Continuing Ed - Home Buying

Home buying scenario 1; Fiscally prudent Basil decides he wants to purchase a home in Cocoa Beach. He is mistrustful of realtors and decides to do his own research, select the properties that interest him and contact the listing offices directly to see them. He decides not to use a buyer's agent which he mistakenly thinks will cost him more money. After viewing multiple properties with multiple listing agents he decides to offer on one that seems perfect. He asks the listing agent what she thinks he should offer. She suggests that a low offer will not get a response as the seller is "very close" to her bottom line at the current asking price of $350,000. Basil offers $340,000 and the list agent calls the next day with the good news that the seller has reluctantly agreed to sell if Basil will come up to $342. Basil is thrilled and agrees. He didn't have to pay a buyer's broker and he got a good deal, he thinks, on a home that is almost exactly what he wants.

Scenario 2; [months earlier] Savvy Sammy decides, with retirement approaching in a couple of years, to go ahead and begin a search for a Cocoa Beach home. He does some research, makes a few calls and selects a buyer's agent to assist in his search. With Sammy's list of criteria, his agent begins distilling the active listings to get to a prime list of possible matches. Sammy and Sara fly to Cocoa Beach three times over the next year to look at properties and decide what features matter and finally find a house that they like and want to make an offer on. Sammy asks, El Dubya, his buyer's broker, what he should offer. El Dubyah says, well, considering that this home has been on the market off and on for the last three years at steadily decreasing prices I think we can afford to be aggressive. Two very similar houses in the same neighborhood closed last month and the closed prices suggest that a fair price for this one is around $325,000 but I think we should start lower and hope to end up around $325. Sammy offers $315 and the seller counters at $340. Sammy bumps up to $320 and the seller counters at $332. While Sammy and Sara contemplate the seller's counter, El Dubya sees that a new listing has popped up on the next block at an attractive price. It is slightly larger and has a new seawall and dock. Sammy decides to offer on it rather than increase his offer on home number one. A deal is struck on the 2nd house for $320 and house number one remains on the market asking $350 until Basil comes along two months later and pays $342 with the listing agent's hints that that is a good price.

Neither Basil nor Sammy paid a realtors commission. Both sellers paid 6% to their listing broker. The listing broker for house number 2 paid El Dubyah's broker 3% of the seller's total 6%. The less-than-helpful listing agent for house number 1 kept the entire 6%.

Take-aways: Rarely does a buyer get a break on price by going directly to the listing agent. That agent is prevented from advocating for the buyer in the deal and cannot divulge what the seller might accept even if the seller has previously agreed to a lower number with another buyer. While the agent technically can't advocate for the seller either, the dynamics are unlikely to ever be in the buyer's favor. Even if the agent agrees to reduce the total commission, both buyer and seller are expecting that savings to land on their side of the settlement statement. The result most often is that the buyer pays more than he would have had he had an advocate on his side of the deal.

A good buyer's agent who is active in the market will almost always have information about a property, a neighborhood or the market in general that can be used to hammer out a better deal for the buyer. Just as important, a good buyer's agent will not allow his client to have excessive exposure in the contract language without that buyer's knowledge. Buyers who decide to eschew their own representation better be familiar with customary division and amount of closing costs, escrow amounts and where it's safer being held, inspection periods, assignability, contract time periods and a few other potentially costly areas. Penny wise, pound foolish.

"Sometimes if you want to know for sure whether the stove is hot, the only way to find out is to touch it."  __ Jack Reacher

So far this year

An Atlas V rocket lifting off yesterday from Cape Canaveral Air Force Station with a monster 15,000 pound military satellite.

As I was expecting, the rate of property sales so far this year lagged the same period in recent years. Since January 1 there have been 15 sales of single family homes in Cocoa beach and Cape Canaveral as reported by the Cocoa Beach MLS. In the same period there have been 50 condo and townhome sales. The two biggest dynamics in play in our market are the depleted inventory (372 condos and 73 homes) and the rapid decline of the number of distressed properties. In the period of January 1 through February 25 last year, distressed sales (short or foreclosed) represented 37% of the single-family home sales and a whopping 47% of the condo sales. In that same period this year the numbers of distressed sales declined to 27% for single-family homes and 26% for condos. This trend of reduced distressed sales will continue as this morning's MLS inventory shows only 17% distressed condo listings out of 372 total and a mere 5% distressed homes. There is a total of only 20 foreclosed properties in our two cities, none of them single family homes. Over half of the foreclosures are at two complexes, nine at Pier Resort and two at Mystic Vistas. There are 42 short sale condo offerings and four single family.

