First Right Tyranny

 Many condominium associations in Florida and the Cocoa Beach area have provisions in their documents that give members of the association (unit owners) the right to take over a contract for sale of another unit. The way this happens in most cases is that an owner first negotiates a contract for the sale of his unit with an outside buyer. Then the contract is offered to the other unit owners at the same price and terms. In some condos, the contract is mailed to owners and at others a notice or a copy of the contract is just posted on a bulletin board at the complex. The method varies as does the time limit for stating intentions. In most area complexes, owners have between 10 and 21 days to state their intention to exercise their first right and take the contract. If this happens, the original buyer is out and any money spent on inspections and appraisal is gone as well. Not fair but that's how it is.

Should more than one owner want to take the contract we have to go back to the docs to see who has priority. Again, the rules vary and we have several methods for determining priority. Some associations give priority to contiguous or adjacent units with priority usually favoring horizontal over vertical (I did not plan that ironic wording). Others give priority to the closest (numerically) unit number. Most, in the case of a tie, give the seller the right to choose. Acrimony is a not uncommon byproduct.

I have always heard that first right was initially a way for owners in a small community to legally discriminate against unwanted buyers. Should some "undesirable" try to buy in their community, one of the existing owners would just use his legal right to take the contract and prevent the undesirable from buying into the community. In my experience in the Cocoa Beach area that has never been the case. What is more common is that an existing investor owner will take any contract of a desirable unit unless the contract price is well above market. In practice that means that no outsider can buy in the complex unless he is willing to take an undesirable unit or overpay for a desirable one. That situation exists in a handful of units in our area.

Let's talk about short sales in first right complexes. The process can be quite perverse.When a seller of a short sale property signs an offer, the bank/s holding the mortgage must still approve the sale. The question for a short seller in a first right complex then becomes "do I submit this signed but unapproved contract to the association for first right, or do I wait until the bank approves the sale?". If the seller submits to the association before bank approval a couple of different problems can arise. Scenario 1: An owner exercises first right but the bank counters at a higher price than the contract the seller signed. The exercising owner then walks away and seller is back at square one with the original buyer long gone. Scenario 2: No owner exercises and bank counters at a higher price. Original buyer accepts the bank's counter. Because the contract has changed the contract must be submitted for first right again. An owner chooses to exercise their right and takes the contract. The bank refuses to transfer approval to a new buyer which means the short sale negotiations must start over at the beginning with no guaranty that the same price will be approved.

If the seller decides to wait until approval by the lender to submit to the association then other problems are lurking, one almost identical to scenario 2 above. I am involved in a situation like this right now with one of my contracts. The seller signed the original $35,000 offer from my buyer client for a small 2/1 Cocoa Beach condo in early September last year. Bank finally approved the short sale at the $35,000 contract price with $2000 seller contribution in January this year. The contract was then submitted to the association for first right and an existing owner took the contract. The bank refused to transfer the approval and the short sale negotiations had to be restarted. The bank responded in April with an approved price of $51,500 and $7000 seller contribution. That's $21,500 more than the approved amount in January. If we can't get the bank to accept a lower price then this owner/buyer will walk and everyone loses.

If you are a buyer of a short sale in a first right complex, be sure to ask your agent when the first right procedure will take place and be prepared for craziness and an illogical progression of events. Now that I think about it, you probably want to know, short sale or not, whether the unit you're offering on is in a first right complex. It might prepare you for the possible disappointment. Whatever your situation, may the force be with you.

"Animal Sounds"; "Condiments"; and finally, "Your Ass or a Hole in the Ground". Mr. Reynolds, unfortunately you're in the lead, so we'll start with you. __Alex Trebek as played by Will Ferrell

Moving Right Along

What a month April was. As of this morning the Cocoa Beach MLS is showing 67 MLS-listed condos and townhomes and seven single family homes closed in April in Cocoa Beach and Cape Canaveral. Only one of the 67 condo sales was a short sale. Eleven were foreclosures. Two of the seven single family homes were short sales and none were foreclosures. That puts the percentage of closed distressed sales in April at 19%. Only 8% (30 properties) of the remaining for sale inventory of 353 properties is distressed (short or foreclosed).

Higher priced properties have been moving with two units selling at the oceanfront Meridian for $685,000 and $725,000. Two units sold at Solana Shores for $425,000 and $455,000. Two other $400,000+ sales closed at Constellation and Harbor Club. Several other complexes had multiple sales in the month. They included the oceanfront Ambassador Shores in south Cocoa Beach, Harbor Isles, Cocoa Beach Club, Ocean Oaks, Stonewood, Spanish Main, The Constellation, Diplomat and the riverfront Treasure Island Club.

