Comp Killers

An eagle mortally wounded by an Archer was greatly comforted to observe that the arrow was feathered with one of his own quills. Like Aesop's eagle, I try to find some comfort in the fact that every good deal that I hammer out for my buyers actually negatively impacts the value of my own property. I'm a comp killer, as is every one of your neighbors and friends that sells for a bargain price.

As a matter of fact, my office is full of comp killers. We didn't set out with this in mind but it happened. By aggressively seeking out the best offerings and negotiating the best terms for our buyers we have severely wounded the comparables in the buildings and neighborhoods where the great deals have closed. An unintended consequence of every great deal is that the next appraisal of a similar property in the same area will be affected negatively. The units in a particular oceanfront building that were selling for $350,000, 4 months ago will have trouble appraising for that today after the recent sale of one for $290,000 to one of my buyers. Whether you're buying or selling, you'd better be aware of the most recent sales if you plan to get the best possible deal for yourself. Don't trust the water cooler or country club talk. If you'd like to know what the comps are right now, call me at 321.917.5786 or email me.

The Cocoa Cabanas luxury 8 unit project at 19th St. south is toast, at least with the original owner. With not enough unit sales (possibly none) even after dropping prices by a quarter million dollars, the property has been sold, undeveloped, (to another developer according to word on the street). Recorded price for the .65 acre oceanfront parcel was $1.4 million. Across the street at Magnolia Bay only 8 deeds have been recorded since the first one in January out of an estimated 62 total. The third building is not finished and work is moving very slowly, probably a good short-term strategy to delay the day that skittish investors are forced to make the hard decision of whether to close or default.

I thought I'd take a look back to Memorial Day last year. These are the numbers of MLS-listed properties for sale in Cocoa Beach and Cape Canaveral.

MEMORIAL DAY 2007

• Total condos and townhouses___987
• Total single-family homes______167

MEMORIAL DAY 2006

• Total condos and townhouses___1047
• Total single-family homes______138

Even though our market has gone through a major transition and values have dropped considerably, condo inventory is slightly less than one year ago. The number of single-family homes for sale has increased by 21% in the same period. Total MLS condo sales in Cocoa Beach and Cape Canaveral for 2007 through the end of April was 123 compared to 194 for 2006, a drop of 37%. Although disheartening for those trying to sell, the good news is that at least 123 condo sellers successfully sold their units in the first 4 months of the year. If your goal is to sell, it's time to examine your pricing if you're not getting any action. If you're looking to buy, get your financing in order and take advantage of the comp killers' trickle down effect.

My neighbors and I in south Cocoa Beach have a great new place to eat, The Fat Snook. It's in the old Patrick Deli building next to Crescent Beach Realty across the street from the Carlyle condo. Open for dinner only with steaks, pasta and fresh seafood. I've had the cobia and the wahoo and both were excellent. It's small, so, you'll probably need reservations. Atmosphere and dishes along the lines of the Pompano Grill, another favorite of mine in downtown Cocoa Beach.


Please take care at the beach this holiday weekend. Hard onshore winds have created dangerous conditions with strong rip currents. Keep the kids and the old man out of the water. Have fun and be safe.

The Road Less Traveled Gets Some Traffic

I was pleasantly surprised to learn through my Google alerts today that my most recent post, Armed Robbery - Broker Style which also made last week's Carnival of Real Estate had been chosen as one of the nine best blog posts on any subject in the blogosphere last week by Political Calculations. As they put it, Absolutely essential reading! That might be over the top but I'll take it. The subject was important.

[edit-May 23] The same article has been picked up for the Fraudfiles blog over at Sequence Inc., Forensic Accounting Answers.

If you've never used Google alerts, give it a try. Your alert will email you links to any new appearance of your search term on the internet, in this case, "Larry's Take". I would never have known about the selection otherwise.

