Market value - 2 out of 11 ain't bad

Sign at one of the beach crossovers in south Cocoa Beach. The prayers were answered this morning. Chest to head high north swell hitting all the southern beaches.

It is an almost daily experience for me to have a conversation with a buyer or seller of real estate (or their agent) who is using the Property Appraiser's "market value" of a property to support their own belief of the value of a property. Folks, the only time the PA's "market value" has any worth when buying or selling a property is when you can use it to your advantage in negotiations and can convince the other party to accept it as accurate. First of all let's see what the PA says about the different values that are displayed in a property record. From the PA's website;
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What is the difference between market, assessed, and taxable values?
The market value is the most probable selling price, based on the actual sales of similar properties, less the typical costs of sale.

The assessed value may be less than the market value if the property is a residential property having homestead exemption and is therefore protected by the "Save Our Homes" Constitutional assessment limitations.

The taxable value is the assessed value less any applicable exemptions.

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Right away we see that the PA's market value is not the expected selling price but the expected net after selling expenses. A seller's typical selling costs (real estate commission, doc stamps, title policy, etc.) are deducted from what the PA's black box tells him the value is. OK, seems reasonable. Add about 8% to market value and we should have the expected selling price of a property. Not so fast. That assumes that the black box is spitting out accurate numbers. Let's check the actual numbers.

I pulled up the last 27 residential property sales in Cocoa Beach and Cape Canaveral excluding quit claims. I then compared the selling price to the Property Appraiser's 2010 market value. Only five sales fell within 10% of market value, one exactly on the money, two for 2% more and two for 7% less. Of the 27 total, 12 sold for less than market value. They averaged a 19.5% discount to the published market value with one selling for a 45% discount. The 14 that sold for more than market value averaged selling for 29% more than the PA's market value with one selling for 50% more.

Conclusion: The Property Appraiser's published market value is not accurate. If it is to your advantage during negotiations in buying or selling feel free to use it to bolster your position but know that you risk looking foolish and potentially losing negotiating strength if the other party knows the truth or at least reads this blog. This same all-over-the-map inaccuracy applies to Zillow as well. Your best guide to actual market value is using recently sold, nearby comparable properties and making the necessary adjustments to reach an accurate number. One last thought on that process. Beware getting married to a dollar per square foot number. It's a good starting point when the comps are close in size but it is not the end-all metric for establishing value. Ultimately, a buyer decides what they are willing to pay and a seller decides what she is willing to accept. When those numbers intersect, true market value is established.

Good luck in your negotiations. As always, knowledge is power.

"I wasn't worth a cent two years ago and now I owe two million dollars." __Unknown

2011 halftime report

Perfect surf in south Cocoa Beach.

Once again it's time for the July halftime report; what's selling, what's not and my best guess at where we're likely headed in the second half. We hit the ground running in January with a strong sales pace fueled in part by a large number of distressed sales (foreclosures and short sales). As we moved into spring sales numbers remained high but the proportion of distressed sales began to decrease. Sales began to lag last year's pace in May.

In the first half of 2011 there were 276 closed sales of MLS-listed condos and townhomes in Cocoa Beach and Cape Canaveral compared to 255 last year. There were 8 condo sales over the half-million dollar mark in the first half while 99 of the total sold for less than $100,000. Distressed sales made up exactly one third of the total, 45 foreclosures and 45 short sales. Only eleven of the 90 distressed sales exceeded $200,000 while 50 sold for less than $100,000.

There were 72 single family home sales in the first half, 60 of those in Cocoa Beach. Median price was $240,000 with 19 above $300,000. Thirty three were waterfront. Of the 72 total, 7 were foreclosures and 14 were short sales, or 29% of the total distressed.

Single family home inventory stands at 79 in the two cities with the majority (68) in Cocoa Beach. Over half (42) are waterfront, lowest asking price $239,900. Only five of the 79 are distressed, two foreclosures and three short sales.