One direct ocean home sold in south Cocoa Beach for $1.24 MM. Only one of the 7 sold homes was not waterfront. Riverfront and canal homes sold in a range from $510,000 for a totally remodeled beauty in Snug Harbor to $230,000 for a handyman special on Riverview off 4th Street South.

Competition for good properties remains high. If you plan on getting a mortgage to purchase a property it will serve you well to get the pre-approval taken care of before looking at properties. Any offer contingent upon a mortgage is going to require a pre-approval letter. If you plan to pay cash, you will have to prove that you have the funds to close the deal. Either a letter from your banker stating that you have the liquid funds sufficient to close or an account statement showing sufficient funds will work. Get these items taken care of before offering so that negotiations can move quickly. Also, be prepared to offer quickly if you find a property you like as there are probably others looking for the same thing. Speed and preparation are being rewarded. Lowball offers are not. The days of buying below market value, for the most part, have passed.

"Other prohibitions from the beach ranger ordinance remain unchanged, including bans on drunken swimming, mobile DJ booths, campfires, high-volume drinking devices and leaping off the Cocoa Beach Pier."  Cocoa Beach City Commission

From the Trenches, April Halfway

After blowing the doors off in March, the property market in Cocoa Beach and Cape Canaveral continues at a blistering pace in April. As of tax day yesterday 32 condos and townhomes had closed in the two towns according to the Cocoa Beach MLS. Of those 32 not a single one was a short sale. Three were foreclosures, all under $80,000. Almost half of those sold, 14 units, sold in less than 30 days on the market. There were multiple offers on several.

The high end of the range continues to be strong with two units closing at the oceanfront Meridian for $725,000 and $685,000. A 3rd floor direct ocean unit at the Constellation in south Cocoa Beach closed for $459,900. A 4th floor direct ocean Spanish Main weekly rental 3/2 closed for $323,000. Other weekly rental units closing included two 2 bedroom units at Cocoa Beach Club for $195,000 and $200,000, a Diplomat 3rd floor direct 2/2 that sold for $198,500 and a Royal Mansion first floor 1/1 that sold for $110,000.

In other oceanfront buildings a Marko Villas top floor 3/2 and a Sea Oats 2/2, 2nd floor direct closed for $287,500 and $255,000 respectively. A ground floor Windrush direct ocean NE corner 3/2 with 1623 square feet and garage sold for $193,000. A fully furnished 3rd floor south facing Ocean Oaks 1 bedroom 1.5 bath with garage sold for $175,000. Another one bedroom unit, this one a nicely remodeled 5th floor at Ambassador Shores in south Cocoa Beach closed for $164,000. No garage. A nicely remodeled NW corner facing Beach Villas 1/1 with a nice ocean view in south Cocoa Beach closed for $92,000.

A newer Harbor Isles lakefront 3/2 with 1401 square feet and two garages sold for $152,500. A remodeled top floor corner Treasure Island Club sold for $250,000 after 17 days on market. Three bedrooms two baths, 1827 square feet and open parking.

There were also sales in Rock Pointe, The Saturn, Villages of Seaport, Bayside, Ocean Woods and Atlantique among others. The trend remains the same; fewer days on market, lower inventory, higher percentage of asking price realized and multiple offers for the good ones. As always, cash offers are better received than those with financing contingencies.

I have been and am currently involved in short sales in complexes with first right of refusal. This is a tricky situation. The exact procedure varies but owners in a first right condo complex have the right to take a contract away from an outside buyer and buy it themselves at exactly the same terms as the original contract. This first right offering usually happens as soon as a seller accepts a contract. With a short sale, the seller signs an offer not knowing whether the bank will actually accept the offer. If it is put out to the owners before sending to the bank, an owner exercising their first right might find themselves in a situation with the bank asking for more than the contract. Should that owner accept the bank's counter, in some situations that new contract would have to be put out for first right again.

An even bigger problem involves transfer of short sale approval to a new buyer. If a listing agent doesn't put the contract our for first right until short sale approval is received from the bank, the bank may refuse to allow a new buyer to substituted for the original buyer. In this situation, the first right negotiations with the lender have to start over at square one. I am involved in exactly this situation right now and it is bordering on insanity with all involved losing. I'll cough up the details in a future post after the smoke has cleared.

I've forgotten how to worry
And I don't know how to run
Against the odds I realize
This struggle could be fun!

