Saturday, January 29, 2011

Short sales as comps

Art by Larry Mayo, Mayo Surfboards.

Are short sales good comparables to establish fair value for non-short sale properties? Not really. The recorded sales price is often understated. Many times a bank will require a contribution at closing from a seller or a promissory note for some or all of the deficit. The amount of either of these is not usually noted in the MLS or in the property tax records when the short sale closes . An interested person or agent looking at recent comparable sold properties may see that Comp A closed for $150,000 and Comp B closed for $160,000 and use these to establish fair value for Property C. No matter that the seller for Comp B paid $10,000 to the lender in lieu of a promissory note or that the seller of Comp A signed a promissory note for $25,000. The effective selling price was $175,000 for A and $170,000 for B but our intrepid researcher only sees that the record shows $150,000 and $160,000. Let's not forget that the write-off and subsequent reduction in taxes for the bank are effectively additional proceeds as well. [But, as pointed out by a couple of readers, shouldn't be used as an adjustment to the price of a compared property as tax implications are not exclusive to short sales.].

Our take-away: If you're looking to purchase don't walk away from the fairly-priced property you want because you demand the same price (as recorded) as the short sale unit down the street. As always, bargain hard but realize that the recorded price of the short sale comp you're using to base value on probably does not reflect the entire amount of proceeds from the sale.

"Institutions will try to preserve the problem for which they are the solution."
-- Clay Shirky

Thursday, January 13, 2011

We have convergence

I mentioned in the year's first post that we would soon see convergence on the graph of yearly sales and inventory of MLS listed condos in Cocoa Beach and Cape Canaveral. What I failed to take into account was that the convergence had already happened if we look at the sales on a monthly basis rather than yearly [extrapolated chart below]. We hit exactly one year's worth of inventory sometime in mid-December. This burn rate has been steadily declining from a high of 25 months supply (all prices) in 2006.

The supply number for luxury (over $500,000) condos has been knocked down even more from a high of over seven years supply to the current less than two years supply based on 2010's sales and today's MLS inventory. Two major factors in this decline was the sellout of Meridian last year and the decline in prices of unsold units pushing many below the half-million dollar mark. Keep in mind that the real number of "for sale" luxury units is understated on the MLS.

So far in 2011 sales have been slow with only 7 closed condos and 2 single family homes. A small 3/2 canal home in good condition on Watts Way in Cocoa Beach closed for $250,000. A remodeled 2152 square foot, 4/2 canal home on a big lot in Snug Harbor with a pool closed as a short sale for $340,000.

In condo sales another Meridian owner has bailed at a loss. This first floor (actually second floor in this building) direct 3/2 unit closed for $545,000 just two and a half years after selling new for $627,000. The original selling broker received a check for $31,350 as this was in the time when the developer was enticing agents with obscene paydays for delivering buyers. You know how I feel about this practice.

A bomb of a deal hit at Crescent Beach Club in south Cocoa Beach when a 4th floor, direct ocean, original condition 3/2 with 1804 square feet and garage sold for $249,000 this week.

Another direct river, 2/2, 2nd floor corner at Cape Shores with open parking closed for $136,000.

At the low end of the price scale a foreclosed small 1/1 unit in the riverfront complex Essex House of Cocoa Beach sold for $28,000.

When two opposite points of view are expressed with equal intensity, the truth does not necessarily lie exactly halfway between them. It is possible for one side to be simply wrong.
____ Richard Dawkins

Sunday, January 09, 2011

December by the numbers

Shrimp boat at sunrise off south Cocoa Beach.

December 2010 was a busy month for real estate sales in Cocoa Beach and Cape Canaveral. Single-family home sales were dominated by low-price properties with only two of seven closed MLS sales exceeding $200,000. The gem of the seven was a beautiful 4 bedroom, 3 bath pool home with 2787 square feet at the end of a cul-de-sac off Minutemen Cswy. on open water overlooking the islands that sold for $630,000.

51 condos closed in December, the most MLS sales in the month of December since before 2004. (My records only go back to 2004.) This strong finish to the year on the back of the lowest inventory in the same seven year period is positive for the 2011 market. Of the 51, twelve were for less than $100,000 and eight were above $300,000. The sweet spot for activity was between $100,000 and $300,000 with over half of all sales landing in that range.