Condo and townhome inventory is at 375 units, having been cut in half in just 30 months. Distressed sales make up 16% of the total, 48 short sales and 12 foreclosures. There are 44 listings asking over $500,000 or a 33 month supply at the current sales rate. There are 62 listings under $100,000 or less than a 4 month supply in that market segment.

My interpretation:

Lower numbers of distressed listings and the severely depleted inventory will lead to continued slowing of sales through the second half.

Probable bottoming of condo prices in the lower price ranges because of the supply and demand dynamic.

Continued downward pressure on condo prices in the highest price ranges for the same reason and the fact that many recent purchasers of luxury units are underwater.

With three quarters of current condo sales closing with cash, mortgage rates will continue to be mere background noise. The high rate of cash sales will likely continue based on two factors. One: Mortgages have become increasingly difficult for condos with many mortgage-contingent contracts failing to close. Two: the less obvious factor is the current low yield on savings that has savers looking for alternative tangible investments like property over eroding US dollars.

The absence of three or four Space Shuttle launches a year is going to have some impact on local businesses. Whether that will trickle down to the property market remains to be seen. We've known this was coming since the President announced the end of the program in 2004 so it seems likely that much of the impact to the property market is already baked in. We are still the closest beach to Orlando and the coolest little beach town in Florida, only now without the Space Shuttle. With the last mission in orbit as I write this, the outcome will be evident shortly.

"Prediction is difficult, especially about the future." ____Niels Bohr

Shifting dynamics

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June property sales in Cocoa Beach and Cape Canaveral began to taper off from the above-average pace of the last year and a half. It was not completely unexpected considering the drastic reduction in inventory in recent months. There were 14 sales of MLS-listed single family homes in June, 12 in Cocoa Beach and 2 in Cape Canaveral. Prices ranged from a high of $480,000 for a three year old 3472 square foot home at Enclave of Cocoa Beach to a low of $60,000 for a small (1209 square feet) frame house in Cape Canaveral.

There were 36 sales of MLS-listed condos and townhomes in June compared to 49 sales in May and 44 in June 2010. Both the lowest and highest sales were foreclosures, $25,000 for a one bedroom Surf n Sun, one block from the ocean in Cocoa Beach and $975,000 for a swank 5152 square foot direct ocean penthouse at Ocean Oasis in downtown Cocoa Beach. Only three condo sales exceeded $255,000 and half were for less than $115,000. Distressed sales made up exactly 25% of the total with four foreclosures and five short sales. Other than the foreclosed Ocean Oasis mentioned above and a Meridian short sale that closed for $615,000, none of the distressed sales exceeded $129,000. Only 8 of the 36 condo purchasers used a mortgage, 78% paid with cash.

Inventory is down to 367 total condos and townhomes this morning in Cocoa Beach and Cape Canaveral. Eleven of those are foreclosures and 47 are short sales which means 16% of the total inventory is distressed. This percentage has retreated significantly in just a few months.

The cobia made a surprise reappearance last Sunday when my fishing partner and I caught eight fish, kept two in the 40 pound range and saw around 70 to 100 fish. They were in 15' to 25' of water on a shoal about five miles offshore and north of the Cape. Good fun and good eating.

"If there's anything that upsets me, it's having people say I'm sensitive." ___Barney Fife

Make $3000 a month doing nothing

Beautiful south Cocoa Beach sunrise July 2, 2011.

Rent a beautifully furnished, 3 year old direct ocean penthouse for $2500 per month. The owner purchased this unit in 2008 for high $700,000s and put down $147,000 plus closing costs. He furnished the unit with expensive furniture and accessories. It is now offered as a rental for $2500 per month or about $3000 a month less than the actual cost to the landlord (mortgage, taxes, condo fee and insurance). Alternate post title: "How to make a small fortune - start with a larger fortune."

