Approaching touchdown

In the month of January there were only five MLS-listed single family home sales and 29 MLS sales of condos and townhomes in Cocoa Beach and Cape Canaveral. That's well off last January's 47 condo sales but not surprising considering that inventory has reached a critically low point. There were three condos foreclosure sales and zero single family homes. Highest of the three was a ground floor south facing Siesta del Mar 2/2 that sold for $109,000. It last sold for $289,000 in 2005.

There were also three short sales of condos and one single family home. A large 2/2 at Solana Lake sold for $180,000. This same unit sold for $383,000 in 2005. A 2/1 at the Diplomat closed for $80,000. It last sold in 2005 for $219,000. A 3rd floor, south facing 2/2 at Canaveral Sands closed for $165,000. It last sold for $373,000 in 2005.

Eight of the 29 sales were for less than $100,000 with only five closing for more than $300,000. The highest price paid in the month was a 1st floor (actually 2nd floor over the garage) Meridian direct ocean NE corner 3/3 that sold for $599,000. It last sold for a recorded price of $640,000 two years ago but the actual price paid may have been less as many sales at Meridian recorded for more than the actual cost to the buyers.

A gorgeous 4th floor, south facing Artesia 3 bedroom 3.5 bath with 2636 square feet closed for $450,000. It last sold in 2004 for $530,000.

Two direct ocean units closed in the Constellation in January. One of the larger floor plan (2419 square feet) 3/2 units on the forth floor sold for $425,000. It was remodeled last year. The sellers were asking $550,000 just a year ago BEFORE they remodeled. An 8th floor smaller 3/2 (2126 square feet) in need of a total remodel sold for $335,000. Big ocean and river views from balconies on both sides of both units, one of the unique qualities of south Cocoa Beach where the river is right across the street.

Another 4 year old Magnolia Bay 3/3 closed for $340,000. This one was in the E building and on the 2nd (actually 3rd floor as garage is floor one). Two garage spaces, 10' ceilings and 2108 square feet.

A 6 year old, 3rd floor, direct river 3/2 corner at Solana on the River sold for $295,000. It sold in 2005 for $439,900.

A 5 year old direct river 2nd floor corner 3 bedroom 3.5 bath Garden Bay unit sold for $285,000. Has a 2 car garage and 2600 square feet. A smoking deal. Recorded as sold for $500,000 in 2008 but, like the Meridian numbers, that data is suspect.

One of the bigger floor plan Puerto del Rio (2336 square feet) 3/2 corners closed for $175,913. Not bad for a 5 year old 3rd floor corner unit with a huge 180 degree wrap balcony.

A direct ocean Cocoa Beach Club 2 story NE corner 2 bedroom, 2.5 bath unit closed for $240,000. 1176 square feet, no garage.rentals allowed.

I expect the slow pace of sales to continue with total MLS inventory of only 385 condos and 76 single family homes in the two cities this morning. Buyer interest is high but with the low supply finding the right property or the right price is not as easy as in the recent past.

Farming looks mighty easy when your plow is a pencil and you're a thousand miles from the corn field. ___Dwight D. Eisenhower

[Repeat] Does this make my butt look big?

Rocky shoreline in Satellite Beach at low tide. There are no rocks in Cocoa Beach but as one heads south, rocks are first encountered at Patrick Air Force Base and the rocky shore continues all the way to Indialantic.


(This subject never goes away. This original post was from 2009 but, to this day, loan officers and brokers continue to over-promise and fail.)

Does this make my butt look big? Everyone knows there is only one correct answer to this question no matter who is doing the asking. There is another popular question that also has but one answer. That question is one that is posed to loan officers and mortgage brokers every day, "Do you foresee any issues with my getting a loan on this property?" Day one in loan officer school the class is asked this question and then instructed to shout in unison, "No, not at all." over and over until the phrase is firmly imprinted on their brains. Then, when "the question" is posed by an actual borrower, the neuro lingual programming takes over without any conscious thought and "the answer" comes forth confidently. Doesn't matter that the Florida condo that the borrower is asking about is 1800 miles away from the lender's office or that the last Florida condo loan that the loan officer did was in 2006. "We can do it" he says with a confident smile. Right. He can do it until he can't and that usually doesn't becomes evident until well down the road towards closing.

