nor inspection contingencies. This turned out to be a lucrative venture for Nationstar and they recently acquired for $18 million and began running their short sales through auction there. Their sights are on much loftier goals than short sale auctions and they may eclipse the Zillows and Trulias of the world and transform real estate in the process.

About the acquisition, Nationstar CEO Jay Bray said,

“Today, real estate search engines allow you to search for homes, find the estimated property value of your home, and somewhat realistically, those of your neighbors. However, these search engines are not currently designed to allow consumers to transact, and lack a comprehensive fee-based business model. In short, their value is generally limited to real estate catalogs supported by advertising.”

By contrast, Nationstar envisions that consumers and real estate agents who come to its site will be able to list their properties, manage them, sell them, buy them, and look for “downstream” mortgage, title, appraisal and closing services. Annually, there are 8 million real estate transactions in the United States, 5 million home transactions and 3 million refinancings. Our macro goal is to capture a fee component of as many U.S. real estate transactions as possible while increasing profitability,” Bray said.

Once they iron out the wrinkles using their own substantial inventory of short sales, I can see them offering the auction process to the public for a small fee. Probable scenario is: The property sellers specify a reserve price so they don't sell for less than the price they want but specify a starting bid substantially below the reserve. The buyer pays the website a 5% premium and hires a local agent to view properties, handle inspections, review paperwork, etc. He could choose that agent from a list of agents on the site. Since those 492 Cocoa Beach agents no longer have listings Homesearch would let them advertise bids for various services and busy work while scraping a small fee off the top. A couple hundred bucks to unlock a property and review a contract is better than nothing. In addition, the website would sell advertising or paid referrals to title companies, lenders and inspectors. One stop shopping and the blazer-clad Glamour Shots are free to join their travel agent brethren over a frosty brew at the Beach Shack discussing how video killed the radio star.

This is not crazy speculation. It's happening right now and the MLS systems are scrambling trying to put the horse (the listings) back in the barn. Our own association is among those embroiled in a fierce debate over the subject. I fear it may be too late. One bright spot is that when the traditional real estate model succumbs I will find myself in the best little beach town in Florida concerned more with wind and tide than inept listing agents and first right of refusal. There are worse things.

I hope everyone got a piece of the small longboard perfection yesterday morning. It was a classic summer Cocoa Beach day.

"If you do not change direction, you may end up where you're heading."  ___Lao Tzu

Friday, June 06, 2014

Ten Years After

2004, the national pastime and number one topic of discussion was the red-hot real estate market. Average Americans were buying investment properties worth ten times their annual income with no money down and no intention of renting them. The average Cocoa Beach residential property was appreciating by several hundred dollars a day. One's net worth was giddily recalculated every morning over coffee to figure out how much the night's sleep had netted. We still had another year and a half before reality crashed the party. Some escaped with easy riches and others were ruined.

In the bubbly month of May 2004, there were 71 MLS-listed condos and townhomes closed in Cocoa Beach and Cape Canaveral. I can't remember any deals that year falling apart over a declined mortgage or a low appraisal. That has certainly changed in the ten years since. Lender scrutiny of borrowers and of the property being purchased has never been more stringent. Despite the difficulty in the mortgage process, we have reclaimed the mountain. 71 condos and townhomes closed in our two cities in May 2014, as reported so far. We have come full circle. Single family home sales mirror the condo numbers.

There were 13 single family homes closed in May 2014 with eight of those over $400,000. Ten were purchased with a mortgage. There were no short sales or bank-owned homes sold. Someone picked up a fixer-upper 3/2 on a canal for $265,000.

Of the 71 closed condos, three sold for over $700,000. Cash accounted for 45 of the sales. There was but one short sale and 13 bank-owned units closed. Prices for decent direct ocean units above the ground floor clustered mainly in the low to mid $200s per square foot. A couple of very nice units brought around $300 per square foot and a couple needing work sold for less than $200 per.

There are 274 units for sale in the two cities this morning as reported by the Cocoa Beach MLS. Fifteen of those are not yet built. 7% of the total are distressed, nine bank-owned and ten short sales.

