Your tenant is costing you a fortune

This post is directed to sellers who are hoping to sell a property that is occupied by a tenant. I understand that you may think the rental income helps defray your costs while waiting for a buyer. What you may not know is that your tenant is, in almost all cases, adding friction to the sales process. It doesn't take many showings and the need to keep the property always show-ready to harden even the most co-operative tenant. On the easy end of the scale, tenant-occupied properties that I call to show only require an extra phone call and an appointment to show. At the other end of the scale I've encountered tenants who restrict showings to unreasonable hours or who seem to always say that today isn't a good day. There was even one condo tenant who changed the locks so that the listing agent's key wouldn't open the door. I do everything I can to show every suitable property to my clients but sometimes the buyers' schedule and the tenant's resistance preclude a showing and possibly a sale.

Whatever the impediments the tenant produces, this friction reduces showings and, worst case, can prevent a sale. At the very least, reduced showings prolong the selling process. If you are trying to sell a tenant occupied property it would be constructive to monitor the difficulty showing agents are encountering and determine for yourself whether or not the rental income offsets the possible delay or prevention of a sale. Oh, yeah. You'll also want to occasionally call your listing agent, especially on weekends. If she isn't answering or returning calls, that difficult tenant probably doesn't matter.

"Did you ever walk into a room and forget why you walked in? I think that is how dogs spend their lives."____Sue Murphy

The dance

Early morning downtown Cocoa Beach Feb. 19, 2011

Some random observations about real estate buyer/seller interactions from my man on the street perspective.

Real estate transactions are not a zero sum situation where one participant's gain or loss is exactly balanced by the losses or gains of the other participant(s). In real estate deals buyers and sellers often play a game of classic prisoner's dilemma, where, by not co-operating a participant gambles for the maximum gain (best price) by risking the maximum loss (no deal). In the case of a buyer, maximum loss only means not getting this property. Unless it's unique, she can always move on to another similar property. In a seller's case, maximum loss (no deal) means prolonging the sales process. The usual result (at least for the last five years in our market) is a lower price later, sometimes much lower, much later. Sometimes that gamble pays off and another buyer materializes quickly willing to pay more. I said "sometimes" but meant "once in a blue moon".

When offering to purchase anything for sale at a lower price than a seller is asking, it makes sense to have a strategy for success. Every situation is different and offers need to be tailored to the seller and the specific property. In most cases a buyer can't know all of a property seller's motivations and circumstances but enough can be determined from publicly available information to guide a strategy. Offering an arbitrary X% less than the asking price is not a strategy although, in most cases, all offers should be less than the asking. The exceptions are aggressively-priced or unique properties. In that case, trying to squeeze a few bucks off the price may lose the property to a more aggressive buyer. Your buyer's agent should be finding out everything about your target property and seller before you make your offer and should know what the market is saying about that property's value. An active, good buyer's agent will often know more than is publicly available. And, I can't repeat this enough; know what current market value is. Without that knowledge you may overpay or, just as bad, miss out on a good deal.

I see all kinds of seller reactions to offers. Most are hopeful stabs at getting a price above market value or a particular buyer's ability to pay but some are angry, irrational and counterproductive. Buyers understand that every seller wants to get the highest possible price for their property. They also want, or need, to pay the lowest possible price and in most cases are going to offer below market value. Even with these contrary goals, record numbers of buyer/seller pairs are reaching the middle ground and closing sales.

Three "need to know" points for sellers when fielding offers.

Carrying costs until the sale. If your property is costing $2000 a month to hold, waiting a year hoping to get an extra $24,000 doesn't make sense. Selling for less today might yield more than selling later for a higher price. Do the math and quantify the exposure.

Recent comparable sales and current "for sales". Without a significant difference in your property, you are unlikely to find that mythical buyer willing to pay you above the market. If you don't know the recent sold comparable prices, you won't be able to recognize a fair offer if you get one. What your neighbor sold his for two years ago is not a comp nor is the offer you turned down last summer. Cautionary hint: your listing agent might not know market price either and might not care.