If you've defaulted on a pre-construction deposit or are thinking about it, I'd like to hear from you. I'm hearing lots of stories now and would like to hear from sources close to the action. I promise confidentiality. With the small number of new deeds being recorded at completed projects, it's become obvious that the number of defaults at some projects is higher than even I expected. You can email me at larry@southcocoabeach.com

Unarmed Robbery - Broker Style

I witnessed a bold unarmed robbery attempt last week. I was representing the buyer in the purchase of a condo. On the HUD-1 settlement statement that was sent to me before the closing, I noticed that the listing broker had added a $395.00 "regulatory compliance fee" for the seller to pay. This was in addition to the commission the seller was paying to the broker to sell his condo. What is a regulatory compliance fee, you ask? It's the real estate equivalent of gratuity added. In other words, a rip off. The dressing-up of this junk fee in official-sounding lingo was designed to make the seller think that it was a required fee, but, it wasn't. It's a tactic used all the time by unscrupulous agents and brokers to line their pockets. It is common with at least one of the big national real estate companies. I know from personal experience that some companies pressure agents to include these fees in all their deals. This particular seller suffered the indignity of having his own broker attempt to con him out of an extra $395.00 above the $23,800 he had agreed to pay the broker to sell his property. In this case, the seller was sharp enough to question the fee and it had miraculously disappeared from the HUD-1 by the actual closing.

When I used to work for one of the big national franchises, some of the agents in the company tacked these junk fees on all their deals, usually calling it a "transaction fee". It was encouraged but not required by the broker. Just like in this most recent example, if the client objected, they would drop it, but, if nothing was said, yahoo, free money. I never participated in this practice because it didn't pass the smell test then and still doesn't. Adding the word "regulatory" to this rip-off fee just intensifies the foul odor.

Be careful what you agree to pay. In most cases, the commission you agree to pay to the listing broker should be all that you are obligated to pay them. If you notice some additional fee to the listing broker on your settlement statement refuse to pay it unless they can justify it. You may want to read a couple of my earlier posts on agent shenanigans

I'll leave you with a couple of shots of last Sunday's farmers' market in Cocoa Beach. The tomatoes tasted even better than they looked.





We woke up this morning to a massive north swell that arrived last night from the extra-tropical low off the coast. Our 120 mile buoy was reading the swell at 25 feet with a 16 second period this morning and conditions are big and challenging. Looks like a few days of epic surf for the local crew who are up for the paddle.

Reality Check, Part 2

This is not a true story but is loosely based on a true story from April 2007. The implications are very real.

Two waterfront condos have been on the market for around a year. Condo A is listed for $342,000 after being dropped from $384,000 . Condo B, same floor plan in the same building, after being originally listed for $359,000 gets progressively dropped until, in desperation, the seller suddenly drops the price to $275,000 and gets a contract immediately. The owner of Condo A knows his unit is nicer and, he feels, in a better part of the building, so, he feels comfortable with his higher price. Condo B closes for $275,000 a few weeks later. The seller of Condo A thinks that, now, with the pesky desperate seller out of the way, he'll sell his unit at close to his price. He gets a showing a few days later and accepts an offer for $325,000, not as much as he wanted but enough. Inspection goes well and all is good UNTIL the appraisal comes back. The appraiser's most recent comps include the recently closed Unit B and even with adjustments for condition and location the value comes in well below the contract price. What now? The buyers cannot get the 80% mortgage that they planned to use to purchase the unit. The seller either agrees to reduce the price to the appraised value or he stands firm and puts his unit back on the market hoping for a cash buyer willing to pay more than the appraised price. Meanwhile, yet another seller in Unit C is blissfully listed for $390,000, mentally spending his profits, unaware of the recent abrupt changes in the value of his unit wondering why his listing agent in another city hasn't called lately.

This story has very real implications for those sellers waiting for the market to turn around. I had to go back to an owner just this week to renegotiate a deal after the appraisal came in light. The comps that brought the appraisal in below our contract price were recent sales by owners who could not afford to wait out the downturn. Those fire sale prices are now rippling through every subsequent deal of comparable properties. If you are hoping to sell, it would be prudent to pay close attention to what is going on with nearby properties. The strapped investor who is forced to bail in a nearby building will likely affect all appraisals of similar properties nearby for the immediate future. Stay on top of market conditions or pay the price.