All borrowers who are buying a Florida condo would be well advised to talk to a lender in the market in which they are purchasing. There are issues with Florida condo loans that lenders will not encounter anywhere else. A great credit score and previous relationship with a distant lender might not be enough when the hurdles to closing start appearing. A good local lender who is active in our market will have knowledge about Florida-specific loan issues and will likely have encountered many of the sure-to-happen problems with previous loans. That knowledge allows him to be proactive rather than reactive in addressing these issues. Anticipating and working to solve an issue before it presents itself can be the difference in making a closing date or not.

Disclaimer: I'm not saying out-of-area lenders can't close deals here. It happens all the time, but, from plenty of personal experience, I can say without hesitation that the odds of having problems are increased when the lender is not local. Just don't expect a loan officer to admit that his performance out of state may be compromised by lack of local experience. Remember the NLP "answer" from class. I can close deals and represent buyers anywhere in the state of Florida but I don't venture outside my market because I can't do the best possible job for my client in a market I don't know. Greed and false confidence encourages many realtors and lenders to venture out onto the thin ice, often to their client's detriment. Be skeptical when yours fearlessly claims proficiency in an unknown market.

/cue theme song (everyone sing along)__ "Knowledge is power..."

"Education is when you read the fine print. Experience is what you get if you don't."_____Pete Seeger

[REPEAT} Market value - 2 out of 11 ain't bad

Sign at one of the beach crossovers in south Cocoa Beach. The prayers were answered this morning. Chest to head high north swell hitting all the southern beaches.

(I'm doing a repeat of this and a few other relevant posts from the past as the issues covered seem to keep coming up.)

It is an almost daily experience for me to have a conversation with a buyer or seller of real estate (or their agent) who is using the Property Appraiser's "market value" of a property to support their own belief of the value of a property. Folks, the only time the PA's "market value" has any worth when buying or selling a property is when you can use it to your advantage in negotiations and can convince the other party to accept it as accurate. First of all let's see what the PA says about the different values that are displayed in a property record. From the PA's website;
_________________________________________________

What is the difference between market, assessed, and taxable values?The market value is the most probable selling price, based on the actual sales of similar properties, less the typical costs of sale.

The assessed value may be less than the market value if the property is a residential property having homestead exemption and is therefore protected by the "Save Our Homes" Constitutional assessment limitations.

The taxable value is the assessed value less any applicable exemptions.

_________________________________________________

Right away we see that the PA's market value is not the expected selling price but the expected net after selling expenses. A seller's typical selling costs (real estate commission, doc stamps, title policy, etc.) are deducted from what the PA's black box tells him the value is. OK, seems reasonable. Add about 8% to market value and we should have the expected selling price of a property. Not so fast. That assumes that the black box is spitting out accurate numbers. Let's check the actual numbers.

I pulled up the last 27 residential property sales in Cocoa Beach and Cape Canaveral excluding quit claims. I then compared the selling price to the Property Appraiser's 2010 market value. Only five sales fell within 10% of market value, one exactly on the money, two for 2% more and two for 7% less. Of the 27 total, 12 sold for less than market value. They averaged a 19.5% discount to the published market value with one selling for a 45% discount. The 14 that sold for more than market value averaged selling for 29% more than the PA's market value with one selling for 50% more.

Conclusion: The Property Appraiser's published market value is not accurate. If it is to your advantage during negotiations in buying or selling feel free to use it to bolster your position but know that you risk looking foolish and potentially losing negotiating strength if the other party knows the truth or at least reads this blog. This same all-over-the-map inaccuracy applies to Zillow as well. Your best guide to actual market value is using recently sold, nearby comparable properties and making the necessary adjustments to reach an accurate number. One last thought on that process. Beware getting married to a dollar per square foot number. It's a good starting point when the comps are close in size but it is not the end-all metric for establishing value. Ultimately, a buyer decides what they are willing to pay and a seller decides what she is willing to accept. When those numbers intersect, true market value is established.

