Friday, August 21, 2020

Squalls Out on the Gulf Stream

It is interesting that the Miami condo market is experiencing an over-supply problem at the same time that Cocoa Beach languishes with record low inventory. While downtown Miami has a 30 month supply of units, Cocoa Beach currently has about a two month supply. Conditions that allowed Miami to overbuild do not exist in Cocoa Beach. First of all our restrictive height limit means even a four story building like the new Surf condo building downtown needs to win a variance before building. Add strict density limits and the likelihood of an oversupply in Cocoa Beach becomes a near impossibility, at least from the addition of new units to the market. Absent some macro event that would have hundreds of existing condo owners putting their units on the market simultaneously I think it's safe to assume that our condo market will always suffer from short supply. Conduct your search and negotiations accordingly.

As of this morning there are a total of 151 condo and townhome units for sale in Cocoa Beach and Cape Canaveral as reported by the Cocoa Beach MLS. Fifty four units have gone under contract since August 1 meaning the current supply will be exhausted in 59 days if that sales rate continues. About a third of those were asking $400,000 or more and a third were asking $200,000 or less. That sales rate is appreciably higher than in recent months. 

Seven direct ocean units have closed so far this month. The majority closed at prices that were in the mid to high $200s per square foot. Units that allow short term rentals continue to command a significant premium with one nicely remodeled upper floor, corner unit at Canaveral Towers bringing over $400 per foot despite having no garage. Looking through the current inventory I can find 29 that are asking over $300 per square foot, all but a handful in serious lala-land with their expectations. About a quarter of the current inventory has been listed for over six months, a sure sign of overpricing in this tight market. Consider that almost half the units closed so far this month were on the market less than 30 days.

The tropics are heating up and we expect to have two storms in the Gulf of Mexico at the same time next week. Cocoa Beach looks to be spared this time from these minimal storms but the season is young. If you're new to the area, now is the time to have your plan in place for protecting your property should a strong storm threaten us and have contingency plans if evacuation becomes necessary. 

Agents who have a closing next week need to get their buyers' insurance binder today as by Monday we will have a named storm inside the "box" and the insurance companies will not bind new policies while a named storm is in the box. You're welcome.


"He's the one/Who likes all our pretty songs/And he likes to sing along/And he likes to shoot his gun/But he knows not what it means." __Kurt Cobain

Wednesday, August 12, 2020

The Inspector Said...

This is beginning to feel like my encore song. Just a few posts back I had this to say:

A buyer who makes an offer already intending to renegotiate the price after inspections has a very tall first hurdle. It's not unreasonable to renegotiate if a hidden defect is found but planning to renegotiate later for obvious defects is not a good strategy. It's a rare seller that's going to consider a price concession for something that was plainly visible or disclosed before the offer. The offer price should reflect all visible defects. Hidden defects like a leaking swimming pool or failed AC system justify asking for concessions after their discovery. Speaking of AC systems, unless the exterior AC unit is brand new it's going to be rusted and showing signs of age. This is the beach and everything is rusty. Exterior AC compressor units typically last from five to ten years on the beach depending on where the unit is installed (ground or roof) so asking for a price concession for a functioning unit showing wear is not reasonable.

Renegotiating a contract after inspections is a common occurrence with a wide spectrum of outcomes, cancellation of the contract among them. A buyer should expect a reasonable seller to make concessions for hidden defects found during inspections. As noted above, being the beach with a salty environment, AC units are at the top of the list for trouble items found during inspections. Most condo buildings of more than two stories will have AC compressor units installed on the roof. The condition of this unit can't be known during a typical condo showing unless the seller disclosed its condition. Inspections can often reveal a unit that is barely holding together after years in the salt air and is poised to fail. Renegotiating the contract price or asking for a credit from the seller is reasonable in this situation. Asking a seller to replace a functioning unit in apparent good condition that is showing some rust or signs of age is usually not. Inspectors will often note a unit as "nearing the end of its useful life" or "consider replacement" or other language that can spook a buyer who hasn't seen an inspection report before. I have never seen a report that didn't mention "further evaluation" at least once about something. I have seen buyers walk away from a contract on a property that perfectly met their expectations and at a fair price because they wanted unrealistic concessions related to inspection report language. It is unrealistic to expect brand new anything in a used property unless the seller advertised something as brand new or unless the existing appliance or system is not functioning as designed or is obviously one breath away from failure. Used properties have used systems and appliances and a buyer's initial offer should take that fact into consideration. Offering high intending to whittle down the contract price post inspection is a recipe for disappointment. Buyers would be well-advised to expect inspection reports on used properties to reveal issues related to the age of the property and to keep that in mind during initial negotiations. They should also keep in mind their alternative targets, if any, should they decide to cancel. Low inventory does not favor buyers.

There are 146 existing MLS-listed condo and townhome units for sale this morning in Cocoa Beach and Cape Canaveral. There are another 13 offered as pre-construction reservations most of them in the new oceanfront Surf in downtown Cocoa Beach. Twenty seven units in CB and CC have accepted contracts since Aug 1 with a median price of about $300,000.

Single family home inventory is in similar depleted condition with but 42 existing homes offered for sale in our two cities. Both these inventory numbers, condos and homes, are at all-time lows and showing no signs of recovery. There will never be a large number of new units added to our inventory in Cocoa Beach as there is no vacant land upon which to build. Like the new Surf building downtown, for any new buildings to be built, with very few exceptions, something old has to be torn down. Cocoa Beach, at about 70% water, has a higher water percentage than the average human body. The remaining 30% has been almost entirely developed. 

Buyers need to keep this low inventory in mind when looking and offering. The more stringent one's must-have list the more crucial it becomes to shoot for success when offering. This is not the time to offer low and work up to fair. If the perfect property becomes available now is the time to be aggressive. Considering the pace of new listings, it could be a long time for another acceptable listing to appear and by that time, prices are likely to have increased. If you hope to buy a property in this market at this point in history, be bold and quick with your offers or be prepared to never buy. I don't like it either but, as I heard a high-ranking figure recently say, it is what it is. Know that if you do have to overpay for your perfect beach getaway, the tight inventory and vigorous demand will likely push the value up to your purchase price and beyond in short order. 

"The very powerful and the very stupid have one thing in common. They don't alter their views to fit the facts. They alter the facts to fit their views." __the Doctor, Doctor Who