Mortgage Shenanigans

Do you have a mortgage? Did you get the best deal possible? Ever hear of "yield spread premiums"? According to some sources as many as 85 to 90 percent of all transactions include YSPs. Remarkably, these kickbacks are buried off-column on the HUD settlement statement and are often completely overlooked by the borrower. The short story is that these YSPs are bonuses paid to your mortgage broker by the lender for charging you a higher rate than you qualify for. If you got your mortgage directly from the lender, the YSP doesn't even have to be disclosed on the HUD. Check your HUD around lines 809 to 811 and look for cryptic notes with numbers. Those numbers you find there are probably money you paid your mortgage broker that came unknowingly from your own pocket. In 2002 the average amount per transaction was around $1850.00 and is probably higher now. Here's a good read on yield spread premiums.

This is not the only shenanigan I've witnessed but it seems to be one of the most widespread and least understood. Your good faith estimate will probably not disclose this premium. Tell your broker that you will not accept any YSP on the HUD, UNLESS it is known by you and being used in lieu of other upfront mortgage costs to offset your total closing costs.

Here is the section of the HUD where you will find the hidden gems. Not in the "paid from borrower's funds at settlement" column, but off-column to the left.

800. ITEMS PAYABLE IN CONNECTION WITH LOAN
801. Loan Origination Fee %
802. Loan Discount %
803. Appraisal Fee to
804. Credit Report to
805. Lender’s Inspection Fee
806. Mortgage Insurance Application Fee to
807. Assumption Fee
808. Mortgage Broker Fee
809. -------------------somewhere
810. ------------------in this area is
811. ------------------where it will appear

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Knowledge is power.

Manipulation, my brother

OK, I've been asked yet again about the practice of withdrawing a listing and then relisting so that it shows on the MLS as a brand new listing with no price history. Unfortunately, this practice is entirely legal and is widespread, especially now that properties are lingering for much longer than in years past. It's legal, but, is it ethical? By my measure of ethical, no. The only reason for withdrawing and relisting a property is to mislead a prospective buyer. Like hidden agent bonuses, this is the sort of thing that undermines the public's perception of realtors. I did a quick search this morning of recent activity and found 2 nice examples.

Condo A - 255 days on market, original price $829,00 withdrawn and relisted same day by same agent for $759,000

Condo B - 105 days on market, original price $449,900 withdrawn and relisted same day by same agent for $409,999

A consumer or a lazy agent would never know that these weren't new listings. Shame on the National Association of Realtors for not taking a stance on this practice.

How was your Easter weekend? Mine was great. Fun waves and a pretty-much deserted beach. You've heard me talk about uncrowded beaches in south Cocoa Beach and here's the proof. While the area north of us was blanket to blanket, the photo at the top of this post is how our beach looked at midday Saturday, a beautiful beach day, the day before Easter.

And just beyond the water's edge, your's truly leans into a fun one.



I didn't have a thought about the market all day. Until next time, stay hydrated, use sunscreen and question everything.

Lies, damn lies and statistics

As requested, another photo from Cocoa Beach. Springtime means the oleanders at the Cocoa Beach golf course are blooming.



This post was going to be about manipulating statistics to serve a pre-determined purpose, but, in researching data for my examples I found so many errors from all my sources that the point seems moot. Here are the sales of residential properties in Cocoa Beach over the last 6 months according to Melissa Data. These are actual closed sales during each month and the average sales price. [note: the MLS reports 21 closed sales in March, not 18. Who are we supposed to trust?]

Month____transactions_____average price

03-2006_________18____________$434,000.00
02-2006 ________25____________$338,000.00
01-2006 ________28____________$443,000.00
12-2005 ________33____________$332,000.00
11-2005 ________49____________$406,000.00
10-2005 ________28____________$364,000.00

Differing agendas could claim a 28% rise in average selling price from February 2006 to March 2006 or a 24% decline from January to February. My point is that a reader should take all statistics relating to home prices and sales with a grain of salt and a little skepticism. And, as I have stated in the past, mistrust any numbers coming from the Brevard County MLS. I think I can now expand that to include all sources.