Closed MLS sales in Cocoa Beach and Cape Canaveral

CONDOS

• April____2007__37 __only 2 over $500,000
  
• March___2007__28
• February_2007__35
• January__2007__23

SINGLE FAMILY HOMES

• April____2007___3
• March___2007___8
• February_2007___6
• January__2007___3

Current Inventory

• Condominiums______970 all prices
• _________________172 over $500,000
• Single family homes__157 all prices
• _________________70 over $500,000

April was our busiest month so far this year for condo sales with 37 units closed. I'm happy to report that our little company has participated in a significant number of these transactions. Separating our year-to-date sales at the half-million dollar mark we see that since January 1, 2007, 13 condos over $500,000 have closed in Cocoa Beach and Cape Canaveral. At this rate, we have a 4.4 year supply. In the same period, 121 condos under $500,000 closed. That translates into a 2.2 year supply in the below $500K price range.

If you've got any stories or observations about anything of interest in our great little beach town, please email me Don't forget the farmers' market every Sunday morning behind the Cocoa Beach City Hall. Lots of produce, neighbors and fun.

Reality Check 101

I thought by this point in the cycle that most property sellers would have come to terms with the new conditions in our real estate market. Not so. There are large numbers of owners who are clinging to a 2005 reality. If you're trying to sell a property you may want to get a second opinion if you've caught yourself saying any of the following:

* I won't sell for less than my payoff.
* I'll just hang on to it until I get my price.
* I'll wait for the market to turn around.
* I need to clear enough to (fill in the blank).
* I'll just rent it until the market turns around.
* My neighbor got $X for their's.

People, these are all forms of denial. It is what it is. What your condo was worth in 2005 has no bearing on what it's worth in 2007. The unfortunate reality is that we had an unsustainable run-up in prices and they have reversed direction. This is true in most markets in the United States. There are many factors contributing to the decline. In my opinion, the biggest factor is the decline itself. The thousands of investors who were buying property strictly for the appreciation have disappeared along with their exotic, easy-to-qualify-for mortgages. There are still buyers in our marketplace but they are buying to move into and they know they're in the driver's seat. If you aren't flexible, they'll just go to your neighbor who may have moved past his denial and transitioned into a let's-do-a-deal mentality. If you want to sell your property, take this reality check.

* What are similar properties being sold for today?
* What is it costing me every month that I hold on to it?
* What is it likely to be worth a year from now, two years?

There is the possibility that this market will turn around and take off again soon. I think that is unlikely considering inventory levels and changes in the mortgage market, but, as always, I could be wrong. If you disagree and are willing to take that chance, hang on. Consider that your taxes and insurance in our county will run somewhere around 2% to 3% annually not including lost opportunity on the equity. Add mortgage interest to that and a $500,000 property with an 80% mortgage will cost around $40,000 per year excluding any tax benefits with no repairs or maintenance while waiting out the downturn.

I have been involved in 3 deals in the last 2 weeks in which the sellers had been trying to sell for at least a year but were hanging on to unrealistic prices. Had they priced aggressively earlier they could probably have sold for more. Denial carried a heavy cost in these cases.

My point here is to be realistic with your pricing if you must sell. Talk to someone who is knowledgeable and willing to tell you the truth about the market and price to sell. If you're looking to buy, there are some incredible deals to be had if you're looking for a place here. Even though double-digit appreciation is unlikely to resume anytime soon, this is still a magic little beach town with friendly residents and an abundance of natural beauty. We welcome new neighbors who will come to love this special part of Florida like we do.

I'll leave you alone on a beautiful day at a park in south Cocoa Beach waiting for the manatees and dolphins. Picnic anyone?

Relatively Speaking...

March was a fair month for real estate sales in Cocoa Beach and Cape Canaveral. Unless, of course, you compared it to the halcyon days of March 2005. We had 28 MLS-listed condo sales (2 over $500,000) and 8 SF home sales (3 over $500,000) compared to 81 and 15 respectively in March 2005. Condos have averaged around 1 sale per day so far in 2007 with little variation while single-family home sales have been steadily increasing. At the current rate, we have a 19 month supply of homes and a 34 month supply of condos in all price ranges. If I isolate the $500,000 plus condo market, things are considerably less rosy. At March's sales rate we have an 85 month supply of half million dollar plus condos. Homes over $500,000 are in much better shape with only a 21 month supply.