Buyer behavior. Know that you're probably going to get some not-serious lowball offers but also know that every offer you get is going to be less than your asking price unless you have stated in your listing that the price is firm "not a penny less". Conversely, unless the buyer has stated that her offer is "take it or leave it", no matter how low, it is an invitation to begin negotiations. Refusing to counter an offer, no matter how crazy you consider it, is not productive. Unless the buyer said "take it or leave it" she is willing to pay more. If you consider her offer crazy, make a crazy counter but keep her engaged. She may be unrealistic but you lose nothing but time if a deal does not materialize. I have seen bad starts evolve into acceptance. Another consequence of refusing to counter an offer is that it sends a dangerous message. That buyer's agent walks away from a no-counter response with the impression that your asking price is firm. Not a smart message to be sending to buyers' agents who probably represent other buyers, one of whom may be willing to pay more.

Having said all that, there are unreasonable participants on both sides of the transaction fence. For every seller clinging to 2008 prices there is an unreasonable buyer who will never pay fair market value for anything. Be careful not to let your interactions with unreasonable players affect your response to the next one who really wants to get the deal done. Understand that it's a dance and put your best foot forward. Paying more or accepting less may, in retrospect, look like a great move. Do your homework and conduct yourself accordingly.

"When you get the chance to sit it out or dance, I hope you dance."____sung by Lee Ann Womack (written by others)

What a week it's been

[This is a repost from Today in Cocoa Beach.]


Looking north from south Cocoa Beach. Click photo for larger size.

More of the same is forecast. 10 day prediction below.



And now, check out the ocean temps. Notice the significantly
colder water just north of the Cape. This time of year it's not
unusual to see the surf temp in Cocoa Beach 10 degrees warmer
than in Daytona as this map from yesterday shows. Surf temp
approaching 70 degrees in Cocoa Beach while it is hovering below
60 degrees just around the corner of the Cape. Cobia will be showing
up in numbers any day now.

Short sale mystery

I was involved in a strange short sale experience this week. A short sale condo that had been listed for about nine months without an offer suddenly got two interested buyers. The listing agent was informed by both buyer's agents that an offer was forthcoming. While preparing the offer, one of the buyer's agents found that the owner of the unit listed in the tax record was different than the owner listed in the MLS. In fact, the owner listed in the tax record was the condo association. The listing agent, when informed of this, expressed shock having no idea of a change in ownership. A hasty call to the sellers of the unit revealed that they were also unaware of any changes. They are over a year behind on condo fees and mortgage payments.

An examination of court records revealed that the condo association's attorney had filed and received a court-issued certificate of title naming the association as owner of record on November 18. The lender holding the note was not named or copied on any of the court filings. After finding out this info the listing agent called the condo association to find out what their intentions were with the unit and how to proceed with a sale. They were unaware that they were now listed as owners of the unit and called the association attorney for clarification. The attorney, who billed the association for six hours at $200 per hour, could not find the file. As of right now, the association is listed as the "owner" of a unit that is collateral for a mortgage of about $50,000 more than the unit would bring on the market. The lender does not yet know that their collateral is no longer in the borrowers' names. The two prospective buyers don't know to whom to present their offers. The association named as owner doesn't know who the first lien holder is or how they are going to negotiate a settlement or even whether a sale is worth the trouble. As owners of the unit I assume that they are now responsible for the monthly condo fees. The previous owners have withdrawn the unit from the MLS. It is not actively for sale at the moment.

I have no idea how this will play out but I will be certain to keep an eye on it and report the outcome here. I don't expect a speedy resolution.

"Confusion now hath made his masterpiece."__William Shakespeare

January breakdown

Property sales in Cocoa Beach and Cape Canaveral continued their strong trend in the month of January with 41 MLS listed condos and townhomes closing in the month. There were seven single family homes sold in the month. Of the 48 total residential sales, 23 were either short sales or foreclosures and 20 of the total sales were for less than $100,000. There were only three sales that exceeded $300,000.

The single family home sales ranged from a low of $105,000 for a small, short sale Harbor Heights 3/2 needing work to $340,000 for a remodeled waterfront Snug Harbor 4/2 with big pool that was also a short sale. The single family homes sold for an average of 87% of last asking price. Very important distinction here is that the percentage was of the most recent asking price. Most of these listing had been reduced from their original asking price, several substantially.