Sales of note included:

Four units in the new Ocean Paradise in south Cocoa Beach at prices between $560,000 and $435,000. These prices represent discounts of 40% and more off the original asking price. All units were 3 bedrooms and slightly over 2000 square feet.

Jaw-dropper of the month and maybe the year was a short sale at Magnolia Bay. A 3/3 corner unit with 2 car garage and 2455 square feet closed for $295,000. This unit sold new in 2007 for $689,900.

Another short sale haircut was a 3rd floor south facing unit in the oceanfront Sol y Mar also in south Cocoa Beach. This gorgeous 5 year old, 4/3 unit with 2 car garage and 3020 square feet sold new in 2005 for $745,000. It closed two weeks ago for $430,000.

A 2nd floor Meridian direct ocean 3/2 that was purchased new just three years ago for $679,900 was sold for $545,000. Not a short sale but considering the dynamics at this complex probably a smart decision by the sellers even though it was a significant loss for them.

A top (5th) floor, north ocean view 3/2 at the 8 year old Artesia of Cape Canaveral. This unit sold new in 2002 for $306,900. It sold in 2005 for $683,000 and then two weeks ago for $410,000.

A remodeled ground floor, direct ocean 3/2 at Royale Towers sold for $215,000. Had 1445 square feet and a 1 car garage.

A remodeled 4th floor direct ocean Sand Dollar 2/2 at Royale Towers of Cocoa Beach sold fully furnished for $270,000. One car garage and 1374 square feet.

Another 4th floor Sand Dollar floor plan 2/2 just north at Windward East closed two weeks earlier for $265,000. Also with a 1 car garage and 1394 square feet.

Just south down the street another direct ocean 2/2 on the 2nd floor sold at Beach Winds of Cocoa Beach. This 1213 square foot unit was partially remodeled, furnished and with a 1 car garage. Closed the last day of the year for $255,500.

A south side ocean view, 4th floor Sea Oats short sale closed for $205,000. This 3/2 unit was in original but OK condition and came with a 1 car garage.

An east side with ocean view Royal Mansion 2/2 closed for $226,000. Furnished, 1058 square feet, but no garage. Weekly rentals allowed.

Third floor direct ocean 1/1 Sand Dunes with 887 square feet and garage closed for $187,500.

One of the rare townhouses in the direct ocean row in front of Mystic Vistas closed for $185,000. This unit had 3 bedrooms, 2.5 baths, 1509 square feet and sold furnished. No garage.

A foreclosed Solana Lakes 2/2 with 1828 square feet and garage closed for $185,000.

A nice canalfront 2nd floor, 2/2 at Beachwalk of Cocoa Beach sold for $185,000. Sold furnished and came with a garage and private boat slip.

An updated direct ocean ground floor 2/2 at Windjammer of Cape Canaveral sold for $180,000. Had 1196 square feet and a garage.

Two more of the 5 year old, bank-owned Mystic Vistas closed for $150,000. Both 3rd floor, one B building and one A bldg. One with 2010 square feet, one with 1994 sf and both with a garage.

A 2 story, south facing 2/1.5 with 1088 square feet in the oceanfront North Triton Arms in downtown Cocoa Beach closed for $147,000. No garage.

A side view 2/1 in the oceanfront Richard Arms just north of the Pier closed for $145,000. 1013 square feet and no garage.

A nice, updated ground floor direct ocean end unit at Canaveral Sands sold for $145,000 as a short sale. One car garage and 1316 square feet. Sold in 2004 for $385,000. Ouch!

Foreclosed top (5th) floor 2/2 direct river Four Seasons w/garage sold for $140,000.

Two 1/1 Royal Mansion weekly rental units closed for $105,000 and $95,000. The math (cost/income) really starts to make sense at these levels.