          __________The Clash

Meet the Buyers

Who's buying in Cocoa Beach these days? The media would have you believe that foreign buyers are buying sizable amounts of property in Florida. While that may be true elsewhere in the state, it's never been true here. Our buyers are, surprise, overwhelmingly Floridians. I looked at the 25 most recently recorded sales on the property appraiser's site which today includes sales between Feb. 21, 2013 and March 20, 2013. As is usually the case, most of those 25 buyers of property in Cocoa Beach last month, six, already live in Brevard County and are buying for reasons other than primary residence. Another five, current residence location unknown, bought for primary residence. Of the remaining buyers, three live elsewhere in Florida and there were two each from Canada and Colorado. Another six were from eastern seaboard states with a last lone buyer from Michigan. Welcome to all our new neighbors.

"“Without music, life would be a mistake." ___Friedrich Nietzsche

Reviewing March 2013

March 2013 was a blockbuster month for residential property sales in Cocoa Beach and Cape Canaveral. Monthly condo sales of 71 units in the two cities tied the highest month since 72 units sold in March 2006. In addition to the 71 condos there were 13 single family home sales. Of the 84 closed sales, 22% were distressed, either short sales or foreclosures. Of the remaining 355 properties for sale, 8.5% are distressed.

Twenty six of the condos sold were in oceanfront complexes with 17 of those in direct ocean buildings. Ten of the closed condos were in riverfront complexes. The highest priced condo sale was a 3rd floor south ocean view Sol y Mar with 3020 square feet that sold for $455,000. There were 13 condo sales for $300,000 or above and 17 for less than $100,000. Three single family homes closed above the $600,000 mark, all riverfront.

The ratio of condos closing with financing is rising with the cash/mortgage ratio for March at 4/3. Our meme of swift action and aggressive offering prices continues to be rewarded. Multiple offers have become the norm again for attractive properties. For buyers wanting a specific property, do not let the dreaded multiple offer scenario deter you. I know it's common to think the seller and their agent are playing games but that fear is just background noise in the grand scheme. Proceed with the strongest offer you're comfortable with and hope for the best. Cash, as always, is more attractive to a seller as it removes all the uncertainty of an offer contingent upon a mortgage. A contract contingent upon a mortgage can fail for several reasons including low appraisal or condo association issues. Issues that underwriters frown upon can include low reserves, not enough cash in the association's accounts to cover insurance deductibles, unacceptable ratios of investor owners and too many delinquent owners to name a few. Then there is the all-too-common occurrence of the lender just not having it all together by scheduled closing date.

All the moving parts of a mortgage conspire to delay or kill the closing. Early in the process there is required documentation from the borrower and the association, then the appraisal and underwriting. A delay of any of these will domino the delay down the line. If you're getting a mortgage it is vital to deliver requested documentation on time and prudent to ask your lender if everything is on track. It is not uncommon to close exactly on time but it is unfortunately not uncommon to have to request an extension because the loan did not receive final approval in time to hit the contract closing date. Sellers should be asking their agent to monitor the buyer's loan progress.

The first big wave of departing snowbirds has taken flight and the flock has been reported moving slowly northward through upper Florida and Georgia. Their places in the sun have been partially filled by wave two of spring breakers who will be gone next week. They will be replaced by the last and smallest wave of out-of-schoolers who will arrive to a mostly deserted town and beach. The third week in April Cocoa Beach will officially roll up the sidewalks and turn off all traffic signals. Restaurants will cut menu prices in half and golfers will be paid $10 per nine holes to keep the golf course in use. The ocean water temp will jump to eighty degrees in just a couple of days and residents will have to start raking jumbo shrimp off the sand every morning before taking the first swim of the day. We don't complain as this just a part of the drudgery of small beach town living post season.

"If you're offered a seat on a rocket ship,

you don't ask what seat. You just get on."

_____________________Eric Schmidt

Balcony collapse Villa Verde South Cocoa Beach

4th floor NE balcony collapsed this afternoon 4/1/2013

It just folded onto the 3rd floor balcony

Early reports say no injuries

March Madness

Easter week. It's the busiest week of the year in Cocoa Beach. We still have our snowbirds who have been here for the entire season, spring breakers, families with children on spring break, high school and college baseball teams and families and the random couple escaping the deep freeze up north for a few days. Two more weeks and it will all be very different. School will have resumed and the snowbirds will be well into their annual northward migration. No tee times will be necessary at the Cocoa Beach Country Club and rates will be halved. An outside table on the deck at Coconuts on a beautiful sunny day will be there for the taking with no wait. And waiting for more than one traffic light change anywhere in Cocoa Beach will once again be a thing of the past.