Of the 41 condos closed in January, the average selling price was 91.5% of last asking price. Foreclosures commanded an average of 95.5% of asking price with five sales at or above asking price. Short sales averaged 92.3% of last asking price. Lowballers take note: less than half of all sales went for a greater than 10% discount to asking. Expecting to get some arbitrary high discount to asking price is not an effective strategy. As I've said before, what a buyer should be focused on is the eventual selling price not the amount of discount to asking. My Target/Macy's analogy still stands. The $50 jacket at Target that's not on sale is still a better deal than the same jacket at Macy's that is 50% off plus another 25% off at the register if regular price is $200. Do your homework so you'll know what price represents a good deal rather than measuring the deal by the discount to asking price.

Sales of note included:

Another Meridian oceanfront 3/2 closed for $545,000 or $82,000 less than the price it sold for new in 2008.

The denial and basic training haircut awards of the month both go to a Michelina 4th floor south facing 3/3 . This unit sold for $800,000 new in 2006 and was first put on the market less than a year later in 2007 for $899,000. (Somebody wasn't reading this blog.) It finally sold a week ago and five price drops later for $440,000 after being on the market for a total of 1188 days. It was not a short sale. The sellers were kind enough to leave all the furnishings. By the way, during the 1188 days that it was for sale the listing agent never bothered to post any interior photos of the unit in the MLS listing. I may have to come up with another award for that outstanding performance.

An 11th floor NW corner original condition Xanadu sold for $290,000. These big (2343 sq ft) 3/2.5 units have incredible views over the city of Cocoa Beach to the north and west and have a decent view of the ocean around Stonewood next door. Was only on the market for 12 days.

A tremor went through Crescent Beach Club in south Cocoa Beach when a 4th floor direct ocean 3/2 unit closed for $249,000. It needed work but at $249,000 there's plenty of room for renovations. A candidate for deal of the month.

A big 4 year old Bayport of Cape Canaveral sold as a short sale for $240,000. This 2501 square foot villa has 5 bedrooms, 3.5 baths and a 2 car garage. Sold new in 2006 for $476,400.

A nicely remodeled 2/2 direct ocean, corner unit Windjammer in Cape Canaveral sold for $225,000. Had a 1 car garage and 1196 square feet.

A 1222 square foot, 3rd floor direct ocean 2/2 at Canaveral Sands closed for $222,500 after only 30 days on the market. Had a 1 car garage and sold fully furnished. The unit was in mainly original condition.

A north facing 3rd floor Windrush 3/2 sold as a short sale for $207,500. One car garage and 1565 square feet. Last sold in 2003 for $265,000.

A big, top floor direct river 3/2.5 Diamond Bay of Cocoa Beach sold for $199,000. This 2068 square foot unit was only on the market for 34 days. Had a 1 car garage.

A 4th floor Puerto del Rio 3/2 SE corner with good river views and 1 car garage closed for $175,000 only three years after selling for $280,000. Not a short sale.

A furnished, no-view Ola Grande weekly rental 2/2 short sale sold for $165,000.

One of the newer (1999) Villages of Seaport 2/2.5 units with 1110 square feet sold for $130,000 fully furnished. Open parking.

A south facing 4th floor (ocean building) Conquistador short sale 2/2 with 1101 square feet closed for $130,000. No garage, original condition.

A ground floor poolside 2/2 in the oceanfront Sand Pebbles Cape Canaveral sold as a short sale for $125,000. 1058 square feet and private garage.

A 2/2 lakefront, ground floor Harbor Isles Cocoa Beach 2/2 closed for $120,000. 1248 square feet and 1 car private garage.

Another Pebble Cove direct river 2nd floor 3/2 closed for $113,000. How low can direct river, 1344 square feet w/garage get?

Ouch! A foreclosed 5 year old Portside Villas 3/2, 2nd floor corner goes for $95,000 after just 10 days on the market.

Closing at prices below that Portside sale were another 18 units at prices between $17,000 for a tiny Jeannie by the Sea 1/1 to $87,000 for a 2/2 Rio Vista.

"A common mistake that people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools."__Douglas Adams

Short sales as comps

Art by Larry Mayo, Mayo Surfboards.

