Evil Condo Fees [updated]

Thanks to Jon for suggesting a post about condo fees. Contrary to popular opinion, condo fees are not a bad thing. They are not even unfair. Regularly collected fees from multiple owners of common property insure that adequate funds for common expenses are available when needed.

How much is fair? That depends on what those fees are intended to cover. At the same selling price, is condo unit A with $350 a month fees a better deal than than an identical unit, B, with $450 a month fees? Depends entirely on what those fees cover.

In most condos the monthly fees cover insurance for the buildings (usually the biggest single item), maintenance, water and sewer, basic cable, grounds care, trash pickup, common area electric, salaries for employees (if any) and other common expenses. There may also be money going into reserves for future expenses. More on that later. Some condo fees also cover hot water and WiFi and some even cover AC units. At the other end of the scale, some associations do a special assessment every year when the insurance bill arrives and a few complexes with artificially low monthlies seem to assess every time the Marlins lose a game.

So, back to the question; is the unit with low monthly fees better than the one with higher fees? Probably not if the lower fee unit is not funding reserves. If the unit with $450 fees is contributing 20% of the annual budget towards reserves ($90 per month per unit) then the units appear to be close to equal value at the same selling price. That is until the roof needs replacing or the building waterproofed and painted. In the building without reserves, the owners get a special assessment to pay their share of those items which can run into seven figures on some buildings. The buyer of the unit with the higher fees and a roof needing replacement next year has his share of the cost safely socked away in the reserve account (thanks to the previous owner's share of reserves) while the buyer of the lower fee unit may find himself writing a five figure check for his share of the replacement. 

There is another danger to the seemingly attractive low-fee unit. It may not be mortgage worthy. Unless a buyer is paying cash or making a substantial down payment, lenders may not loan on any unit in the complex. At the very least, most lender reviews of a condo are going to want to see 10% of the annual budget going into reserves and an amount equal to to the insurance deductible in the bank. It is normal for some owners to want to keep monthly fees as low as possible. Why fund reserves or keep unused money in the account if it means higher monthly fees? What they may not realize is that lower condo fees with no reserves means that the future sale of their and their neighbor's units will be more difficult. Funding the reserves at a rate of less than 10% of the total budget or not keeping the amount of the hurricane deductible in the bank might keep monthly fees low but it might also push your unit into the cash-buyers-only category.

[update] Another important factor to consider when reviewing condo reserve accounts. The amount of money in the reserve accounts is not a good measure by which to compare associations. For instance; If the amount of reserves designated for replacement roofs is $500,000 then the reserve account should contain $500,000 the month before the new roofs were paid for. However, the month after those roofs were paid for that reserve account would be depleted. A quick glance at a tiny reserve balance might lead an uninformed buyer to assume that the association was not adequately funding reserves. Don't assume, ask.

One last thought on the whole condo fee thing: Single family homes have the same expenses. They are just funded differently. The monthly costs for insurance, water/sewer, pest control, lawn and pool care for a Cocoa Beach home can easily run more than our example condo fees. Then there is the cost of the roof, painting, driveway, etc. when it's time to address those. It's a rare homeowner who has a designated reserve account. As they say, there is no free ride.

"Some people call me obsessive or driven or lucky or whatever. I'm all of those things. Shouldn't we all be?"  ___Kelly Slater

How to Handle Multiple Offers

 This is an excerpt from a post last year. It is still relevant enough that it bears repeating. With the continuing dearth of inventory, multiple offers are commonplace and buyers need to expect that possibility and respond in the manner that is most effective for their situation. Best to leave emotion and distrust at the door.

 
[from July 2013]
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Let's revisit multiple offers. I had an interesting encounter with a buyer last week who thought multiple offers should include multiple chances to do "best and highest". It doesn't work that way. Typically in our market, if more than one offer is received at the same time, the listing agent will go back to all buyers' agents and give them the opportunity to bring their best and highest offer to be presented to the seller at the same time. This is risky for the seller as the pervasive distrust of real estate agents means that they run the risk of losing one or all of the buyers. I was involved in one situation where both buyers withdrew their offer when asked to bring their best and highest. The condo ultimately sold to an entirely different person for less than at least one of the first buyers was willing to pay. If your buyer's agent tells you that the listing agent has called for "best and highest" because there are multiple offers, you have three choices.

1. keep your offer exactly the same in hopes of being the winning offer
2. increase your price and/or better your terms in hopes of being the winning offer
3. withdraw your offer because you "don't play games' or believe the agent/s are lying to you

The seller also has choices of how they want to handle the multiple offers once received.

1. They can accept the offer they like best and proceed to closing. Note that the best offer may not necessarily be the highest. Closing date and terms may win out over price.
2. They can choose not to respond to any of the offers if none are good enough.
3. They can counter one or several of the offers. If none of the prices are acceptable to them they can offer the same counter-price to all and accept the first one (if any) to respond. Or, if one is clearly better than the others, they may choose to counter that one alone with a change of price and/or terms.

