Money for nothing

A few weeks ago my friend suggested to his friends who are moving to Cocoa Beach that they contact me to help them with their search for a property. A couple of days later I got an email from a Realtor in another Florida city asking if I would be interested in paying her a referral if she sent her clients my way. She mentioned as an aside that I had already been recommended to her clients by my friend. I responded that I would be happy to help her clients and asked for details on what they were looking for, what involvement she intended to have in the process and what sort of cut was she hoping for. No response and three days later a couple shows up at my office unannounced ready to look at houses. They seemed confused that I wasn't present with a list of properties for them to see. They thought their agent had actually done something to assist. I'm not sure what she told them about how the process works or if she actually told them anything. She is likely hoping for a 15 to 25% slice of my eventual commission check just for inserting herself into the process and doing nothing but screwing up first contact. It has now been weeks and the agent has not followed up and I haven't seen her "clients" again.

This whole referral thing is common in the real estate world. In the most innocuous referral situation your friend or relative who has a real estate license in another city hears you mention that you plan to buy a property in Cocoa Beach. She tells you to let her find you a good agent to help you in Cocoa Beach. She may actually be intending to look out for your best interest by reviewing offers and contracts, offering advice, etc. History tells me, however, that her definition of "good agent" is likely to be the agent who is willing to pay her the biggest cut, not necessarily the agent who will do the best job. The other end of the referral spectrum includes situations where an agent is blindsided by a previously unmentioned relative expecting a cut after the property search has been concluded and a contract accepted. The smelly end also includes many of the big franchise real estate companies who parcel out website inquiries and other sources of leads to their agents after slicing off a healthy chunk of the agent's pay. I have seen situations where more than 75% of the commission paid was siphoned off before getting to the actual buyer's agent, the bulk having gone to the money-sucking machines above her.

This post is not intended to bash the referral process, just to inform readers of the abuses of it like those mentioned above. I have good relationships with other agents who send me referrals and have accepted dozens of referrals over the years that were completely fair and mutually beneficial. I have declined just as many because they were impractical or unfair. The first couple mentioned probably thought their agent would be helping out in their search here. Surprise.

Conclusion: Aunt Hilda, loving though she may be, may not be doing you a favor inserting herself into your search for a property in a distant city. Will including her benefit you? Knowledge is power.

"When the facts change, I change my mind. What do you do sir?"
_________ John Maynard Keynes

Red sky in morning

Sailor take warning? I don't think so. Dust off the log.

My predicted slowdown in sales because of shrinking inventory has yet to materialize. March saw 54 MLS-listed condo sales in Cocoa Beach and Cape Canaveral and eleven single-family home sales. The number of sales in the first quarter is 18% ahead of last year's number. Condo activity was spread almost equally between the two cities while all but one of the single family homes sales were in Cocoa Beach. A third of the condo sales were under $100,000, a third between $100,000 and $200,000 and a third closed for more than $200,000. Luxury condos were active with four sales closing over the $500,000 mark, one over a million. Seven of the condo sales were foreclosures, none over $135,000. Six were short sales with only one over $140,000. Those distressed sales (foreclosures and short sales) represented only 25% of the activity.

Inventory of condos continues to shrink with only 424 total units actively for sale this morning in Cocoa Beach and Cape Canaveral, a 25% reduction in available units since April 2010 and less than half the inventory just three years ago. The percentage of distressed sales also continues to shrink, down to 17% of the total, 10 foreclosures and 60 short sales.

For anyone looking for a short term rental oceanfront condo, I currently have four units in desirable buildings available directly from the owners at prices from $130,000 to $275,000.

"It could be romantic comedies, it could be Oreo cookies. If they're all liking it together, I want that broken up."___Boston Rob

Scott Free - Not Quite

Rocky shore at low tide in Satellite Beach.