Are short sales good comparables to establish fair value for non-short sale properties? Not really. The recorded sales price is often understated. Many times a bank will require a contribution at closing from a seller or a promissory note for some or all of the deficit. The amount of either of these is not usually noted in the MLS or in the property tax records when the short sale closes . An interested person or agent looking at recent comparable sold properties may see that Comp A closed for $150,000 and Comp B closed for $160,000 and use these to establish fair value for Property C. No matter that the seller for Comp B paid $10,000 to the lender in lieu of a promissory note or that the seller of Comp A signed a promissory note for $25,000. The effective selling price was $175,000 for A and $170,000 for B but our intrepid researcher only sees that the record shows $150,000 and $160,000. Let's not forget that the write-off and subsequent reduction in taxes for the bank are effectively additional proceeds as well. [But, as pointed out by a couple of readers, shouldn't be used as an adjustment to the price of a compared property as tax implications are not exclusive to short sales.].

Our take-away: If you're looking to purchase don't walk away from the fairly-priced property you want because you demand the same price (as recorded) as the short sale unit down the street. As always, bargain hard but realize that the recorded price of the short sale comp you're using to base value on probably does not reflect the entire amount of proceeds from the sale.

"Institutions will try to preserve the problem for which they are the solution."-- Clay Shirky

We have convergence

I mentioned in the year's first post that we would soon see convergence on the graph of yearly sales and inventory of MLS listed condos in Cocoa Beach and Cape Canaveral. What I failed to take into account was that the convergence had already happened if we look at the sales on a monthly basis rather than yearly [extrapolated chart below]. We hit exactly one year's worth of inventory sometime in mid-December. This burn rate has been steadily declining from a high of 25 months supply (all prices) in 2006.

The supply number for luxury (over $500,000) condos has been knocked down even more from a high of over seven years supply to the current less than two years supply based on 2010's sales and today's MLS inventory. Two major factors in this decline was the sellout of Meridian last year and the decline in prices of unsold units pushing many below the half-million dollar mark. Keep in mind that the real number of "for sale" luxury units is understated on the MLS.


So far in 2011 sales have been slow with only 7 closed condos and 2 single family homes. A small 3/2 canal home in good condition on Watts Way in Cocoa Beach closed for $250,000. A remodeled 2152 square foot, 4/2 canal home on a big lot in Snug Harbor with a pool closed as a short sale for $340,000.

In condo sales another Meridian owner has bailed at a loss. This first floor (actually second floor in this building) direct 3/2 unit closed for $545,000 just two and a half years after selling new for $627,000. The original selling broker received a check for $31,350 as this was in the time when the developer was enticing agents with obscene paydays for delivering buyers. You know how I feel about this practice.

A bomb of a deal hit at Crescent Beach Club in south Cocoa Beach when a 4th floor, direct ocean, original condition 3/2 with 1804 square feet and garage sold for $249,000 this week.

Another direct river, 2/2, 2nd floor corner at Cape Shores with open parking closed for $136,000.

At the low end of the price scale a foreclosed small 1/1 unit in the riverfront complex Essex House of Cocoa Beach sold for $28,000.

When two opposite points of view are expressed with equal intensity, the truth does not necessarily lie exactly halfway between them. It is possible for one side to be simply wrong.____ Richard Dawkins

December by the numbers

Shrimp boat at sunrise off south Cocoa Beach.

December 2010 was a busy month for real estate sales in Cocoa Beach and Cape Canaveral. Single-family home sales were dominated by low-price properties with only two of seven closed MLS sales exceeding $200,000. The gem of the seven was a beautiful 4 bedroom, 3 bath pool home with 2787 square feet at the end of a cul-de-sac off Minutemen Cswy. on open water overlooking the islands that sold for $630,000.

51 condos closed in December, the most MLS sales in the month of December since before 2004. (My records only go back to 2004.) This strong finish to the year on the back of the lowest inventory in the same seven year period is positive for the 2011 market. Of the 51, twelve were for less than $100,000 and eight were above $300,000. The sweet spot for activity was between $100,000 and $300,000 with over half of all sales landing in that range.

Sales of note included:

Four units in the new Ocean Paradise in south Cocoa Beach at prices between $560,000 and $435,000. These prices represent discounts of 40% and more off the original asking price. All units were 3 bedrooms and slightly over 2000 square feet.

Jaw-dropper of the month and maybe the year was a short sale at Magnolia Bay. A 3/3 corner unit with 2 car garage and 2455 square feet closed for $295,000. This unit sold new in 2007 for $689,900.

Another short sale haircut was a 3rd floor south facing unit in the oceanfront Sol y Mar also in south Cocoa Beach. This gorgeous 5 year old, 4/3 unit with 2 car garage and 3020 square feet sold new in 2005 for $745,000. It closed two weeks ago for $430,000.