I'm not going to get into all the lower priced sales (of which there were many) but there were quite a few deals done at very compelling levels for the properties concerned. If you're looking for a smoking deal, they are still out there, just less to choose from. Inventory at all price levels continues to decrease so we are going to have trouble maintaining the same pace of sales as we move into 2011. As the number of distressed sellers dries up I expect to see shift in seller sentiment over what will probably be a surprisingly short period. It will only take a small notch-up in comparable sales to embolden the remaining sellers. They've been hoping for exactly that for a few years now. Couple that with a decade-low inventory and we could see an unexpected firm-up in prices as buyers become concerned that they've missed the bottom and begin to willingly pay a small premium to the last sale. I'm not predicting a substantial or sustained run-up in prices but it seems the conditions are ripe for a decent little bounce. As always, just my opinion. Do your own due diligence and remember that every market is different. I will most certainly be wrong in the specific as the "bottom" only happens once in each complex and floor plan. Those complex-specific bottoms will be spread over months or years but the sentiment shift will likely happen in a narrow time period and I think in our market it will happen this year. This prediction does not include the newer luxury condo complexes. My forecast for continued pain in that market segment still stands.

"Most haystacks don't even have a needle."___Unknown

Friday, January 07, 2011

Ms. Really Really Really Bad Listing Agent

To the same music as this, Mr. Really Really Really Bad Dancer.

Bud Light presents... Real Agents of Genius
(real american Einsteins)
Today we salute you, Ms. really, really, really bad listing agent
(leave a message, I'll get right back, wink-wink )
On any given day, some optimistic seller wakes up thinking their property might sell today
(doesn't know your voice mailbox is full again)
Hey, you've already got the blazer. Why not get into magic and make inquiries disappear.
(ooh yea)
Who's got time to respond to an offer when Real Housewives is doing an all-day marathon.
(buyers are so annoying)
So crack open an ice cold Bud Light oh Empress of incommunicado. Thanks to your overwhelming personal life another pesky buyer has moved on.

This little ditty was inspired by a recent rash of mind-boggling slacking by a handful of listing agents who are too busy to respond to emails or voice mails from buyers attempting to see or purchase their listings. It ranges from agents who never answer their phones (but actually return messages) to agents who don't respond at all or not until days later. If you have a property listed it would be prudent to occasionally call both your agent's cell and his office just to see if the calls are being answered. Especially important are those busy weekend days. When your agent isn't available, your property is not for sale.

As always, there are many really good listing agents who do their jobs well. However, I think a fair number of listing agents are chosen because they are relatives, friends or friends of of friends, not because they are good at what they do. As long as these agents can occasionally get a listing based on acquaintance and not performance they have incentive to continue unchanged. I am reminded of another example of perverse incentive. In Hanoi, under French colonial rule, a program paying people a bounty for each rat pelt handed in was intended to exterminate rats. Instead, it led to the farming of rats. Giving a listing to an agent without researching that agent's record is akin to rat farming. Consequently, the rats abound.

"You want to learn from experience, but you want to learn from other people's experience when you can."
___Warren Buffett

Saturday, January 01, 2011

Happy 1-1-11

Happy New Year, all. The MLS won't be entirely up to date for a few days but it is close enough this first day of 2011 to look back over the year's activity and make a few observations. Total condo sales in Cocoa Beach and Cape Canaveral for the year look to exceed the total for 2006 for the first time since that year and the total was over 15% more than 2009.

Interesting that this happened even as inventory continued the sharp decline that began in 2007. See below. When the red and blue lines converge we are at a one year supply of MLS-listed condos.

Of the reported 493 total condo sales in 2010 (as of this morning) fully 40% were either short sales or foreclosures. Contrast that with the current condo inventory that is only 21% short or foreclosed. It is interesting to note that, of the 110 single-family home sales for 2010, only 25% were short or foreclosures. This is probably directly related to the fact that speculative buying was much more focused on condos during the boom years.

Mortgage rates stayed at historic lows ( below 5%) for most of the year but began a steep climb in late November and are once again approaching 5%.

I'll post a December wrap-up with sales of note and other observations in a few days after the listing offices get around to updating their listings. One prediction for 2011: Considering that condo sales in November and December this year exceeded the numbers for those months in all of the preceding seven years including the boom years of 2004 and 2005, I think we can expect 2011 to be another busy year for property sales in Cocoa Beach and Cape Canaveral.

"if you have to unwrap it, you probably shouldn't eat it."

_____ Bileaf