Good luck in your negotiations. As always, knowledge is power.

"I wasn't worth a cent two years ago and now I owe two million dollars." __Unknown

[Repeat] Valuations and fuzzy math

(This is a repeat of a post from last summer prompted by several recent encounters with agents and principals using dubious justifications of value.)

Continuing the commentary from the last post about valuing a property. My review of recent sales suggests that using the Property Appraiser's published "market value" is a pointless exercise unless it can be used to one's benefit against an uninformed opposing party in negotiations. With a margin of error of 45 to 50%, the PA's number should be considered for entertainment purposes only.

Dismissing the PA's number, to value a property we're left with either Miss Cleo or the comps. With apologies to fans of Miss Cleo I think recently sold comparable properties are the best starting point for determining another property's value. Identical condo units in the same building are perfect comps as are identical homes in the same neighborhood. The reality is that, in most cases, there aren't "identical" comps. In that case one has to look for the most similar and then make adjustments. The most commonly used starting metric for comparing similar properties is dollars per square foot. If a 1000 square foot unit closed last week for $100,000 then another very similar unit with 1100 square feet should be worth close to $110,000, all other things being equal. The big stinker there is the "all other things being equal" part. They never are, equal that is. We also need to consider that both units may have exactly identical garages, have access to the very same amenities and share an identical view. This makes a comparison based only only unit size (even with adjustments for condition) flawed from the get go. Place the properties in different buildings or neighborhoods and the comparisons become even less accurate. We can't accurately calculate the value of Starry Night based on the selling price in francs per square centimeter of Vincent's Bedroom in Arles . I think comparing Cape Winds to Sandcastles just as flawed although less extreme.

Consider that a direct ocean 2/2 with 1286 square feet and a garage at Sandcastles in Cocoa Beach will command no more rent per week than a Cape Winds 2/2 with 934 square feet and open parking in Cape Canaveral. Are they worth exactly the same because of identical potential income? I don't think so but I don't think a straight $/sf comparison is remotely accurate either. Seems illogical to think that an otherwise similar 2/2 unit in one of the two buildings should sell for a 27% premium to the other.

My point in all this is to caution buyers and sellers about their or their agent's opinions of value. Putting a fair value on a property is not an exact science. If buying, do your best to get the lowest price possible and use all the tools available to substantiate your offers. Just be aware that in the end only you know what a property is worth to you. The commonly used valuation scales are all flawed. It's horseshoes. Closest one scores.

