Sunday, February 20, 2011

The dance

Early morning downtown Cocoa Beach Feb. 19, 2011

Some random observations about real estate buyer/seller interactions from my man on the street perspective.

Real estate transactions are not a zero sum situation where one participant's gain or loss is exactly balanced by the losses or gains of the other participant(s). In real estate deals buyers and sellers often play a game of classic prisoner's dilemma, where, by not co-operating a participant gambles for the maximum gain (best price) by risking the maximum loss (no deal). In the case of a buyer, maximum loss only means not getting this property. Unless it's unique, she can always move on to another similar property. In a seller's case, maximum loss (no deal) means prolonging the sales process. The usual result (at least for the last five years in our market) is a lower price later, sometimes much lower, much later. Sometimes that gamble pays off and another buyer materializes quickly willing to pay more. I said "sometimes" but meant "once in a blue moon".

When offering to purchase anything for sale at a lower price than a seller is asking, it makes sense to have a strategy for success. Every situation is different and offers need to be tailored to the seller and the specific property. In most cases a buyer can't know all of a property seller's motivations and circumstances but enough can be determined from publicly available information to guide a strategy. Offering an arbitrary X% less than the asking price is not a strategy although, in most cases, all offers should be less than the asking. The exceptions are aggressively-priced or unique properties. In that case, trying to squeeze a few bucks off the price may lose the property to a more aggressive buyer. Your buyer's agent should be finding out everything about your target property and seller before you make your offer and should know what the market is saying about that property's value. An active, good buyer's agent will often know more than is publicly available. And, I can't repeat this enough; know what current market value is. Without that knowledge you may overpay or, just as bad, miss out on a good deal.

I see all kinds of seller reactions to offers. Most are hopeful stabs at getting a price above market value or a particular buyer's ability to pay but some are angry, irrational and counterproductive. Buyers understand that every seller wants to get the highest possible price for their property. They also want, or need, to pay the lowest possible price and in most cases are going to offer below market value. Even with these contrary goals, record numbers of buyer/seller pairs are reaching the middle ground and closing sales.

Three "need to know" points for sellers when fielding offers.

Carrying costs until the sale. If your property is costing $2000 a month to hold, waiting a year hoping to get an extra $24,000 doesn't make sense. Selling for less today might yield more than selling later for a higher price. Do the math and quantify the exposure.

Recent comparable sales and current "for sales". Without a significant difference in your property, you are unlikely to find that mythical buyer willing to pay you above the market. If you don't know the recent sold comparable prices, you won't be able to recognize a fair offer if you get one. What your neighbor sold his for two years ago is not a comp nor is the offer you turned down last summer. Cautionary hint: your listing agent might not know market price either and might not care.

Buyer behavior. Know that you're probably going to get some not-serious lowball offers but also know that every offer you get is going to be less than your asking price unless you have stated in your listing that the price is firm "not a penny less". Conversely, unless the buyer has stated that her offer is "take it or leave it", no matter how low, it is an invitation to begin negotiations. Refusing to counter an offer, no matter how crazy you consider it, is not productive. Unless the buyer said "take it or leave it" she is willing to pay more. If you consider her offer crazy, make a crazy counter but keep her engaged. She may be unrealistic but you lose nothing but time if a deal does not materialize. I have seen bad starts evolve into acceptance. Another consequence of refusing to counter an offer is that it sends a dangerous message. That buyer's agent walks away from a no-counter response with the impression that your asking price is firm. Not a smart message to be sending to buyers' agents who probably represent other buyers, one of whom may be willing to pay more.

Having said all that, there are unreasonable participants on both sides of the transaction fence. For every seller clinging to 2008 prices there is an unreasonable buyer who will never pay fair market value for anything. Be careful not to let your interactions with unreasonable players affect your response to the next one who really wants to get the deal done. Understand that it's a dance and put your best foot forward. Paying more or accepting less may, in retrospect, look like a great move. Do your homework and conduct yourself accordingly.

"When you get the chance to sit it out or dance, I hope you dance."
____sung by Lee Ann Womack (written by others)

Saturday, February 19, 2011

What a week it's been

[This is a repost from Today in Cocoa Beach.]

Looking north from south Cocoa Beach. Click photo for larger size.

More of the same is forecast. 10 day prediction below.

And now, check out the ocean temps. Notice the significantly
colder water just north of the Cape. This time of year it's not
unusual to see the surf temp in Cocoa Beach 10 degrees warmer
than in Daytona as this map from yesterday shows. Surf temp
approaching 70 degrees in Cocoa Beach while it is hovering below
60 degrees just around the corner of the Cape. Cobia will be showing
up in numbers any day now.

Saturday, February 12, 2011

Short sale mystery

I was involved in a strange short sale experience this week. A short sale condo that had been listed for about nine months without an offer suddenly got two interested buyers. The listing agent was informed by both buyer's agents that an offer was forthcoming. While preparing the offer, one of the buyer's agents found that the owner of the unit listed in the tax record was different than the owner listed in the MLS. In fact, the owner listed in the tax record was the condo association. The listing agent, when informed of this, expressed shock having no idea of a change in ownership. A hasty call to the sellers of the unit revealed that they were also unaware of any changes. They are over a year behind on condo fees and mortgage payments.