How a buyer responds when asked for his best and highest offer is entirely his decision. How a seller responds to the offers she receives is entirely her decision. The buyer I mentioned who was upset with the process was bothered that he didn't get a second chance to better his "best and highest" when someone else made a more attractive offer. The seller chose to negotiate with the offer that she preferred. That offer was apparently good enough that she saw no upside to re-approaching the lesser offer. It was her decision to make. Also note that in the event of multiple offers, a seller doesn't have to call for best and highest. She has the right to choose the offer she likes best without giving anyone a chance to do best and highest.
At this stage of our market, multiple offers are the name of the game for any priced-right listing so be prepared for this if you're offering and don't let it deter you from participation. You decide what price and terms you're comfortable with and then hope for the best. You might win just by staying in the game without changing the offer at all. If you don't trust your agent enough to be honest with him, find another one.
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By the way, the most common reply that I get when I inform a buyer of multiple offers is "Do you think they are just playing games with us?" There seems to be a widely held belief that listing agents routinely use phantom offers to milk more money out of a buyer. In my experience this is just a myth. If a seller wants more money, they have just as good a chance of getting it by negotiating in the normal manner. Lies and phantom offers are not necessary and a straightforward counter-offer doesn't run the chance of chasing away a perfectly good but skittish buyer.

However beautiful the strategy, you should occasionally look at the results. Winston Churchill

Acid Trip Followup

I promised a followup on the Short Sale Negotiators on Acid story. It's almost as crazy as the original story.

The first short sale failed because a greedy first right owner stepped in and screwed up the process after the bank had agreed to $36,000. This was after a 14 month saga of crazy negotiations with Wells Fargo. The listing expired. Amazingly, a new listing agent took the listing two weeks later as a short sale and started all over. Rather than list at the bank's previous take it or leave it number of $63,000, she listed for $45,000. A new buyer signed a contract and the short sale process began for the third time. Either the negotiator at Wells Fargo had developed a tolerance for his particular hallucinogen or, more likely, a different negotiator was assigned. At any rate, the short sale was consummated and closed four months later in December 2013 for $55,000.

One month later, in January this year, after nicely remodeling the little one bedroom unit, it was relisted for $99,000. It closed yesterday for $94,000. This trip is over.

"I am not a pig farmer. The pigs had a great time, but I didn't make any money. "  Willie Nelson

Chugging Right Along

April 2014 was another busy month for real estate in our beach communities. There were 50 closed MLS-listed condos and townhomes in Cocoa Beach and Cape Canaveral in the month. Over 60% of all sales closed for cash. Activity was particularly heavy in the lower price range with over half of all sales closing for $150,000 or less. It's still amazing to me that a condo with two or more bedrooms, a short walk from the beach can be had that cheaply. Sixteen of the under $150,000 sales had multiple bedrooms.

The highest priced condo sale of the month was a resale Magnolia Bay fully furnished corner 3/3 that closed for $550,000 after only six days on the market. Second highest sale was a northeast corner top floor Ocean Oaks 3/3 in Cape Canaveral that also sold fully furnished. It brought $525,000. Speaking of Magnolia Bay, a milestone was reached last week when the last developer-owned unit went under contract. This marks the end of a long and grueling process. Or does it? There is still the site of the fourth building that has rested vacant since the market crashed. Can units be built there and sold for enough to make a profit? I can't predict. I will try to put together a history of this project from my first involvement up to this point as best I remember it and post it in the near future. It was drama from the very beginning and there was a lot of collateral damage, unintended consequences and hard feelings along the way. Congrats to the residents and the developer for hanging in there and seeing it to the end..

Other condo sales of note included;

5th floor SE corner Xanadu of Cocoa Beach 3 BR, 2.5 BA for $450,000 in 39 days

Xanadu direct ocean 15th floor nicely remodeled 2 BR, 2 BA for $397,500 in 30 days

2nd floor Cocoa Beach direct ocean southeast corner Windrush 3/2 for $317,000

Ground floor direct ocean Marko Villas south Cocoa Beach 2/2 for $200,000

South ocean view 3rd floor Majestic Seas 3 BR, 2 BA. Sold for $390,000 in 16 days.

1st floor Stonewood D bldg. 3 BR, 2 BA for $340,000

4th floor direct ocean Las Palmas 3/2 for $300,000

4th floor D building Mystic Vistas corner 3/2 with a peak of the ocean for $280,000

And, my favorite, a 2nd floor canalfront 2 BR, 2 BA Lookout Point downtown Cocoa Beach with garage and boat slip that went for $163,875.

Single family home sales were brisk in April as well with nine closed in Cocoa Beach and two in Cape Canaveral. Over half were over $400,000 including the highest recorded price ever for a single family home in Cocoa Beach of $1.9 MM for a beautiful oceanfront home in south Cocoa Beach.