"Sheep only have 2 speeds - graze and stampede." Colonel Dave Grossman

10 Answers

1. How much will I save if I deal directly with the listing agent? It's very unlikely you'll save anything. Even if the listing agent agrees to reduce total commission, the seller will expect to pocket that savings, not pass it along to the buyer. Even bigger consideration is that the listing agent can't legally advocate for a better deal for the buyer so she'll just have to assist without taking sides while you do the best you can, not the best scenario for a buyer. A good buyer's agent is legally allowed and should be eager to go to battle for you to get the best possible price and terms.
2. How much deposit do I have to put down to make an offer? You don't have to put anything down but as someone pointed out, an offer without a deposit is unlikely to be taken seriously. I prefer to make the deposit due after acceptance of the contract. That way the offer is viewed as legit but no check is written if a deal can't be reached. Another level of reduced exposure for a buyer. See #3 below.
3. How is an escrow deposit dispute settled and does it matter whose escrow account it's in? Very tricky one here. If a seller refuses to sign a release and cancellation after a buyer cancels, even if cancelled within their contractual rights, the escrow agent can't return the escrow. For escrow held within a Florida real estate broker's escrow account, the broker must request an escrow disbursement order from the Florida Real Estate Commission in the event of a dispute. I've seen this process take three months. There is no cost to any party for this and the broker must comply with the decision and order. If escrow is held by anyone other than a Florida real estate broker, this method of settlement is not available. Options then include litigation, arbitration or interpleader. Costs can easily exceed the amount of the escrow. Be aware of this when asked to deposit escrow in accounts other than a real estate broker's escrow.
4. If I change my mind about a purchase 10 days after signing the contract can I get my deposit back? Yes, IF your contract gives you that right. If you dealt directly with the listing agent, she may not have given you a very long right-to-cancel period unless you asked for it.
5. The inspection revealed that the AC doesn't work. The contract is "as-is". What are my options? You have three options if you are still within your inspection and right to cancel period. You can cancel the contract or you can ask for some sort of compromise on repair or price with the seller. Or, failing a compromise, you can go ahead with the purchase.
6. Is $500 reasonable for closing costs for a cash buyer of a $400,000 property? No, it's high. A cash buyer should be paying closing costs of less than $100 outside of prorated items like taxes, condo fees, etc.
7. The seller has offered to equally split the title insurance cost. Is that fair? No. In Florida the seller usually pays for the owner's title policy.
8. Can I change the contract to my brother's name after it's executed? Yes, if the seller agrees or if you made your original contract assignable.
9. The seller countered my offer at a higher price but came back the next day and accepted my first offer. Do I have to accept it? No. The moment he countered your offer, your offer is dead. You can still accept it but are not obligated to.
10. How is a buyer's agent paid? Sometimes they're not. In most cases, the listing broker pays the buyer's broker out of the total listing commission per their agreement with the seller. The MLS tells buyer's agents how much is being offered them. Sometimes with non-listed properties, a buyer may offer to pay their broker. Sometimes, in short sales, the commission to both brokers is reduced by the bank, usually after months of negotiations.

 ‘The dogmas of the quiet past are inadequate to the stormy present.’
___Abraham Lincoln

Pop quiz: Ten new questions for property buyers

1. How much will I save if I deal directly with the listing agent?
2. How much deposit do I have to put down to make an offer?
3. How is an escrow deposit dispute settled and does it matter whose escrow account it's in?
4. If I change my mind about a purchase 10 days after signing the contract can I get my deposit back?
5. The inspection revealed that the AC doesn't work. The contract is "as-is". What are my options?
6. Is $500 reasonable for closing costs for a cash buyer of a $400,000 property?
7. The seller has offered to equally split the title insurance cost. Is that fair?
8. Can I change the contract to my brother's name after it's executed?
9. The seller countered my offer at a higher price but came back the next day and accepted my first offer. Do I have to accept it?
10. How is a buyer's agent paid?

If you're unsure about any of the answers, you may want to pause your property search until you do know the answers. Not knowing or being wrong about any of them could be costly.

"Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous." ___Barry Ritholtz

Crunch time

Sunrise on the 11th at 11th Street.

At the risk of sounding like a broken record, the inventory situation in Cocoa Beach and Cape Canaveral is critically low. There are 372 total condos and townhomes on the Cocoa Beach MLS this morning in the two cities. Of those, 54 are asking less than $100,000 and 54 are asking more than $400,000. In 2011 there were 27 sales for over $400,000 and 189 for less than $100,000. You can easily see the implications for sales in 2012. Without more supply the downward pressure on prices is disappearing.

The depletion of supply is due to the fact that the normal supply of new properties for sale was interrupted during the recent troubled years. Some units that may have appeared on the market in 2011 and 2012 were pushed on the market earlier as owners who bought or refinanced near the top were forced into short sales or foreclosure as prices tumbled after 2007. This unnatural bump in supply in recent years is the reason for the record number of sales we've seen and the reason we're not seeing the normal number of new listings. The chart below shows the dynamic at play since 2006, the peak year for inventory and prices.

In 2011 there were 100 short sales of condos and 83 foreclosures. This morning, January 11, 2012, there are 29 total condo foreclosures on the market and 28 short sales. In single family homes, there are 4  foreclosures available and 5 short sales. The time of abundant distressed deals is coming to an end.