Summer is fully upon us with temps in the 90s most days tempered by the dependable sea breeze. The surf temperature is steady at 80 degrees. Fresh turtle nests are on the beach in the mornings and there have been plenty of days with decent waves so far. Offshore fishermen are catching good numbers and sizes of dolphin and a few guys have caught decent grouper and large mangrove snappers. The tripletail continue to bite for those who have the patience and know where to look. All combined, it's the usual "life is good" stuff, heavy on the salt water. I have a few summer weeks still open in ocean condos at prices from $785 total for seven nights for anyone wanting a piece of summer fun. Come on down. There's enough for everyone.

"There are no more committed people on the planet than surfers. We fall down a lot. We turn around, paddle back out, and do it over and over again. Unlike anything else in life, the stoke of surfing is so high that the failures quickly fade from memory."  ____Gary Sirota

Monday, June 02, 2014

Evil Condo Fees [updated]

Thanks to Jon for suggesting a post about condo fees. Contrary to popular opinion, condo fees are not a bad thing. They are not even unfair. Regularly collected fees from multiple owners of common property insure that adequate funds for common expenses are available when needed.

How much is fair? That depends on what those fees are intended to cover. At the same selling price, is condo unit A with $350 a month fees a better deal than than an identical unit, B, with $450 a month fees? Depends entirely on what those fees cover.

In most condos the monthly fees cover insurance for the buildings (usually the biggest single item), maintenance, water and sewer, basic cable, grounds care, trash pickup, common area electric, salaries for employees (if any) and other common expenses. There may also be money going into reserves for future expenses. More on that later. Some condo fees also cover hot water and WiFi and some even cover AC units. At the other end of the scale, some associations do a special assessment every year when the insurance bill arrives and a few complexes with artificially low monthlies seem to assess every time the Marlins lose a game.

So, back to the question; is the unit with low monthly fees better than the one with higher fees? Probably not if the lower fee unit is not funding reserves. If the unit with $450 fees is contributing 20% of the annual budget towards reserves ($90 per month per unit) then the units appear to be close to equal value at the same selling price. That is until the roof needs replacing or the building waterproofed and painted. In the building without reserves, the owners get a special assessment to pay their share of those items which can run into seven figures on some buildings. The buyer of the unit with the higher fees and a roof needing replacement next year has his share of the cost safely socked away in the reserve account (thanks to the previous owner's share of reserves) while the buyer of the lower fee unit may find himself writing a five figure check for his share of the replacement. 

There is another danger to the seemingly attractive low-fee unit. It may not be mortgage worthy. Unless a buyer is paying cash or making a substantial down payment, lenders may not loan on any unit in the complex. At the very least, most lender reviews of a condo are going to want to see 10% of the annual budget going into reserves and an amount equal to to the insurance deductible in the bank. It is normal for some owners to want to keep monthly fees as low as possible. Why fund reserves or keep unused money in the account if it means higher monthly fees? What they may not realize is that lower condo fees with no reserves means that the future sale of their and their neighbor's units will be more difficult. Funding the reserves at a rate of less than 10% of the total budget or not keeping the amount of the hurricane deductible in the bank might keep monthly fees low but it might also push your unit into the cash-buyers-only category.

[update] Another important factor to consider when reviewing condo reserve accounts. The amount of money in the reserve accounts is not a good measure by which to compare associations. For instance; If the amount of reserves designated for replacement roofs is $500,000 then the reserve account should contain $500,000 the month before the new roofs were paid for. However, the month after those roofs were paid for that reserve account would be depleted. A quick glance at a tiny reserve balance might lead an uninformed buyer to assume that the association was not adequately funding reserves. Don't assume, ask.

One last thought on the whole condo fee thing: Single family homes have the same expenses. They are just funded differently. The monthly costs for insurance, water/sewer, pest control, lawn and pool care for a Cocoa Beach home can easily run more than our example condo fees. Then there is the cost of the roof, painting, driveway, etc. when it's time to address those. It's a rare homeowner who has a designated reserve account. As they say, there is no free ride.

"Some people call me obsessive or driven or lucky or whatever. I'm all of those things. Shouldn't we all be?"  ___Kelly Slater