Sales so far in March have been very strong in Cocoa Beach and Cape Canaveral with 52 closed condos and townhomes and nine sold single family homes. Of the closed sales 28% were either short sales or foreclosures. This is a reflection of the contracts in the system that finally worked their way to closing and not indicative of the currently for sale inventory. Of the 370 total residential properties currently for sale on the Cocoa Beach and Cape Canaveral MLS only 8% are short or foreclosed. The few new foreclosure listings that are hitting the market are attracting multiple offers the first few days in most cases. Only three of the 12 closed foreclosures this month sold for less than asking price. A couple closed for more than 10% above asking price.

If you're still looking and hoping to steal something, you will likely be disappointed. That said, current selling prices are so far below recent years that buyers shouldn't be deterred by having missed the exact market bottom. As always, know the current value of the properties you're considering and be realistic and speedy with your offers. In a few years it is very likely that we'll look back at 2013 as having been a great opportunity.

"Spring is nature's way of saying, Let's party." __Robin Williams

Happy 8th Anniversary

Beach restoration south Cocoa beach 2005

I just realized that this month marks the 8 year anniversary of this little real estate blog. In the 8 years I've been commenting on our market I've written 389 posts and angered scores of listing agents, developers and other market participants. Those same not universally loved comments have also initiated contact from hedge funds, banks, troubled developers and various members of the media. Not one of them realized the oracle was wearing flip flops until the first meeting. Hey. Whatcha gonna do? My shining moment of the last eight years, however, has to be the time I was accused straight-faced by a local lender as being the reason via this blog for the market crash. I may not have crashed the market but I will take credit for torpedoing more than one deal. All this because I write honestly about what I see happening in the Cocoa Beach real estate market. Expect more of the same, hopefully for at least another eight.

What's changed since then? When I began writing in March 2005 the market was poised for a meltdown but it wasn't apparent yet. We had never heard of short sales and there were zero foreclosures for sale in the two cities. There were 200 new condos either under construction or about to break ground just in the 3/4 mile stretch from Patrick Air Force Base to 18th Street South. It was to be a disaster for all of them except the one building that was never built, Cocoa Cabanas. They are still threatening to build, by the way. Magnolia Bay was set to break ground the following month and the announced 77 units were offered pre-construction starting at $549,900. Many of the pre-construction buyers eventually walked away from their 10% deposits but they lost less than those who went ahead and closed with an instant six figure loss. The fourth building was never built. It was a story to be repeated at all the other new buildings in the once-sleepy southern stretch of Cocoa Beach. Another boondoggle soon to be announced was the Enclave between 3rd and 4th Street South with an original plan of 24 zero lot line single family homes starting at a million dollars. Only 12 were built and several of those eventually sold for less than a half million. For the record, it was true then and as is still true today, no non-waterfront home has sold in Cocoa Beach for even close to a million dollars. For anyone to think they could sell, not one, but 24 for more than a million bucks seems incomprehensible. Those were heady, optimistic and greedy times.

At the same time in March 2005 pre-construction buyers were flipping contracts at Portside Villas for 5 to 7 times their investment. Similar, although not quite as lucrative, activity was happening at Solana on the River, Mystic Vistas, Majestic Bay and Puerto del Rio among others. The coming months were to see tens of millions in evaporated money for those unfortunate enough to be among the buyers of the flipped contracts or those who closed on those contracts rather than flip for a profit. Prices of individual units in some complexes eventually sold for a quarter of the number they were bringing in 2005, e.g., Perlas del Mar and Sea Spray Townhomes.

In early March 2005 the national average 30 year fixed rate mortgage was 5.77% and climbing and scrutiny of the borrower and the property was practically non-existent. Rates topped 6% by month's end. Inventory was still relatively low with around 400 condo units listed for sale in the Cocoa Beach and Cape Canaveral MLS and less than 45 single family homes. The condo inventory was top heavy with over 110 units asking over a half million. This  warning sign was ignored by almost all market participants. Inventory was about to blow up with total number of condos for sale almost tripling in a year's time as prices tumbled.

 Things have changed. MLS condo inventory is at 317 total units for sale this morning. Magnolia Bay and most of the other once-troubled complexes are on solid footing with most or all units sold. (There are a couple of exceptions in south Cocoa Beach.) The national average for a 30 year fixed rate mortgage  is 3.52%. Scrutiny of borrowers and the collateral property is now as invasive and thorough as a prostate exam. The Space Shuttle is no longer flying and Kelly Slater has been world champion five more times since that first blog post. The downtown sidewalks that were concrete in 2005 are now pavers and rowdy beach-goers are more likely to be accosted by a fired up old dude on a power trip in a Beach Ranger shirt than a cop. The locals on the deck at the Beach Shack have not noticed any change at all. Through it all, Cocoa Beach is still my pick as the best little beach town in Florida.


"I always wanted to be somebody, but now I realize I should have been more specific." ___Lily Tomlin