I can't remember there ever being a time when there were just two units for sale at Xanadu in Cocoa Beach. At Ocean Pines, Crescent Beach Club and several other big oceanfront buildings there are zero units for sale. Looking for one of the 2/1 Diplomat units? None offered for sale at the moment. Ocean Paradise or Solana Shores? One unit in each complex for sale. How about Harbor Isles? In this large multiple building complex there only 3 units for sale, two 2/2 units and a lone direct river 3/2. The 3/2 is probably the nicest one in the complex and has a breathtaking view over the islands and is your only choice if you want a 3/2. If you were waiting for a lakefront 3/2, there are none available at any price.

Our take-way from these facts? Be aware of the fact that there is less supply than demand at the moment. If you're looking to buy and find something you want, don't spend too much time contemplating your offer. You can be certain there are other prospective purchasers looking at anything that is desirable and priced right. Make sure your buyer's agent has you protected in the contract language and have your finances in order. If hoping to get a mortgage, go ahead and talk to your lender first and let her know that you are looking at Florida condos. Knowledgeable and/or well-advised sellers of condos will want to see a pre-approval letter specifically mentioning a Florida condo accompanying your offer. If you plan to pay cash, have proof of funds like account statements or a bank letter ready to submit with your offer. Good hunting and don't shoot your fellow hunters.

"If you do the job badly enough, sometimes you don't get asked to do it again." Calvin

Random insanity

A few random thoughts inspired by recent events:

Are stated "living" square footage numbers in the MLS all measured the same way? Seems that measuring the perimeter and using the gross area which includes walls is as acceptable as measuring the actual "walkable" space which doesn't include walls. I don't know if condo square footage as stated in the tax record is perimeter, walkable or some of both. I do know that some sellers of condos will state a square footage in excess of the tax record claiming an error in the tax record. Just yesterday I questioned the stated size in an MLS listing and the agent immediately reduced it by over 100 square feet. When asking +-$184 per square foot, that little difference is enough to feed a small town at the Fat Snook and then give them all a biplane ride over the beach.

Is feedback from prospective buyers or their agents constructive information for sellers of property? Consider that the typical feedback request I receive when I show property asks me what I think about the condition of the property, how it showed, whether the buyer has any interest and, get this, whether I think the price is "too low", "just right" or "too high". What the...? As the agent representing a buyer do they honestly think I would ever check "too low" or even "just right"? No way. There is always the chance that I will be presenting an offer on this property either for this client or another. Do I want the seller to have received feedback from me saying I thought the price was too low? Asking me (or any other good buyer's agent) for feedback is giving us a chance to plant a seed of doubt in the seller's mind about their asking price without even writing an offer. Sellers take note.

Is an appraisal an accurate measure of a property's value? Sometimes but certainly not always. I've seen buyers walk away from a perfectly good deal because of an appraisal below their contract price and I've seen sellers refuse a good offer because they were hanging their hat on an optimistic appraisal number. Appraisers are human and because of time and distance constraints required of comps they often have to use dissimilar properties and then make arbitrary adjustments to arrive at their "estimate" of value, the appraisal number. In addition, it is probably prudent to question any appraisal ordered and paid for directly by a principal to a transaction.

Would you agree to short sale your underwater property if the bank would give you $35,000 at closing? That's exactly what is happening in short sales right now. Several banks including Chase, Citi, Bank of America and Wells are actually giving checks for as much as $35,000 to sellers for short selling their underwater property. An agent in my office completed a short sale Christmas week in which the seller received a $30,000 check from their lender. If you're underwater and receive a letter from your lender offering some sort of incentive check for doing a short sale, save that letter. Ironically, these same lenders sometimes take a year to approve a short sale. I'm not sure who dreamed us this perverse incentive or why but it seems to me that it would encourage every underwater homeowner to immediately stop making payments in hopes of getting the letter. Of course, I'm not a banker and probably not smart enough to understand the logic. Que sera sera. Happy New Year.

"No fashion error was ever made in black." Calvin Klein