Sunday, October 29, 2023

A Sad Listing Tale

When I pulled stats for my previous post the number of condo listings that were older than six months (25) got me thinking about the stories and reasons behind their failure to sell in a reasonable period of time. The first thing that comes to mind is that the units are overpriced. Sometimes reasonably priced listings can take longer to sell because access to the property is limited or there are other issues that have added friction to the selling process. Then there are properties that, because of location, lack of amenities or with building maintenance issues, attract a smaller pool of buyers than the crowd looking for a direct ocean unit in a well maintained building with a good view. Overprice one of these less desirable units and you have a good recipe for a lingering listing. Below is a timeline of one of the older listings on the MLS. It has been for sale for over a year.

The unit is a typical 2/2 unit in a popular oceanfront complex with less than 1300 square feet and a garage. It is ground floor, south-facing and has been remodeled. The furnishings are noted as "negotiable". The buyer's broker compensation being offered is at the lower end of the scale and the initial asking price of $549,000 was slightly above the recent selling prices of similar units in the same building on higher floors with an ocean view. The sellers bought the unit three years ago for $320,000, already remodeled and with the same furniture that is now listed as "negotiable".

The listing agent uploaded over fifty high-quality photos and a video tour and had an open house the first week on the market. He had a second open house a week later and dropped the price by $10K the following week. The open houses and price drops continued until today when there have been 18 total price reductions and 17 open houses. The asking price today is $112,000 less than the initial asking price. 

When the unit was first listed there were 115 total condos and townhome units for sale in Cocoa Beach and Cape Canaveral. Today a year later, there are 226. Why hasn't this unit sold?

This one looks like a combo of several things. We certainly can't fault the listing agent. He's held a record 17 open houses, provided good photos and a video tour and has coded everything correctly in the MLS. I mention the MLS because we still have listings that are missing condo names which might hinder a buyer's search who is looking for a unit in a particular building, especially one who has an MLS auto-alert for new listings in specific complexes.

This unit, being ground floor with no ocean view is dealing with a smaller audience of buyers than are units with ocean views. The initial asking price was above recent selling prices of similar units in the same building on higher floors with good ocean views. The price reductions lagged declining selling prices for the entire trip to where we are today. Not including the same furniture that came with the unit is a silly move that only adds friction to the process. Whether the low incentive to the buyer's agent has had any effect would only be known to those agents affected, if any. 

Despite all other factors I firmly believe this unit would have sold quickly if the original asking price had been $50,000 less than it was. That would still be $62,000 higher than today's asking price. After about the third or fourth open house and price reduction you would think a reasonable seller would realize that a drastic price move was necessary. Everything about this tale suggests that we are not dealing with a reasonable seller here. I don't know if this complex has started their milestone inspection and structural reserve study but if not, our obstinate seller is in for an unpleasant reckoning.

Anyone out there hoping to sell should take this story to heart. Whatever you and your agent think your property is worth, the market will deliver it's judgment which might be different than your expectations. The 'price high and maybe we'll get lucky' strategy might be counter-productive. Lacking other obvious reasons, if your listing is older than a couple of months with no offers, it is likely priced higher than the market thinks it should be. Considering the trend of recent sales, comps from earlier this year may not be a good indicator of what asking price will attract action now. A prudent seller will listen to the market. If all it's delivering is silence, that is a message, too. The market is different than it was earlier this year and higher interest rates are affecting both mortgage-seeking and cash buyers. Listen and adapt if necessary.

"Okay. You have to stop the Q-tip when there's resistance." Chandler to Joey

Saturday, October 21, 2023

I'd Love It If We Made It

The prevailing trends in the Cocoa Beach and Cape Canaveral real estate market are increasing supply and increasing days on market. Half of the condo units on the market have been for sale for over 100 days. Only three of the 24 units closed so far in October were on the market over 100 days. That suggests that the ones that sold were priced fairly and that those older unsold listings are overpriced. It's logical that increasing supply going into the slow season would increase average days on market but widespread optimistic pricing is contributing to the slowed pace of sales. 

