Saturday, October 30, 2021

Ghost Houses

Typical October beach crowd in south Cocoa Beach

Yesterday, 2021 became the busiest year for condo sales in Cocoa Beach and Cape Canaveral since 2005. The Cocoa Beach MLS is reporting 740 sold condo and townhome units in our two cities since January 1. Somehow, the monthly sales average (74 units) has exceeded the inventory almost the entire time (65 units for sale this morning). In addition to record numbers of sales, prices have been in record territory all year and continue to steadily climb. There have been 177 condo units closed for over $300 per square foot with 36 of those selling for more than $400 a foot. Despite the high prices on many properties there are a few units selling for less than their price at the peak of market mania in 2005. 

There have been 145 single family homes closed in our two cities so far this year, 27 of them over a million dollars. Among these 145 sold homes are seven million-dollar houses that don't exist but have been reported as closed in the MLS. They are supposed to be on a riverfront parcel in south Cocoa Beach but so far there are only a few piles of dirt where some of these ghost houses closed six months ago. There are 24 MLS-listed houses for sale this morning in Cocoa Beach and Cape Canaveral including seven more of the previously mentioned ghost houses offered as pre-construction. The listings don't mention whether or not a buyer will be expected to close before the houses are built. 

Hope everyone is enjoying the cooler weather. The highest predicted temperature for Cocoa Beach in the next ten days is 79. Hurricane season officially lasts through November but if we make it to the end of October without a hit, I let myself cautiously begin to relax. Work on the new Surf oceanfront condo building in downtown Cocoa Beach is moving along at a brisk pace. I'm still hoping that the cylindrical cell tower by the new police station will be decorated as a rocket but so far nothing. In case anyone's wondering, there are 55 days until Christmas. Happy Holidays.

“To be wealthy and honored in an unjust society is a disgrace.” __Confucius

Monday, October 18, 2021

Going Up - Lucy and Condo Fees

Lucy ascends into the clouds pre-dawn last week on a 12 year mission to explore the Trojan asteroids.

The concept of condominium ownership began in Florida in 1963 and in the next 18 years over a half million units were built. Those units are now at least 40 years old and represent 38% of the over 1.5 million units currently existing in the state. After the deadly collapse of Champlain Towers South in Surfside in June this year, the Florida Bar assembled a task force to review Florida Condominium law related to management, maintenance and inspection and to determine if changes or additions to current law could prevent or minimize the likelihood of a similar tragedy. The Task Force has completed it's review and has drafted recommendations for the Governor and Florida Legislature. Their recommendations, if adopted into law will affect all existing Florida condominiums.

After reading the report, here are some of my big takeaways. These are my interpretations and may not be exactly as intended by the writers of the report but I think I'm close. 

Florida BAR Task Force Recommendations

Structural Inspections: Requiring a structural and life-safety inspection by a structural engineer or architect by December 31, 2024 for all 3-story plus buildings older than five years and every five years thereafter. Miami/Dade and Broward Counties currently require an inspection and structural recertification for buildings by the time they're 40 years old. Boards will be required to inform owners of the building/s' condition after inspection. As it currently stands Boards are not required to share building issues with the owners and, in my experience, some Boards actively discourage discussions of issues to preclude those appearing in meeting minutes which could discourage prospective buyers. The report also recommends a path for owners to engage the State should a Board not perform it's duties to inspect and maintain.

Special Assessments: Voiding any limitations in the condo docs that limits the Board's ability to levy special assessments or to borrow money to perform repairs including requiring unit owner approval or voting to perform those repairs. This means that unit owners can't vote down special assessments they don't want to pay. Also, establishing a source of long term loans for owners who may not be able to afford a large special assessment.

Reserves: Establishing a baseline for reserves. Currently a Florida condominium association may elect to have zero reserves and, instead, levy special assessments to cover maintenance as needed. Most associations in our area have some level of reserves but very few have 100% funded reserves and even those that do rarely have funds specified for concrete repairs included. The Task Force recommendations are for at least 50% reserves for previously mandatory items and, included for the first time, building components with greater than 40 year life such as concrete, the whopper expense for any coastal high-rise building.

Local Government: Establishing some responsibility of local government to be involved in, or oversight of, the inspection process.

Insurance: The recommendations are vague here but the practice of under-insuring and using very high deductibles needs to be changed.

Summary - More regulation of condos is required to ensure public safety. That regulation will include building inspections (by both public and private sources), more frequent maintenance, higher reserves with newly included reserve items and better insurance coverage among other things. The impact to unit owners will be reflected in higher monthly fees to cover these new expenses. The impact will be felt least in well-maintained buildings with good reserves but associations with low monthly fees and deferred maintenance are about to become much more expensive for their owners. This is without considering insurance premium increases that may result from reconsidered risk in older Florida condo buildings that has nothing to do with the Task Force.