Closed MLS sales in Cocoa Beach and Cape Canaveral

CONDOS

• March___2007__28
• February_2007__35
• January__2007__23

SINGLE FAMILY HOMES

• March___2007___8
• February_2007___6
• January__2007___3

Current Inventory

• Condominiums______954 all prices
• _________________171 over $500,000
• Single family homes___156 all prices
• _________________63 over $500,000

Offshore fishing has picked up and the winds have finally eased off. Catches this week have included lots of wahoo and dolphin and some decent catches of grouper and snapper. A few boats have made the trek to the other side of the Gulf Stream to hunt for tuna. Most of them scored decent catches of yellowfin to 80 lbs. and smaller blackfins. I slipped out one day with a couple of friends and managed a small wahoo. Here is one of my favorite ways to enjoy wahoo.

Wahoo and avocado tiradito

Deja Vu, All Over Again

I thought I'd revisit my comments from a year ago as, by this time last year, the slowdown was beginning to catch everyone's attention. This excerpt is from March 22, 2006.

"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."
Read the entire post here.

Sales in 2007 have slowed from the same period a month ago and condo inventory continues to creep upward. Single-family home inventory took another big jump and is at a record-setting 173 MLS listed homes in Cocoa Beach and Cape Canaveral. I'm happy to report that our office participated in a large number of the few sales so far in March.

Here's the steal of the week; south Cocoa Beach direct river, 2/2 condo across the street from the beach listed for $274,900 ($60,000 less than the owner paid 2 years ago). This is the view.



Cocoa Beach and Cape Canaveral MLS Stats

Sold March 1 through 18
Condominiums____10
Single-family homes_5

Active for sale
Condominiums____1022
Single-family homes_173

If you have ideas for future posts or comments, please email me.

Inventories and Sales numbers

I thought I'd do a little more deep analysis after the responses to the "Under the hood of the MLS" article. I went back and pulled up inventory and sales figures for the last three spring seasons. The results were surprising. I expected to see the rapid increase in inventory but I did not expect sales in 2007 to be as strong in comparison as they were. Here goes:

Inventory of MLS properties in Cocoa Beach and Cape Canaveral

April 2005
Condominiums__420
SF homes______45

August 2005
Condominiums__443
SF homes______62

October 2005
Condominiums__558
SF homes______63

January 2006
Condominiums__785
SF homes______102

May 2006
Condominiums__1047
SF homes______138

March 4 2007
Condominiums__1023
SF homes______154

Sales from Jan. 1 through March 4

2005-Condominiums__139--SF homes__9
2006-Condominiums___73--SF homes__10
2007-Condominiums___54--SF homes__11

The shocker for me in these numbers was the constant rate of sales for single family homes. 2007 has actually been the busiest Jan-Feb season for sales of homes. Condo sales, as expected, have been in a constant decline since peaking in 2005. Another surprise is the level inventory number. We first topped 1000 in total condo and townhouse listings in Cocoa Beach and Cape Canaveral in May 2006, but have hovered around the 1000 number since while single family home numbers have continued a slow increase.

Our inventory has gone from a 6 month supply for condos and 10 month supply for homes in spring 2005 to a 38 month condo supply and a 28 month home supply in 2007.

Conclusions; If you're selling, don't despair. Sales are happening. There is just much more competition and prices have declined. Do your market analysis and be realistic with your pricing. Don't be insulted by low-ball offers. They are the norm now. Reframe your take on a low offer as an invitation to negotiate, not as an insult. Be prepared to take longer to sell unless you price aggressively to move to the front of the line. If you must sell, you cannot afford to price at or above competing properties. You must lead the pack and price under the competition, all other things being equal. Don't forget your carrying costs if you're willing to wait until you get your price. The cost of an extra 6 months selling time on a $500,000 property can easily exceed $20,000 in interest, taxes and insurance. If you want straight advice about selling your home in this difficult market, call me at 321.917.5786 or email me. Things have changed and successfully selling a home requires adapting to the changed market.