What do these stats mean for participants in our market? With over three quarters of this year's condo sales so far closing with cash, mortgage availability is not a factor. Almost certainly, without high numbers of low-priced distressed listings, we should expect to see stabilization or increases in closed prices. I'm already seeing some indications of this. Obviously it's not the same in all complexes. Until the foreclosures get flushed out at the Pier Resort complex, we won't see any improvement there. With Mystic down to the two last foreclosures I expect that the days of sub-$200,000 sales will shortly be a thing of the past there. For sellers, the light at the end of the tunnel is starting to show. Those with the flexibility to wait it out may at last be rewarded. For buyers, the low-hanging fruit is almost entirely picked and expecting to pay the same or less than the recent comps is likely to be less successful than in the last few years. There are still deals to be had but one needs to be realistic and understand the dynamics.

On another subject, when researching property and agents on the Internet, be skeptical of all you see. False claims on agent websites like "expert this, that or the other" or "specializing in ..." and search engine manipulation are at an all-time high as are domains designed to trick the public into thinking they are actually on our public MLS. We have a broker in our area who maintains a site/s with almost-the-same domain name as our association site even though our association has repeatedly warned members that this is unacceptable (not to mention unethical). The obvious intention is to trick consumers. The puff adder I profiled in the post from earlier this week claims to be a beautiful peacock on the Internet. If you won't believe that a stranger is holding $15,000,000 from your deceased relative that he needs to transfer to your bank account you shouldn't believe that an agent you never met is an expert at anything but claiming to be an expert. This includes me. I could be a clever monkey with a broadband connection harvesting leads to sell to other less-resourceful agents. Trust your gut and ask questions of your agent.

I am frequently asked why lists of property listings from sites like Zillow, Realtor.com, Trulia, etc. almost always contain listings that are no longer active and often already sold. I suspect these sites intentionally leave sold listings up to increase page views. That is their business model after all. If you want real-time accurate MLS data for Cocoa Beach and Cape Canaveral use the public MLS site maintained by our association at http://www.brevardmls.com/  No need to wade through lists that are arranged according to how much a listing agent paid or full of already sold properties.

"He who would search for pearls must dive below." __John Dryden

The snake will always bite

I phoned a client (who we'll call Woody) one afternoon recently when a new condo listing appeared that matched his criteria. I previewed the unit for him the next morning as he couldn't make it down to see it immediately. Woody indicated that we would be making an offer that day as soon as I had forwarded photos and description of condition. He told me that another agent with whom he had worked in the past (who we'll call Dick) called him about the same listing. When he told Dick that he was already preparing an offer with me on this unit Dick told him that he would be bringing an offer from a different client on the same unit. He offered to withhold the other offer if Woody would work with him on a different unit in the future. Woody agreed.

After thinking about his promise Dick changed his mind. The delayed gratification of some future deal wasn't working. He decided to use the threat of a bidding war to pressure Woody into letting him write his offer rather than me. Woody relayed all this to me and asked me to step aside and let Dick write the offer for him. I complied. Based on Dick's promise Woody thought he stood a chance (without a competing offer) of getting the unit for less money. After presenting Woody's offer, Dick told Woody that he had submitted the other offer anyway and a bidding war ensued with the price running  to almost full asking. Long story short, Woody wound up paying more than he wanted to and Dick was rewarded for his deceit with two commission checks instead of one as he got to sell his other freshly-defeated but anxious-to-purchase client a different unit. I doubt the other buyer ever knew what was going on. I'm happy to have been on the sidelines for this one, unpaid, unsurprised but with integrity intact.

Some of the details of this story may be inaccurate considering that one of the main participants is likely to have told more lies than the ones that surfaced. For instance; Dick may have not submitted the other offer but told Woody that he had in order to get him to up his offer. Or, there may never have even been another offer and Dick used that threat to coerce Woody into letting him write the offer. In any case, tread carefully out there. Trust your gut if it's telling you your agent may be less than honorable. There be dragons and snakes about.

"You can't talk of the dangers of snake poisoning and not mention snakes." ________C. Everett Koop

False confidence

My friends and I caught eight of these dolphin last Tuesday in a short two hour trip.

I am entering the second weekend of negotiations on a condo in Cape Canaveral. If last weekend is any indication of how this one will go, the listing agent will suspend all communication until the work week starts for her again on Monday. This particular agent, during her five day work week, is quite forthcoming with her immediate rejection of my client's offers and his detailed substantiation of the same on her very over-priced listing. She has been combative and critical of our offers even though they have been solidly supported by recently sold comparable properties in the same building. She has refused all our requests for any substantiation of her asking price and counter offers. The buyer's mind is open to any evidence to support the seller's (and the agent's) opinion of value. [Note: there is none.] Her personal commentary comes immediately upon receipt of an offer or counter-offer before she relays the offer to the seller of the property. Her chip-on-the-shoulder attitude is very likely to prevent the sale of her client's condo even though the buyer is willing to pay more than what the comps suggest is a fair price. I doubt if her client knows that she doesn't work weekends or that she is speaking for him. Bad agent. By the way, she closed one property last year. False confidence.