“My personal belief is that Enron stock is an incredible bargain at current prices, and we will look back a couple of years from now and see the great opportunity that we currently have.” __Ken Lay

Meet the buyers [updated]

Got a link to an interesting story from Brian B. (thanks) about the new middle and upper class Chinese buying investment properties outside China. While I haven't seen any Chinese buyers here in our market I thought I'd do some digging on the geographic breakdown of recent purchasers in our market. Results were not what I expected. Out of the last 150 condo purchases in Cocoa Beach and Cape Canaveral 38 units or 25% were for primary residences. (This is assuming that those who listed the same mailing address for tax purposes are intending to live there.) Next biggest group of purchasers were other Florida residents, primarily local and Orlando area. Of these, several were buying another unit in the complex where they already live. New York led the other states with 11 purchasers followed by Pennsylvania with 9. The rest were scattered across mainly eastern states with only 8 of the last 150 purchasers of Cocoa Beach and Cape Canaveral condos residing west of the Mississippi. The big shocker for me was the lack of Canadian and European buyers. Out of the last 150 only 5 were Canadian and we had 2 lonely Europeans.

[update] Of the 150 sales I researched above, 131 were MLS listed. In 73% of those 131 sales the buyers paid cash. Foreclosures made up 12% of the total and short sales 15%. There were 35 MLS single family home sales in the same period with 54% of those selling for cash.

Our numbers do not seem to support the trends we see reported for other areas of Florida, especially coastal south Florida. The big numbers of foreign buyers we hear about in the Miami/Ft. Lauderdale markets do not exist here, at least recently. The last 150 sales that I used for this study stretched from March 15 through June 6, the last posted sale as of today at the Property Appraiser's site.

I was offshore on Thursday this week and jumped overboard for a little snorkeling on the ledges north of the Cape in 35' to 55' of water. The water was clear enough that I could see the bottom from the surface in 40'. While the coral there is sparse, the amount of other life was amazing. Clouds of sardines were constantly cruising by followed closely by king mackerel while underneath them the bottom was alive with giant goliath groupers, mangrove snappers, sea bass, triggerfish and other cool stuff. Was my first time exploring underneath the hull up there but I'll be doing it again.

"A fanatic is one who can't change his mind and won't change the subject." _____Winston Churchill

Where it's at, direct ocean

I thought I'd dust off the abacus and do a rundown of recent direct ocean condo sales in Cocoa Beach and Cape Canaveral. Excluding side view and ground floor units, and including only units with at least two bedrooms and two baths, we are left with a mere 12 MLS-listed units closed since April 1.

Lowest priced sale was $225,000 for a 4th floor Wellington in downtown Cocoa Beach. It was a remodeled and fully furnished 2 bedroom, 2 bath with 1049 square feet and no garage. Highest price paid since April 1 was $975,000 for a massive 5152 square foot penthouse (7th floor) at Ocean Oasis also in downtown Cocoa Beach. This seven year old unit has 4 bedrooms, 4.5 baths and a 3 car garage. Top of the line everything. Seems like a deal when compared the the second highest sale, $865,000 for a 5th floor 3 year old Ocean Cove in south Cocoa Beach. While every bit as nice as the other unit, with 3 bedrooms, 3.5 baths and a 2 car garage it has 2758 square feet, just slightly more than half the size.

Others sold included units in Meridian, Xanadu, another Ocean Oasis, Michelina, Crescent Beach Club, Waters Edge, Royale Towers, Shorewood and La Mer. Highest price per square foot of the bunch was $314 for the Ocean Cove unit described above and the lowest was $154 per square foot for a top floor south corner Crescent Beach Club that was partially remodeled and in need of several new sliders. Average price per square foot paid for direct ocean condos with at least 2 bedrooms and 2 baths, above the ground floor and closed since April 1 was $202 and the median was $196.

For what it's worth, there were 13 units with the same criteria closed in the same period one year ago, April 1 through June 22, 2010. The average price per square foot then was $225 and the median was $236.

These averages are good to know whether you're buying or selling but are only one part of the picture. Don't get too hung up on the average if you've found a unit you like priced above the average number. With inventory of units at an all-time low, it might make sense to pay more than the average to get the unit you want. Likewise, if you've gotten an offer you think is too low based on the average, consider the cost of holding that property while waiting for another buyer willing to pay your hoped-for number.