A 2nd floor Meridian direct ocean 3/2 that was purchased new just three years ago for $679,900 was sold for $545,000. Not a short sale but considering the dynamics at this complex probably a smart decision by the sellers even though it was a significant loss for them.

A top (5th) floor, north ocean view 3/2 at the 8 year old Artesia of Cape Canaveral. This unit sold new in 2002 for $306,900. It sold in 2005 for $683,000 and then two weeks ago for $410,000.

A remodeled ground floor, direct ocean 3/2 at Royale Towers sold for $215,000. Had 1445 square feet and a 1 car garage.

A remodeled 4th floor direct ocean Sand Dollar 2/2 at Royale Towers of Cocoa Beach sold fully furnished for $270,000. One car garage and 1374 square feet.

Another 4th floor Sand Dollar floor plan 2/2 just north at Windward East closed two weeks earlier for $265,000. Also with a 1 car garage and 1394 square feet.

Just south down the street another direct ocean 2/2 on the 2nd floor sold at Beach Winds of Cocoa Beach. This 1213 square foot unit was partially remodeled, furnished and with a 1 car garage. Closed the last day of the year for $255,500.

A south side ocean view, 4th floor Sea Oats short sale closed for $205,000. This 3/2 unit was in original but OK condition and came with a 1 car garage.

An east side with ocean view Royal Mansion 2/2 closed for $226,000. Furnished, 1058 square feet, but no garage. Weekly rentals allowed.

Third floor direct ocean 1/1 Sand Dunes with 887 square feet and garage closed for $187,500.

One of the rare townhouses in the direct ocean row in front of Mystic Vistas closed for $185,000. This unit had 3 bedrooms, 2.5 baths, 1509 square feet and sold furnished. No garage.

A foreclosed Solana Lakes 2/2 with 1828 square feet and garage closed for $185,000.

A nice canalfront 2nd floor, 2/2 at Beachwalk of Cocoa Beach sold for $185,000. Sold furnished and came with a garage and private boat slip.

An updated direct ocean ground floor 2/2 at Windjammer of Cape Canaveral sold for $180,000. Had 1196 square feet and a garage.

Two more of the 5 year old, bank-owned Mystic Vistas closed for $150,000. Both 3rd floor, one B building and one A bldg. One with 2010 square feet, one with 1994 sf and both with a garage.

A 2 story, south facing 2/1.5 with 1088 square feet in the oceanfront North Triton Arms in downtown Cocoa Beach closed for $147,000. No garage.

A side view 2/1 in the oceanfront Richard Arms just north of the Pier closed for $145,000. 1013 square feet and no garage.

A nice, updated ground floor direct ocean end unit at Canaveral Sands sold for $145,000 as a short sale. One car garage and 1316 square feet. Sold in 2004 for $385,000. Ouch!

Foreclosed top (5th) floor 2/2 direct river Four Seasons w/garage sold for $140,000.

Two 1/1 Royal Mansion weekly rental units closed for $105,000 and $95,000. The math (cost/income) really starts to make sense at these levels.

I'm not going to get into all the lower priced sales (of which there were many) but there were quite a few deals done at very compelling levels for the properties concerned. If you're looking for a smoking deal, they are still out there, just less to choose from. Inventory at all price levels continues to decrease so we are going to have trouble maintaining the same pace of sales as we move into 2011. As the number of distressed sellers dries up I expect to see shift in seller sentiment over what will probably be a surprisingly short period. It will only take a small notch-up in comparable sales to embolden the remaining sellers. They've been hoping for exactly that for a few years now. Couple that with a decade-low inventory and we could see an unexpected firm-up in prices as buyers become concerned that they've missed the bottom and begin to willingly pay a small premium to the last sale. I'm not predicting a substantial or sustained run-up in prices but it seems the conditions are ripe for a decent little bounce. As always, just my opinion. Do your own due diligence and remember that every market is different. I will most certainly be wrong in the specific as the "bottom" only happens once in each complex and floor plan. Those complex-specific bottoms will be spread over months or years but the sentiment shift will likely happen in a narrow time period and I think in our market it will happen this year. This prediction does not include the newer luxury condo complexes. My forecast for continued pain in that market segment still stands.

"Most haystacks don't even have a needle."___Unknown