Now for a totally unscientific observation of our market; it's slow. With sellers clinging to last summer's prices and buyers looking for steals, finding an acceptable middle ground is difficult and often impossible. If you are selling, consider that your property may be worth less than you think. Buyers are scarce right now, so, consider every offer no matter how unattractive. Remember that an offer is an invitation to negotiate. If you are buying, don't become married to your lowball offer. It's not necessary to steal a property to make it worth owning. This is still the best little beach town in Florida and now is a great time to be a buyer.

March 2006 activity

The March numbers are in and we've had a nice little uptick in action. Total number of March 2006 closed MLS-listed residential and condo units in Cocoa Beach and Cape Canaveral was 67 according to the MLS. Digging into the numbers I see that 2 were errors and 8 others were pre-construction units that were contracted over 6 months ago, so, my adjusted total is 57, still a significant increase from February's adjusted total of 30. Of the 57 total sales, 34 were under $300,000. The hottest area of our market has been small condo conversions with units ranging from $134,900 to $200,000 in small buildings close to the beach. The high-end of the condo market continues to languish with only 6 sales over $500,000 in March with an inventory of 230. Some resales in Portside have started to move as additional buildings reach closing and investors lower their expectations and prices.

An especially busy segment of our market has been vacation rentals. I have had more requests for rentals this year than ever in the past. Last week alone, I had 24 requests for a rental condo. My unscientific observations of traffic and restaurant crowds tells me that this has been one of our busiest spring seasons. As the water temp has climbed over 70 degrees, giant manta rays have been cruising the surf and the cobia run has been as good as it gets. Massive schools of pogies are everywhere in nearshore waters and portend a great summer for fishing. We've had several days of fun small surf and the wetsuits are back in the closet until next winter. Cocoa Beach rocks.

I snapped the shrimp boat a few miles offshore last week.

Does size matter?

Our little real estate company has become a thorn in the side of one of the Exxon Valdez-sized brokerages in our area. Like the Exxon Valdez, this behemoth cannot quickly change the course that worked so well in the heyday market of the last 5 years. Our little company, on the other hand, relies on flexibility and nimble moves to keep one step ahead in our rapidly-changing market. In fact, we recognize that this very ability is what gives our clients an edge in this difficult market. Now to the point of this essay. The Valdez (I'll just refer to the other brokerage as the Valdez) apparently is feeling threatened by our little company and has been telling sellers of real estate that they will be less-served by a smaller company, us, because we are small. Talk about reframing a bad situation (also known as spin). If this weren't so incorrect and possibly damaging to sellers of real estate it would be knee-slapping funny. My opinion, coming from the front line, is that, in this new market, sellers who hope to be successful need help from an involved agent with a company that knows it's clients, not a behemoth with hundreds of agents, thousands of listings and a captain snoring in his cabin. What worked last year is not working this year. Not being bound by ingrained procedures and bureaucracy, small firms can quickly change tactics to get results for their sellers while the Valdezes of the real estate world are still drafting memos and planning committee meetings to figure out why sales are down while the sharp edge of the reef draws ever nearer.

Whether you're selling property in Cocoa Beach or Culver City, you need to think seriously about the size of your real estate company. Does size matter? You bet. Small and nimble beats big and slow every time. Think David and Goliath.

MLS statistics and inaccuracy

I had an unsettling experience this week with our MLS. I searched for all contingent and pending listings in Cocoa Beach and Cape Canaveral. I was shocked to see transactions from as long ago as June of 2003 still showing as not closed. One particular listing I knew had closed and sold again but was showing in the MLS as still pending. I reported this to the MLS and, Voila, it changed to closed that same day. Now anyone pulling stats from the system will have at least one sale in March 2006 that actually closed in April of 2005. Are there other inaccuracies in the system? Most certainly. Treat any numbers that are pulled from our local MLS as suspect. Having said that, here are some interesting numbers from our system. Accuracy should be questioned but the trend is clear, lots of new, high-end units and a tepid sales rate.