Actually the phrase is "scot free". In modern usage it means getting away with something without penalty. If you sold a property last year as a short sale and didn't get a judgement from the lender nor a 1099 for the deficiency you may be thinking you got away scot free. Not so fast. As they say, there is no free lunch and, in the case of forgiven debt, there are only a few instances of "scot free" in the United States. The IRS considers forgiven debt to be income and as such it must be reported even if the lender did not issue you a 1099. The Mortgage Debt Relief Act of 2007 added exemptions for primary residences in tax years 2007 through 2012. Other exemptions are allowed for debt forgiven in the case of bankruptcy or insolvency, some farm debt and non-recourse loans. The majority of short sales I see in our market are likely not to qualify for forgiveness. So, this is a cheery April reminder that you need to consult with your tax professional before filing your tax return for 2010 if you had forgiven debt in the year even though you may not have received a 1099. Don't shoot the messenger.

[update] As pointed out by a reader (thanks, PR), the fact that a seller didn't receive a 1099 from a short sale may point to the fact that the debt was not forgiven. If that's the case the short seller can expect someone, the bank or the entity that bought the debt, to pursue collection. They may wait a few years until the borrower is back on their financial feet. Read and understand those approval letters, people.

"It hardly matters if you're the smartest guy in the room when you're the most well informed" anon

March halftime report

The reason for all the boats just off the
beach this past couple of weeks.

March has outdone itself this year in Cocoa Beach. The weather has been glorious with cloudless skies, light winds and temps in the 70s and 80s. The crowd seems to be bigger than in recent years. In addition to spring breakers and youth baseball teams there seem to be more snowbirds than usual, not surprising considering the Canadian dollar is worth more than the US greenback and approaching an all time high. The cold winter up north didn't hurt either.

The cobia run has been the best in years. We've had several years of windy March weather spoiling the fishing for this tasty fish as their annual migration takes them past our coast. This year the planets aligned and we had light winds, no clouds and the fish were here en masse. I broke my personal record last Wednesday with a 45.3 pound fish on 15 pound line and then broke it again on Friday with a 47.3 pound fish on the same 15 pound rig. There is a perpetual bowl of fresh cobia ceviche in my fridge.

Sales of condos and townhomes in Cocoa Beach and Cape Canaveral have backed off somewhat from the strong pace of January and February. The low inventory numbers and the quality of that inventory is starting to be felt. The trend of activity being focused in the lower price ranges is intact. Only five of the 24 closed MLS condo sales so far in the month exceeded $200,000. Single family homes sales are still strong with reasonably priced homes moving quickly once they hit the market. Like condos, the activity has been focused in the low prices with seven homes closed so far in March at prices from $100,000 to $282,500.

Sales of note of the 31 closed so far included:

A small 4/2 canal home in Cocoa Beach that had some updating and a new dock and seawall. Was not a short sale and closed for $282,500.

A foreclosed non-waterfront 3/2 pool home in Cocoa Beach that needed work sold for $100,000.

A nicely maintained non-waterfront 4/2 pool home in the area of Cocoa Beach north of 520 sold for $239,000.

A very nice 4th floor 3/2 direct ocean unit in the nine year old Artesia building in Cape Canaveral closed for $510,000. One car garage and 1924 square feet.

Another super nice direct ocean unit sold at Majestic Seas. This one was 2nd floor, 1924 square feet, 3/2 with one car garage and closed for $370,000. Almost everything in this unit was new including hurricane sliding doors. A great deal in my opinion.

One of my clients scored a beautiful six year old, 3/3, direct Banana River Solana River after watching and waiting for over two years for one of these rare floor plans at the right price. This 4th floor corner unit sold new in 2005 for $499,900. Sold this time fully and tastefully furnished for $288,000, a smoking deal.

A north facing 2/2 Shorewood in Cape Canaveral sold for $230,000. This one had 1862 square feet and a one car garage.

A 3 year old fee simple townhome (no association) one block from the ocean in Cape Canaveral closed for $210,000. This very nice unit had 3 bedrooms, 3.5 baths, a 2 car garage and 2143 square feet. Another good deal.