Meanwhile, the sailfish have been thick just offshore with several boats catching and releasing multiple fish this past week. We've also seen some big dolphin and wahoo coming to the dock. Anglers in small boats and kayaks have been enjoying the flat conditions and playing with the giant tarpon and jacks around the bait pods just outside the surf line. If you head out, don't forget the sunscreen and water. It's been and still is extraordinarily hot.

"Cocoa Beach. How fab. You're so lucky." Jim Cramer responding to a recent Fast Money caller from Cocoa Beach

Things that make you go, "Huh?"

For your consideration, a few interesting new listings. Apparently denial is alive and prospering in the summer heat. At a small oceanfront building near the Pier we have two, both with 910 square feet and partially obstructed side ocean views from their tiny balconies; a 4th floor 2/2 asking $274,900 and a 3rd floor at $260,000. Last sales of side view units in this building over two years ago were at prices between $202,000 - $215,000. Two years later these new listings are asking over $100 per square foot more than recent sales of direct, east facing units in brand new buildings. These are in a 37 year old building in need of repair and have no garage. Weekly rentals are allowed but $300+ per square foot? Come on.

How about an original condition 31 year old Cape Canaveral 3rd floor direct ocean 2/2 condo with 1222 sq ft asking $350,000 or $286/sf? Wait, it has a garage and comes completely furnished with old furniture. Really?

How about a newer (1996) north side view 7th floor, 3 bedroom 2.5 bath unit with 2100 square feet asking $669,900. Before you spit out your coffee I'd like to remind you that it is fully furnished and has a 2 car garage. Surely that justifies $319/sf.

There are plenty of overpriced listings but some, like these, are so outrageous as to defy logic. If you want to sell, do your homework, know the market and price accordingly. The power of positive thinking is not going to make Sasquatch appear with a suitcase of cash ready to overpay for your condo. This post from 2009 still applies.

"I don't know whether I'd rather be shot as a crook or as an idiot." Mike Muckleroy speaking about Ken Lay's comment that he too had been hurt by Enron's demise as his net worth was down to less than $20,000,000.

Rare bipeds

MLS condo and townhome inventory June 7, 2011 in Cocoa Beach and Cape Canaveral is 389 units. There are 44 listings asking over $500,000. This year so far seven units have closed for more than that number so we have enough half-million dollar plus units to last a few years. Not so in the lower price ranges. There are 66 units asking less than $100,000. Since January 1, a total of 86 sub-$100K units have closed. That pool is getting skinny. Of the total 389 units for sale, 16% are distressed sales (13 bank-owned and 51 short sales).

Single family home inventory stands at 80 properties with 30 asking over $500,000. Since the first of January 60 properties have closed, 19 of those since April 1. Six of the 60 closing for over $500,000. Of the 80 currently for sale, 2 are bank-owned and 5 are short sales. New listings are appearing at a rate far below the sales rate.



I am anxiously awaiting new (fairly priced) inventory. Much of what supply we have is over-priced and has been sitting on the market for a long time, years in many cases. The severely over-priced listings can't be considered actual supply so our real inventory numbers are lower than the MLS total numbers of 389 condos and 80 homes. The appraisal prevents (in most cases these days) borrowing buyers from overpaying. Cash buyers aren't likewise constrained and represent hope for unrealistic sellers. Even though cash buyers make up three quarters of all recent condo purchasers, those willing to overpay are about as abundant as Sasquatch. Based on sellers' responses to many of the offers I present at least one has been spotted roaming the area. I've got news, folks. That's a fur suit.

All other things being equal, a home or condo is worth very close to what other similar properties are selling for now, not last year or the year before, right now. Closed sales are running at an average of 91% of asking price. If you want to sell, do your homework and price your property within striking range of what the comps tell you it's worth. If you want to purchase, same strategy. Know what it's worth and offer within striking range of that number. Wishful thinking has proven to be an ineffective strategy whether buying or selling. The comps are what they are. Gather them yourself or have your agent furnish them if you can get her to return your calls.

"The truth does not change according to our ability to stomach it." _____Flannery O'Connor (thanks PR)