Sellers, sometimes the reason your property doesn't sell is your agent's fault. The listing agent matters if you hope to sell reasonably fast and receive fair value for your property. If you have an unrealistic opinion of your property's value, feel free to list with anyone. It's not going to sell.

 On another subject, sellers, when you accept an offer, it is prudent to get the contract signed and delivered as fast as possible. The buyer's right to cancel period doesn't start until you've signed the contract. We had a closing last week that was still within the buyer's right to cancel period on the day of closing because the sellers took so long to get around to signing the contract that they had verbally accepted. Not smart.

"The art of politics consists in knowing precisely when it is necessary to hit an opponent slightly below the belt."  ___Conrad Adenauer

Approaching touchdown

In the month of January there were only five MLS-listed single family home sales and 29 MLS sales of condos and townhomes in Cocoa Beach and Cape Canaveral. That's well off last January's 47 condo sales but not surprising considering that inventory has reached a critically low point. There were three condos foreclosure sales and zero single family homes. Highest of the three was a ground floor south facing Siesta del Mar 2/2 that sold for $109,000. It last sold for $289,000 in 2005.

There were also three short sales of condos and one single family home. A large 2/2 at Solana Lake sold for $180,000. This same unit sold for $383,000 in 2005. A 2/1 at the Diplomat closed for $80,000. It last sold in 2005 for $219,000. A 3rd floor, south facing 2/2 at Canaveral Sands closed for $165,000. It last sold for $373,000 in 2005.

Eight of the 29 sales were for less than $100,000 with only five closing for more than $300,000. The highest price paid in the month was a 1st floor (actually 2nd floor over the garage) Meridian direct ocean NE corner 3/3 that sold for $599,000. It last sold for a recorded price of $640,000 two years ago but the actual price paid may have been less as many sales at Meridian recorded for more than the actual cost to the buyers.

A gorgeous 4th floor, south facing Artesia 3 bedroom 3.5 bath with 2636 square feet closed for $450,000. It last sold in 2004 for $530,000.

Two direct ocean units closed in the Constellation in January. One of the larger floor plan (2419 square feet) 3/2 units on the forth floor sold for $425,000. It was remodeled last year. The sellers were asking $550,000 just a year ago BEFORE they remodeled. An 8th floor smaller 3/2 (2126 square feet) in need of a total remodel sold for $335,000. Big ocean and river views from balconies on both sides of both units, one of the unique qualities of south Cocoa Beach where the river is right across the street.

Another 4 year old Magnolia Bay 3/3 closed for $340,000. This one was in the E building and on the 2nd (actually 3rd floor as garage is floor one). Two garage spaces, 10' ceilings and 2108 square feet.

A 6 year old, 3rd floor, direct river 3/2 corner at Solana on the River sold for $295,000. It sold in 2005 for $439,900.

A 5 year old direct river 2nd floor corner 3 bedroom 3.5 bath Garden Bay unit sold for $285,000. Has a 2 car garage and 2600 square feet. A smoking deal. Recorded as sold for $500,000 in 2008 but, like the Meridian numbers, that data is suspect.

One of the bigger floor plan Puerto del Rio (2336 square feet) 3/2 corners closed for $175,913. Not bad for a 5 year old 3rd floor corner unit with a huge 180 degree wrap balcony.

A direct ocean Cocoa Beach Club 2 story NE corner 2 bedroom, 2.5 bath unit closed for $240,000. 1176 square feet, no garage.rentals allowed.

I expect the slow pace of sales to continue with total MLS inventory of only 385 condos and 76 single family homes in the two cities this morning. Buyer interest is high but with the low supply finding the right property or the right price is not as easy as in the recent past.

Farming looks mighty easy when your plow is a pencil and you're a thousand miles from the corn field. ___Dwight D. Eisenhower

[Repeat] Does this make my butt look big?

Rocky shoreline in Satellite Beach at low tide. There are no rocks in Cocoa Beach but as one heads south, rocks are first encountered at Patrick Air Force Base and the rocky shore continues all the way to Indialantic.


(This subject never goes away. This original post was from 2009 but, to this day, loan officers and brokers continue to over-promise and fail.)