As a prospective buyer of a unit in an older condominium I would proceed with the assumption that the monthly fee will be increasing substantially over the next three years and that concrete work, if obviously needed, will probably be happening during that period along with a special assessment to pay for same. If I owned a unit in an older building with low reserves and with deferred maintenance I would probably be considering selling. Hey, don't shoot the messenger. This has been brewing for a long time. Will unit values in these buildings be affected? Absolutely, but they will almost certainly continue to go up until the impact is widely known. There may be a considerable period of continued appreciation before the piper demands payment. Feeling lucky? Well, do you?

Here is the entire Task Force report for those so inclined.

"I missed it in 96 and I'm not gonna miss it again." Ben Gravy referring to the approaching Hurricane Larry swell last month

Thursday, October 14, 2021

We Had Our Offer Accepted. Now What?

Masked bandit at the Cocoa Beach Country Club.

This is an excerpt from a post five years ago. Those who haven't been involved in a Florida real estate transaction often don't know what to expect nor who pays for what. Here's a simplification of the basics. As always, the contract spells out the exact responsibilities for the parties involved. It is entirely possible to negotiate to have the opposite party pay for an item that is not customarily paid by their side.

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A real estate contract is considered executed when all parties have finished signing. After that, the next step is to send the file to the closing agent which in Florida is usually a title company or, sometimes, an attorney's office that is also a title company. The title company then does the title search, co-ordinates with the buyer's lender if a mortgage is involved, determines tax liabilities and gets an estoppel letter from the association if the property is a condo. They then pull all this together and generate a settlement statement with exact numbers in enough time for the buyers to wire their funds for arrival by day of closing and then have all parties sign their respective documents (couriered or emailed to parties who will not be attending actual closing), disburse funds after closing and record the relevant documents. It's a complicated and under-appreciated job. The majority of closers I work with are legit rock stars at the process. I often think of them when I'm in one of those closings that has run past an hour and the closer is slowly reading every document before sliding it over for signatures. I see it like paper route math. As a paper boy if I've got 100 papers to deliver and can throw four a minute from my speeding bike, I can do my route in 25 minutes. Slow my pace down by just 21 seconds per paper or stop for  a couple of short discussions with customers and that same route takes an hour. A closer who can only do one signature page per minute is going to take at least an hour to do a 60 page closing. There are stars who can do a sixty page closing in 15 minutes. You know who you are and I appreciate you more than I can express.

Title insurance rates tend to be very close among the different companies and government charges are identical but the settlement and other fees paid to the title company can vary by several hundred dollars. In my experience, the slower and less efficient the title company, the higher these additional fees. Makes sense. A closer who can only close two or three deals a day needs to charge more to make up for inefficiency.

In Florida the seller typically selects the title company since they are the ones paying (usually) for the buyer's owner's policy. If the seller doesn't have a preference, their listing agent will suggest a title company that's, hopefully, conveniently located and good at what they do. Sometimes they are neither. I wish it were different because the difference in closing agent can be the difference in whether a transaction closes on time or actually closes at all. Since the buyer has very little influence in the selection I would encourage listing agents to recommend title companies that are good at what they do and to please use one somewhat close to the property and/or principals. It is a disservice to the seller and buyer of a Cocoa Beach condo when the listing agent selects a title company in Palm Bay because it's convenient to her office. Likewise for continuing to use a company that wastes everyone's time with closings that last way too long. I'm thinking specifically about a closing last month attended by nine people that took an hour and a half for no good reason. There were times when I expected someone to poke the closer to see if she was still awake. For the record, this was at an attorney's office and not a title company. 

On that subject, listing agents, please stop insisting that the buyer's escrow deposit be held in an attorney's or title company's escrow account. By doing that you are depriving your client of the free dispute resolution offered by DBPR should that be necessary and ensuring that your client will have to waste money on an attorney to recover a rightfully withheld deposit. All parties to Florida real estate transactions are better served by having escrow deposits held in a Florida real estate broker's escrow account. A buyer's agent who offers to hold the deposit in their broker's escrow account is doing everyone involved a favor. Any listing agent who insists otherwise has either forgotten or is knowingly ignoring one of the most important parts of her required licensing education and is exposing her seller client to unnecessary risk. 

The scent of mullet has been strong at my office two blocks from the ocean every morning this week as millions of these fish stream southward in the surf on their annual migration. The dense schools are being shadowed by predators; snook, mackerel, ladyfish, bluefish, tarpon and sharks among others. It is the best time of year for surf fishing but like many years, long-period storm swells this year are making for challenging conditions. The chance of landing a legal snook makes the trouble worth it. Good luck to all the beach fisherpeople.

"“A theory may be so rich in descriptive possibilities that it can be made to fit any data.” ________Phillip Johnson-Laird