Saturday, July 30, 2011

Not really for sale

Reasons for fishing numbers 8 and 9, above and below. Grill not necessary.

There are any number of properties advertised for sale that are not really for sale. There are owners in situations who may need to demonstrate to someone like a bank, a relative or a court, that they are trying to sell a property when, in fact, they have no intention of selling. In most cases these kinds of "not really for sale" properties are overpriced to discourage actual inquiries. Another type of "NRFS" property is one with multiple owners with one owner unwilling to sell. That owner's unwillingness to sell may not be known to the others until an offer actually arrives. The list includes relatives, in-laws and ex-spouses. They can all have the power to prevent a sale.

There are other listed properties that aren't really for sale without that fact being known to any of the participants, like the short sale listings that have no chance of being approved because the deficiency is too big to fly or the seller can't or won't provide satisfactory documentation to the bank. They are on the market but can't be purchased. Then there are sellers who think they want to sell but have an unrealistic idea of their property's worth. Their idea of value may be based on a neighbor's sale in the past, coffee shop talk, misinformation from their listing agent or just fantasy. Whatever the case, the condo owned by the guy who "will not sell for less than X dollars" is not for sale if X dollars is much above market value.

A decent portion of our MLS inventory matches one of the above descriptions of "not really for sale", most in the unrealistic expectations category. Since there is no good way to determine which listings fit one of these categories I have used the total Cocoa Beach and Cape Canaveral MLS inventory numbers to calculate our burn rate. Understand that, since there is an unknown number of "NRFS" properties included in the inventory, the months supply numbers are actually less than the numbers below.

First: Condo and townhouse MLS inventory. Using the most recent three months closed sales compared to today's total inventory we find that we have just a six month supply of units priced below $200,000, our most active market segment. For units priced between $200,000 and $400,000 we have a 13 month supply. Once we get over $500,000, we have enough units currently for sale to last for 42 months.

Total single family home inventory is 80 properties. The most active price segment is under $200,000. Today's inventory in that price segment will be gone at the current sales rate by mid-October. Between $200,000 and $400,000 we have a 6 month supply, enough to last until the first of February. There are enough houses asking over a half million to last for 19 months without factoring in the "NRFS" listings.

If you're looking in the active market segments you are probably already aware of the dearth of decent listings. The burn rate tells us that this is not getting any better. A good strategy at this point is to have your wants and needs well defined and to be aware of the competition for good properties. Good ones don't last long. We listed a really nice Snug Harbor home in July that was under contract in 5 days and closed in eight. A smoking deal Michelina short sale this past week had three offers on the first day. I've seen several other closed sales in the month of July that qualify for smoking deal status. Good deals are out there for attentive and ready to move buyers. I'll detail the standouts in my next post on the July wrap-up.

"Politics is when you say you are going to do one thing while intending to do another. Then you do neither what you said nor what you intended."
__Saddam Hussein

Thursday, July 21, 2011

Valuations and fuzzy math

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

Sunday, July 17, 2011

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.

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

Saturday, July 09, 2011

2011 halftime report

Perfect surf in south Cocoa Beach.

Once again it's time for the July halftime report; what's selling, what's not and my best guess at where we're likely headed in the second half. We hit the ground running in January with a strong sales pace fueled in part by a large number of distressed sales (foreclosures and short sales). As we moved into spring sales numbers remained high but the proportion of distressed sales began to decrease. Sales began to lag last year's pace in May.

In the first half of 2011 there were 276 closed sales of MLS-listed condos and townhomes in Cocoa Beach and Cape Canaveral compared to 255 last year. There were 8 condo sales over the half-million dollar mark in the first half while 99 of the total sold for less than $100,000. Distressed sales made up exactly one third of the total, 45 foreclosures and 45 short sales. Only eleven of the 90 distressed sales exceeded $200,000 while 50 sold for less than $100,000.

There were 72 single family home sales in the first half, 60 of those in Cocoa Beach. Median price was $240,000 with 19 above $300,000. Thirty three were waterfront. Of the 72 total, 7 were foreclosures and 14 were short sales, or 29% of the total distressed.

Single family home inventory stands at 79 in the two cities with the majority (68) in Cocoa Beach. Over half (42) are waterfront, lowest asking price $239,900. Only five of the 79 are distressed, two foreclosures and three short sales.

Condo and townhome inventory is at 375 units, having been cut in half in just 30 months. Distressed sales make up 16% of the total, 48 short sales and 12 foreclosures. There are 44 listings asking over $500,000 or a 33 month supply at the current sales rate. There are 62 listings under $100,000 or less than a 4 month supply in that market segment.

My interpretation:

Lower numbers of distressed listings and the severely depleted inventory will lead to continued slowing of sales through the second half.

Probable bottoming of condo prices in the lower price ranges because of the supply and demand dynamic.

Continued downward pressure on condo prices in the highest price ranges for the same reason and the fact that many recent purchasers of luxury units are underwater.

With three quarters of current condo sales closing with cash, mortgage rates will continue to be mere background noise. The high rate of cash sales will likely continue based on two factors. One: Mortgages have become increasingly difficult for condos with many mortgage-contingent contracts failing to close. Two: the less obvious factor is the current low yield on savings that has savers looking for alternative tangible investments like property over eroding US dollars.

The absence of three or four Space Shuttle launches a year is going to have some impact on local businesses. Whether that will trickle down to the property market remains to be seen. We've known this was coming since the President announced the end of the program in 2004 so it seems likely that much of the impact to the property market is already baked in. We are still the closest beach to Orlando and the coolest little beach town in Florida, only now without the Space Shuttle. With the last mission in orbit as I write this, the outcome will be evident shortly.

"Prediction is difficult, especially about the future." ____Niels Bohr

Tuesday, July 05, 2011

Shifting dynamics

June property sales in Cocoa Beach and Cape Canaveral began to taper off from the above-average pace of the last year and a half. It was not completely unexpected considering the drastic reduction in inventory in recent months. There were 14 sales of MLS-listed single family homes in June, 12 in Cocoa Beach and 2 in Cape Canaveral. Prices ranged from a high of $480,000 for a three year old 3472 square foot home at Enclave of Cocoa Beach to a low of $60,000 for a small (1209 square feet) frame house in Cape Canaveral.

There were 36 sales of MLS-listed condos and townhomes in June compared to 49 sales in May and 44 in June 2010. Both the lowest and highest sales were foreclosures, $25,000 for a one bedroom Surf n Sun, one block from the ocean in Cocoa Beach and $975,000 for a swank 5152 square foot direct ocean penthouse at Ocean Oasis in downtown Cocoa Beach. Only three condo sales exceeded $255,000 and half were for less than $115,000. Distressed sales made up exactly 25% of the total with four foreclosures and five short sales. Other than the foreclosed Ocean Oasis mentioned above and a Meridian short sale that closed for $615,000, none of the distressed sales exceeded $129,000. Only 8 of the 36 condo purchasers used a mortgage, 78% paid with cash.

Inventory is down to 367 total condos and townhomes this morning in Cocoa Beach and Cape Canaveral. Eleven of those are foreclosures and 47 are short sales which means 16% of the total inventory is distressed. This percentage has retreated significantly in just a few months.

The cobia made a surprise reappearance last Sunday when my fishing partner and I caught eight fish, kept two in the 40 pound range and saw around 70 to 100 fish. They were in 15' to 25' of water on a shoal about five miles offshore and north of the Cape. Good fun and good eating.

"If there's anything that upsets me, it's having people say I'm sensitive." ___Barney Fife