A 2/2 north facing Coral Sands in south Cocoa Beach with 1525 square feet and garage sold for $175,000 fully furnished.

A 2nd floor canalfront at Beachwalk of Cocoa Beach sold for $173,500. Had a deeded 25' boat slip and private garage.

A side ocean view Driftwood of Cocoa Beach closed for $167,000. It was a 2nd floor, 2/2 fully furnished without a garage.

A ground floor direct ocean Canaveral Sands 2/2 closed for $155,000. No view because of the dune vegetation. Had a one car garage.

At Harbor Isles in Cocoa Beach another lakefront ground floor 2/2 closed. This one had a private garage and sold for $115,000.

The developer of Royal Mansion sold his last remaining unit after slowly parceling these out over the years while raking in the vacation rental income. It was a south facing 2nd floor, nicely furnished and went for a surprising $96,000. Not bad for a unit that rents for up to $1100 per week.

A foreclosed top floor Treasure Island 2/2 on the Banana River closed for $92,000. No garage.

Another Diplomat of Cocoa Beach 2/1 has sold. This one was ground floor and in the middle of a remodel that needed completion. Sold for $79,000. No garage. Two week minimum rental in this very popular oceanfront complex.

A tiny 1/1 Essex House on the river in Cocoa Beach sold as a short sale for $29,900.

One observation; I am seeing multiple offers on many listings, especially on foreclosures but also on aggressively-priced non-distressed listings. If offering, be aware of current trends and be prepared to move when an attractive target presents itself, AND, do your homework. The average discount to asking price of the 31 closed properties in March was 9.87%.

George Castanza - I'll sniff out a deal. I have a sixth sense.
Jerry - Cheapness is not a sense.

Inventory dynamics

Someone asked about inventory levels. Inventory shrinkage continues fueled by the high number of sales and the lower than usual number of new listings. MLS condo and townhome inventory this morning in Cocoa Beach and Cape Canaveral is at 452 units, it's lowest point since I began tracking this number in May of 2006. That translates to just slightly more than a 10 month supply at current sales levels (most recent 4 month average). Is that a big deal? You decide.

One year ago, March 2010, using the same formula (inventory over average sales rate) we had a twenty month supply. One year earlier, in March 2009, we had a whopping 35 month supply of condo inventory. Our supply has been cut by two thirds in two years. The effects are being felt.

As has been the case for the last several years the inventory over burn rate number is higher for luxury units, more than double using the same formula as above but realistically even higher than that because of erratic closings and unlisted but available units in troubled complexes. With those fundamentals I think it's safe to expect to continue to see price erosion in the luxury segment. Lower supply and higher demand would seem to predict another scenario in the mid and lower price ranges.

"I have an existential map. It has 'You are here.' written all over it."___Steven Wright

February wrap-up

The red-hot sales trend in Cocoa Beach and Cape Canaveral held firm through the month of February bringing the total closed MLS-listed condo sales for the first two months of the year to 76 units, a 5 year high. Single family home sales were also strong with eleven homes closed in February. In a departure from our normal pattern, none of the 33 condo sales in February exceeded $300,000. Two of the single family homes were above the half-million dollar mark.

Condo sales of note included:

Stonewood B building direct ocean 12th floor, 3 bedroom, 2 bath w/garage, 1588 square feet. Sold for $298,000 just $2000 less than asking price in 21 days on the market.

Six year old top floor Puerto del Rio of Cape Canaveral 3/2 with 2434 square feet, garage and massive wrap balcony with wide open river views. Closed for $285,000.

Foreclosed, 4th floor side ocean view Majestic Seas Cocoa Beach 3/2.5 with 2100 square feet and garage. Sold for $265,000 after 41 days on the market.

Third floor 3/2 Solana Lake of Cape Canaveral with 1956 square feet and garage. $260,000.

