False Realities

As promised, here are two case studies of the cost of clinging to a false reality. Keep in mind that the listing agents in both cases may have been, at the very least, supportive of their sellers' costly denial. Seller number one listed his oceanfront condo for sale in April of 2006 for $630,000. After 60 days, he dropped the price by $50,000. A month and a half later he shaved another $40,000 off. Two months later, well into the slow fall season, the price was dropped another $50,000. Two months later, another $40,000 slice and the price stood at $449,000 where it stuck for six months until this week when it was dropped another $50,000 to $399,000.

Seller number two listed his oceanfront condo for sale in August of 2004 for $599,000 and raised the price in October to $649,000 . He changed listing agents in April of 2005 and dropped the price to $629,000. He dropped the price again four months later to $599,000 where it stuck until December when the unit was pulled off the market. It sat empty until August of 2006 when it was again offered for sale, this time for $569,000. One month later the price was dropped to $549,900 where it remained until February of this year when it was dropped yet again to $499,000. April saw a drop to $479,000 and in May it was lowered to $459,000. June brought another $40,000 haircut and today the price is at $419,000. To add insult to injury, this seller has been paying over $10,000 annually for condo fees and taxes while chasing the market down. Mortgage payment, if any, is in addition to that.

Both of these sellers obviously thought that their original prices were reasonable. If either didn't have to sell, as I hear all the time from obstinate sellers, they wouldn't be offering their condos today for 35% below their original asking prices. Seller number one was a little late in getting his unit to market but could probably have gotten more than today's asking price had he seen the light earlier. Seller number two had plenty of time to price correctly and walk away with a healthy profit early in his listing history but he clung to his wrong opinion of the worth of his unit and will now be lucky to net the $380,000 that he originally paid for his unit in 2003.

Moral of this story: If you're selling, make an effort to separate your personal opinion of your property's worth from the market's opinion. A little pain now may be preferable to a lot of pain later. If a prospective listing agent is willing to take your listing at more than their recommended asking price, you may be shooting yourself in the foot to hire them. As my wife is fond of telling me, it is what it is, deal with it.

One last note; If you think that the new property tax reforms are going to turn the market around, you may want to put the Kool-Aid down. My fellow Realtors, for the most part, seem to be hanging their hats on a market bounce once the tax changes take effect. I think that that may be wishful thinking. Craft your selling strategy carefully and seek advice from multiple sources. As always, question everything.

Quick Stats Mid-June

I'm back after a 2 week trip. Sorry for the lack of posts during this time. For now, here are the inventory and sales stats for June 20, 2007.

MLS-listed Properties in Cocoa Beach and Cape Canaveral

Condominiums, all prices______969
Single family homes, all prices__179

Condos over $500,000________163
closed since Jan. 1, 2007_______18

Homes over $500,000_________79
closed since Jan. 1, 2007_______7

No comment necessary on the trend here. The song remains the same and prices are continuing down with a few jaw-dropping price reductions. Check back for a new post coming concerning the specific history of a disaster listing and the high cost of denial.

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