Despite high mortgage rates, nine of the 24 sold units so far this month used a mortgage to purchase. The 24 sold were on the market for a median 34 days with a median selling price of $435,000. We've had two units to close in October for over a million dollars, a 5th floor direct ocean unit at Ocean Oasis in downtown Cocoa Beach and a third floor corner at Meridian in north Cocoa Beach. Selling prices were $1.545 MM and $1.477 respectively. Over half (14) of the sold units commanded over $300 per square foot with seven of those over $400/sq ft.

We began the year with an average inventory of around 135 units through March but then began creeping up and hit 164 by mid-June. The supply continued to increase and inventory of condo units this morning is at 225 units. 

Condo fees are going up for the reasons described in my last post. 2023 renewal insurance premiums were high enough to trigger fee increases at several complexes and now the majority are preparing for the results of the new reserve study and projected increases necessary to comply. I've been saying it for a while now but the reality is that condo living in Florida is about to get much more expensive. There is no reason to believe that prices will remain steady as the fee increases begin to happen. I think an across-the-board pullback in condo prices is almost certain to be happening by next year. The first indications are already being felt with the increasing days on market and abundance of price drops. Buyers are less likely to find themselves in a multiple offer situation than they were a few months ago and have more bargaining power than before. Based on the current asking prices, most sellers are, so far, unwilling to accept the changed reality and, if history informs, will be slow to respond to the changes. The good news for buyers is that there are sellers who are realistic and want to sell. Hint: those are less likely to be found in the group of units that have been on the market for months. 

Good luck to all market participants. Reality-based buyers and sellers are the ones who will make it to the closing table. The rest will continue to cosplay their roles until they accept reality or quit the game.

"The prerequisites for failure were all in place." __unknown

Thursday, October 05, 2023

Triple Whammy

Condo fees in our area are going up, dramatically so for some complexes. Quite a few associations are facing an unpleasant trifecta of increasing insurance costs, increasing costs of maintenance and the new structural reserve requirements. spells out the triple whammy of increasing costs for condo owners. Realistically there is a fourth whammy. In addition to repairs, insurance and reserves, inflation has proven to be an unwelcome surprise. Associations contracting for concrete restoration now are finding out that the costs for concrete projects have ballooned in a few years. The backlog of condos contracting for major restoration projects is growing as everyone scrambles to meet the December 31, 2024 deadline. The concrete restoration companies have more work than they can get to and pricing naturally reflects that. As we approach the deadline at the end of 2025 this will only become more pronounced. The median monthly condo fee of the units for sale right now is slightly over $550 and certain to be higher by end of next year by which time all complexes will have done their inspections and begun funding the new structural reserves.

Anyone looking to purchase a condo in Florida should be prepared for fee increases next year unless the association has already renewed their master policy and established and begun funding the structural reserves. Prospective buyers should be requesting a copy of the milestone inspection report and reviewing the association financials carefully. The majority of local condos have not completed their inspection and subsequent reserve study so in those complexes a prudent buyer should factor in a not-small fee increase once those are completed. All other things being equal, a condo unit with $550 a month fees is worth more than an identical unit with $800 fees unless that $550 a month unit is about to jump to $800. Hint: many of those units at $550 now will be much closer to $1000 by the end of next year. Offer accordingly.

Our condo inventory has continued to creep upwards with 195 condo and townhouse units for sale today in Cocoa Beach and Cape Canaveral. A third of those have been on the market for 90 days or longer. Only 36 units have gotten an accepted contract since September 1. Of the 51 units closed since first of September, slightly over half were cash deals. Half of the 51 sold units sold within 30 days of listing. With increasing supply and dwindling buyer interest anyone trying to sell a condo needs to realistically evaluate the competition. A seller with a unit that has been on the market for longer than a month should be asking themselves why one of the 36 buyers that found a unit since September 1 didn't offer on theirs. One question for those sellers: If you haven't gotten an offer at your current price how much of a price reduction do you think will be be necessary to entice a buyer next year once fees have gone up?

I may be entirely wrong about rapidly ascending condo fees but the evidence suggests otherwise. Maybe insurance will become cheaper. Maybe the legislature will eliminate or modify the reserves legislation. Maybe.

I don't know how much rain we got this week so far but I'd guess close to a foot. Add in Canadian smoke in the air and it's been a strange beginning for an October. Cheers.

"Any regulatory framework emerging from closed door meetings will benefit those in closed door meetings." _Denver Riggleman