Short sale fully furnished and nicely remodeled Canaveral Towers direct ocean 7th floor, 3/2 with 1417 square feet and 2 ocean balconies, open parking. A deal at $250,000 in this weekly rental building.

Nicely furnished and remodeled, top floor, direct ocean Waters Edge 2/2 in south Cocoa Beach with garage, 1350 square feet. Closed for $250,000.

Seven year old Bayport villa in Cape Canaveral. This one had a 2 car garage, 4 bedrooms, 2 baths and 1696 square feet. Sold for $235,000 after 25 days on the market.

Foreclosed top floor (7th) Windward East of Cocoa Beach south ocean view 2 BR, 2 BA with garage and 1316 square feet. Closed for $200,200.

Top floor (5th) Shorewood D building 2/2 with a tiny peek of the ocean. One car garage and 1663 square feet. Sold fully furnished for $200,000 in 34 days on the market.

A lakefront 3/2 Rock Pointe of Cocoa Beach with 2149 square feet and garage closed for $189,500.

Fourth floor south ocean view C building at Royale Towers in Cocoa Beach. It had 1256 square feet with garage and closed as a short sale for $165,000.

Another Solana Lake 2nd floor 2/2 with 1828 square feet and garage sold for $160,000. It was a foreclosure. Sold in 2005 for $364,500.

A first floor direct canal Captains Cove in Cocoa Beach sold for $143,000. It had 3 bedrooms, 2 baths, 1841 square feet, deeded boat slip with boat lift and garage. Was a foreclosure and sold in 40 days on the market.

Three units closed in the month at Summerwind of Cocoa Beach (streetside across from the Publix supermarket). A fully furnished south view (distant peek of the ocean) 3rd floor, 2/2 closed for $140,000 with 1400 square feet and garage. The other two were a 4th floor, 1200 square feet, east facing that closed for $123,000 after only 15 days on the market and another 3rd floor, this one north facing with 12oo square feet that closed for $120,000.

A short sale 3rd floor 2/2 Siesta del Mar in Cape Canaveral sold as a short sale after a grueling 494 days on the market for $135,000. Was a south ocean view with a garage.

A foreclosed Majestic Bay townhome in Cape Canaveral closed for $110,000. This six year old 3/2 had 1783 square feet and a 2 car garage. Sold in 2006 for $280,000.

One of my favorites was a 1/1 unit in a small (6 units) oceanfront building in south Cocoa Beach that allows weekly rentals that sold for $70,000.

Rounding out the condo and townhouse sales were assorted units in Ocean Woods, Four Seasons, Canaveral Bay, The Oaks, Star Beach, Ocean Park and others at prices between $100,000 and $20,000.

Single family home sales of note included:

Two direct ocean homes closed in the month. A neglected trophy home in south Cocoa Beach sold for $600,000. This once majestic 4239 square foot home has two stories with 6 bedrooms, 3.5 baths, 2 car garage on .34 acres lot with huge decks on 75' of ocean. Is going to need a ton of work.

Another was a short sale just south of downtown Cocoa Beach. This one had a guest house and a total of 2177 square feet. Was originally built in 1946 on 50' of Atlantic Ocean and was first listed in December 2008 for $1.1 MM. Closed last week for $560,000.

Four non-ocean Cocoa Beach waterfront homes sold for prices from $337,500 for a funky open river 3/2 on Jack Drive to $232,500 for a canal front 4/2 on Chipola that needed work.

Five non-waterfront houses closed at prices from $225,000 for a short sale, original condition 3/2 on the Cocoa Beach Country Club golf course to $112,500 for a 2/2 half-duplex two blocks from the beach in Cape Canaveral.

The cobia showed up in decent numbers last week following the giant manta rays up the coast in their annual migration. While the ocean was calm last weekend most boats were catching their limit of 2 fish per angler. Fish up to 75 pounds were caught. The wind cranked up Monday and it's been unfishable ever since.

"God loved the birds and invented trees. Man loved the birds and invented cages."___Jacques Deval

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)