An examination of court records revealed that the condo association's attorney had filed and received a court-issued certificate of title naming the association as owner of record on November 18. The lender holding the note was not named or copied on any of the court filings. After finding out this info the listing agent called the condo association to find out what their intentions were with the unit and how to proceed with a sale. They were unaware that they were now listed as owners of the unit and called the association attorney for clarification. The attorney, who billed the association for six hours at $200 per hour, could not find the file. As of right now, the association is listed as the "owner" of a unit that is collateral for a mortgage of about $50,000 more than the unit would bring on the market. The lender does not yet know that their collateral is no longer in the borrowers' names. The two prospective buyers don't know to whom to present their offers. The association named as owner doesn't know who the first lien holder is or how they are going to negotiate a settlement or even whether a sale is worth the trouble. As owners of the unit I assume that they are now responsible for the monthly condo fees. The previous owners have withdrawn the unit from the MLS. It is not actively for sale at the moment.

I have no idea how this will play out but I will be certain to keep an eye on it and report the outcome here. I don't expect a speedy resolution.

"Confusion now hath made his masterpiece."
__William Shakespeare

Saturday, February 05, 2011

January breakdown

Property sales in Cocoa Beach and Cape Canaveral continued their strong trend in the month of January with 41 MLS listed condos and townhomes closing in the month. There were seven single family homes sold in the month. Of the 48 total residential sales, 23 were either short sales or foreclosures and 20 of the total sales were for less than $100,000. There were only three sales that exceeded $300,000.

The single family home sales ranged from a low of $105,000 for a small, short sale Harbor Heights 3/2 needing work to $340,000 for a remodeled waterfront Snug Harbor 4/2 with big pool that was also a short sale. The single family homes sold for an average of 87% of last asking price. Very important distinction here is that the percentage was of the most recent asking price. Most of these listing had been reduced from their original asking price, several substantially.

Of the 41 condos closed in January, the average selling price was 91.5% of last asking price. Foreclosures commanded an average of 95.5% of asking price with five sales at or above asking price. Short sales averaged 92.3% of last asking price. Lowballers take note: less than half of all sales went for a greater than 10% discount to asking. Expecting to get some arbitrary high discount to asking price is not an effective strategy. As I've said before, what a buyer should be focused on is the eventual selling price not the amount of discount to asking. My Target/Macy's analogy still stands. The $50 jacket at Target that's not on sale is still a better deal than the same jacket at Macy's that is 50% off plus another 25% off at the register if regular price is $200. Do your homework so you'll know what price represents a good deal rather than measuring the deal by the discount to asking price.

Sales of note included:

Another Meridian oceanfront 3/2 closed for $545,000 or $82,000 less than the price it sold for new in 2008.

The denial and basic training haircut awards of the month both go to a Michelina 4th floor south facing 3/3 . This unit sold for $800,000 new in 2006 and was first put on the market less than a year later in 2007 for $899,000. (Somebody wasn't reading this blog.) It finally sold a week ago and five price drops later for $440,000 after being on the market for a total of 1188 days. It was not a short sale. The sellers were kind enough to leave all the furnishings. By the way, during the 1188 days that it was for sale the listing agent never bothered to post any interior photos of the unit in the MLS listing. I may have to come up with another award for that outstanding performance.

An 11th floor NW corner original condition Xanadu sold for $290,000. These big (2343 sq ft) 3/2.5 units have incredible views over the city of Cocoa Beach to the north and west and have a decent view of the ocean around Stonewood next door. Was only on the market for 12 days.

A tremor went through Crescent Beach Club in south Cocoa Beach when a 4th floor direct ocean 3/2 unit closed for $249,000. It needed work but at $249,000 there's plenty of room for renovations. A candidate for deal of the month.

A big 4 year old Bayport of Cape Canaveral sold as a short sale for $240,000. This 2501 square foot villa has 5 bedrooms, 3.5 baths and a 2 car garage. Sold new in 2006 for $476,400.

A nicely remodeled 2/2 direct ocean, corner unit Windjammer in Cape Canaveral sold for $225,000. Had a 1 car garage and 1196 square feet.

A 1222 square foot, 3rd floor direct ocean 2/2 at Canaveral Sands closed for $222,500 after only 30 days on the market. Had a 1 car garage and sold fully furnished. The unit was in mainly original condition.

A north facing 3rd floor Windrush 3/2 sold as a short sale for $207,500. One car garage and 1565 square feet. Last sold in 2003 for $265,000.

A big, top floor direct river 3/2.5 Diamond Bay of Cocoa Beach sold for $199,000. This 2068 square foot unit was only on the market for 34 days. Had a 1 car garage.

A 4th floor Puerto del Rio 3/2 SE corner with good river views and 1 car garage closed for $175,000 only three years after selling for $280,000. Not a short sale.

A furnished, no-view Ola Grande weekly rental 2/2 short sale sold for $165,000.

One of the newer (1999) Villages of Seaport 2/2.5 units with 1110 square feet sold for $130,000 fully furnished. Open parking.

A south facing 4th floor (ocean building) Conquistador short sale 2/2 with 1101 square feet closed for $130,000. No garage, original condition.

A ground floor poolside 2/2 in the oceanfront Sand Pebbles Cape Canaveral sold as a short sale for $125,000. 1058 square feet and private garage.

A 2/2 lakefront, ground floor Harbor Isles Cocoa Beach 2/2 closed for $120,000. 1248 square feet and 1 car private garage.

Another Pebble Cove direct river 2nd floor 3/2 closed for $113,000. How low can direct river, 1344 square feet w/garage get?

Ouch! A foreclosed 5 year old Portside Villas 3/2, 2nd floor corner goes for $95,000 after just 10 days on the market.

Closing at prices below that Portside sale were another 18 units at prices between $17,000 for a tiny Jeannie by the Sea 1/1 to $87,000 for a 2/2 Rio Vista.

"A common mistake that people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools."
__Douglas Adams