Does this make my butt look big? Everyone knows there is only one correct answer to this question no matter who is doing the asking. There is another popular question that also has but one answer. That question is one that is posed to loan officers and mortgage brokers every day, "Do you foresee any issues with my getting a loan on this property?" Day one in loan officer school the class is asked this question and then instructed to shout in unison, "No, not at all." over and over until the phrase is firmly imprinted on their brains. Then, when "the question" is posed by an actual borrower, the neuro lingual programming takes over without any conscious thought and "the answer" comes forth confidently. Doesn't matter that the Florida condo that the borrower is asking about is 1800 miles away from the lender's office or that the last Florida condo loan that the loan officer did was in 2006. "We can do it" he says with a confident smile. Right. He can do it until he can't and that usually doesn't becomes evident until well down the road towards closing.

All borrowers who are buying a Florida condo would be well advised to talk to a lender in the market in which they are purchasing. There are issues with Florida condo loans that lenders will not encounter anywhere else. A great credit score and previous relationship with a distant lender might not be enough when the hurdles to closing start appearing. A good local lender who is active in our market will have knowledge about Florida-specific loan issues and will likely have encountered many of the sure-to-happen problems with previous loans. That knowledge allows him to be proactive rather than reactive in addressing these issues. Anticipating and working to solve an issue before it presents itself can be the difference in making a closing date or not.

Disclaimer: I'm not saying out-of-area lenders can't close deals here. It happens all the time, but, from plenty of personal experience, I can say without hesitation that the odds of having problems are increased when the lender is not local. Just don't expect a loan officer to admit that his performance out of state may be compromised by lack of local experience. Remember the NLP "answer" from class. I can close deals and represent buyers anywhere in the state of Florida but I don't venture outside my market because I can't do the best possible job for my client in a market I don't know. Greed and false confidence encourages many realtors and lenders to venture out onto the thin ice, often to their client's detriment. Be skeptical when yours fearlessly claims proficiency in an unknown market.

/cue theme song (everyone sing along)__ "Knowledge is power..."

"Education is when you read the fine print. Experience is what you get if you don't."_____Pete Seeger

[REPEAT} 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.

(I'm doing a repeat of this and a few other relevant posts from the past as the issues covered seem to keep coming up.)

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;
_________________________________________________

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.

_________________________________________________

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

[Repeat] Valuations and fuzzy math

(This is a repeat of a post from last summer prompted by several recent encounters with agents and principals using dubious justifications of value.)

Continuing the commentary from the last post about valuing a property. My review of recent sales suggests that using the Property Appraiser's published "market value" is a pointless exercise unless it can be used to one's benefit against an uninformed opposing party in negotiations. With a margin of error of 45 to 50%, the PA's number should be considered for entertainment purposes only.

Dismissing the PA's number, to value a property we're left with either Miss Cleo or the comps. With apologies to fans of Miss Cleo I think recently sold comparable properties are the best starting point for determining another property's value. Identical condo units in the same building are perfect comps as are identical homes in the same neighborhood. The reality is that, in most cases, there aren't "identical" comps. In that case one has to look for the most similar and then make adjustments. The most commonly used starting metric for comparing similar properties is dollars per square foot. If a 1000 square foot unit closed last week for $100,000 then another very similar unit with 1100 square feet should be worth close to $110,000, all other things being equal. The big stinker there is the "all other things being equal" part. They never are, equal that is. We also need to consider that both units may have exactly identical garages, have access to the very same amenities and share an identical view. This makes a comparison based only only unit size (even with adjustments for condition) flawed from the get go. Place the properties in different buildings or neighborhoods and the comparisons become even less accurate. We can't accurately calculate the value of Starry Night based on the selling price in francs per square centimeter of Vincent's Bedroom in Arles . I think comparing Cape Winds to Sandcastles just as flawed although less extreme.

Consider that a direct ocean 2/2 with 1286 square feet and a garage at Sandcastles in Cocoa Beach will command no more rent per week than a Cape Winds 2/2 with 934 square feet and open parking in Cape Canaveral. Are they worth exactly the same because of identical potential income? I don't think so but I don't think a straight $/sf comparison is remotely accurate either. Seems illogical to think that an otherwise similar 2/2 unit in one of the two buildings should sell for a 27% premium to the other.

My point in all this is to caution buyers and sellers about their or their agent's opinions of value. Putting a fair value on a property is not an exact science. If buying, do your best to get the lowest price possible and use all the tools available to substantiate your offers. Just be aware that in the end only you know what a property is worth to you. The commonly used valuation scales are all flawed. It's horseshoes. Closest one scores.

"Sheep only have 2 speeds - graze and stampede." Colonel Dave Grossman