Cocoa Beach and Cape Canaveral Active Listings March 25, 2006

condos over $500,000________________233
condos all prices built in 2005 or later___250
closed since Jan. 1___________________84
total condos for sale_________________987


Note that 28 of those closed sales were of units that were contracted months ago in new complexes that are just now closing. There are also 75 other active condo units that show up in "residential" rather than "condo" that will bring the total number of active units for sale to 1062. Do some quick math and you get about a 20 month supply. That spring rebound that sellers and real estate people are hoping for had better hurry up. If you're waiting for the market to turn around, it would be prudent to prepare for a long wait. Sellers, if you can't afford to wait, it's time to get aggressive with your pricing. There are buyers out there and the successful sellers will be the ones who accept the changed market and price aggressively.

As always, there are exceptions, especially for sellers of special, one-of-a-kind properties. For everyone else, it's time to get real.

Alternative Universe

The real estate bubble is becoming America's most talked about impending disaster since Y2K. I suspect that the reality may be just as much of an anti-climax. I can't speak for other markets but I can speak with knowledge about the Cocoa Beach and Cape Canaveral market. Before the irrational exuberance of the recent condo boom, there was a normal market that consisted of primary residences and vacation homes. That market is still there and is much more healthy than the over-heated, investor-driven one that everyone is talking about. While pre-construction investors are sweating out the next drop in prices and losing sleep over impending closings, there are literally thousands of homeowners who are unconcerned with the short-term direction of property values. These are the ones who live here full time or those from out of town who use their beach places for vacations or get-aways. This is the alternative universe that is invisible to the bubble cult.

Are there problem areas in our market? Yes, most definitely. I've been cautioning about speculation in high-end condos for some time now. I suspect that there will be a lot of pain among the pre-construction investors in high-end condos this year. But at the same time, thousands of homeowners will be enjoying Cocoa Beach for it's beaches, surf, fishing, wildlife and all the other things that make this such a special place in the world. Will the speculators' departure affect this underlying market? Probably. All markets operate on supply and demand. A good analogy comes from Michael Kahn of Barron's. He said, "In the stock market, fuel is trading volume. Without volume, a price advance will soon slow down, if not stop and reverse. Momentum may keep trends going for a while, but sooner or later the market is going to require buyers to put real money where their collective mouths are and buy a lot of shares." This principle holds true in our real estate market. Fewer buyers means less or no price appreciation, at least until the current inventory is absorbed. I am already seeing drastic price reductions and expect more. During this changing time, there will be some outstanding deals to be had for those with the nerve to act.

While we wait out this next phase, I'll be enjoying all that Cocoa Beach has to offer. Hopefully, my next post will include a big fish or surf photo. Until then, as the t-shirt proclaims, "Life is good."

All work and no play....NOT

Well, all work and no play makes Larry a grumpy realtor. Managed to slip out offshore yesterday with a friend and chase the springtime cobia. This was our only fish but he was a bruiser. Cobia show up here every spring as they migrate northward. We zigzag around just off the beach looking for fish swimming on the surface or following manta rays. This was one of only 3 fish that we saw yesterday but luckily, he was hungry. The run will continue for a few weeks and then the nearshore action will slow down as the fish become scattered and congregate on offshore wrecks. Just another great benefit of living in Cocoa Beach.

Here is our dinner last night, grilled cobia steak and tiradito. I make the tiradito by slicing fresh, raw cobia or tripletail and arrange the slices on a serving dish. I then sprinkle with coarse sea salt, squeeze a lemon over all and top each slice with a cilantro leaf and a dot of hot sauce. Exquisite.




I'll return to our regularly scheduled real estate talk next time. In the meantime, get outside and enjoy this great spring weather.