Distressed sales represented 14% of the total closed sales compared to 6% of the current for sale inventory. There was but one short sale out of the 60 closed sales in the month. There are 70 single family homes offered this morning and 285 condos. Over 20% of the current condo inventory has been offered for over a year, quite a few for multiple years. Some of those are yet-to-be-built, others are developer owned units that have been for sale at outrageous prices for years, and the others are just over-priced. If a unit has to be asking within 15% of current market value to be "really" for sale, I'd put the "real" for sale condo inventory in our two cities at less than 225 units. It's tough to find the good ones. Tough but not impossible. I can help if you're looking.

Hope everyone has been enjoying the recent beautiful weather. If this week is any indication, we might be in for a hot summer. The ocean water temp is already in the high 70s and offers a welcome dip for beachgoers. The beach re-nourishment project finished up just as turtle season began on May 1. If one knows where to look, there is an abundance of beautiful olive shells that were apparently transported to the beach with the new sand. Due to their cylindrical shape, they tend to accumulate at a certain place on the beach at a certain time. Speaking of turtle season; no lights are allowed to be visible from the beach after 9 PM. Turn em off and close the blinds or risk a $350 fine.


"I don’t stop eating when I’m full. The meal isn’t over when I’m full. It’s over when I hate myself."  ___Louis C.K.

Public Service Announcement

I'll make this short. Buyers hoping to purchase a condo in Florida shouldn't even consider using a lender if the loan officer handling their loan is not in Florida. The loan on a Florida condo is as much about the condominium association's worthiness (as defined by the lender) as it is about the borrower's credit. Far too often I see very experienced and capable loan officers from other states fail to close a loan because they weren't able to anticipate the hurdles involved with the Florida condo approval process. A local Florida lender who does condo loans here all the time will be in front of these bumps and will stand a much greater chance of closing the loan and hitting the contract date. The distant loan officer who will fail will assure you that they can do just as good a job as any Florida lender. Don't fall for it. Repeated history tells a much different story.

"Ignorance and confidence are constant companions."  __John McAfee

Summer, Ahead of Schedule

The market for residential properties in the coastal communities of Brevard County is on fire. The traffic through Cocoa Beach may have slowed significantly since Easter but the demand for desirable properties has not. Low inventory is making the search for good properties frustrating for prospective buyers and Realtors alike. The percentage of distressed listings (short sales and foreclosures) in Cocoa Beach and Cape Canaveral has continued to shrink and stands today at 6% of the total. That's the lowest level since we saw our first short sale in 2007. There are but 277 existing condo and townhome units for sale this morning in Cocoa Beach and Cape Canaveral and just 66 single-family homes. Supply is tight.

There was a time in the recent past when a throwing an unsubstantiated lowball offer at a seller stood a reasonable chance of getting a response. That time has passed. Our market has evolved away from the Macy's model of high discounts off sticker price and more towards the Target model of pay the sticker, no discount at the register. Recent successful buyers have been those who knew the fair value of the property at the time and offered accordingly. Whether selling or buying, those participants who are realistic about market value and direction will eventually be rewarded. If a buyer or their agent can support a way-below-asking price offer with accurate recent comps, an unrealistic seller might be willing to accept a large discount to his asking number. Without supporting comps, a lowball is a snowball.

The number one tip for success in selling or buying real estate in the Cocoa Beach area today; Know The Fair Market Value...Right Now. Expect to buy or sell relatively close to that number. In a declining market that number tends to the downside of today's value. In the current rising market, the opposite. As always, knowledge is power and a necessary ingredient in a recipe for success. Good luck out there. Feel free to pick my brain if you have a question or to have me assist you in your search. I know this market like the battered deck of my old longboard and I'm willing to share.

Time to toot the horn. Walker Bagwell Properties closed yet another oceanfront Cocoa Beach home last week. We represented the buyers and this one set a new record for highest price ever paid for a Cocoa Beach single-family home. Of the 16 non-condo oceanfront properties closed for more than $500,000 in Cocoa Beach in the last two years our little office has been involved in five. Of the six oceanfront properties closed in Brevard County in the last six months over $1MM, Walker Bagwell has been at the table on half. We are not a large company (intentionally) but we know our stuff and are very active in our beachside market. We're here if you need us and don't mind the lack of matching blazers and sometimes open-toed footwear.

"I'm not getting into a bidding war" ranks right up there with "We don't have to sell," and "We aren't going to give it away" as symptomatic of self-defeating mindsets.  ___Mike Jaquish

Buyer Beware

Florida law does not require that sellers of property provide a property disclosure to a buyer. However, they must disclose material issues that are known to them. To wit; In Johnson vs. Davis, the Florida Supreme Court held that “where the seller of a home knows of facts materially affecting the value of the property which are not readily observable and are not known to the buyer, the seller is under a duty to disclose them to the buyer.” The disclosure can be made in writing or verbally. In addition, in Rayner vs. Wise Realty Co. of Tallahassee, the First District Court of Appeal provided that this same disclosure requirement applies to residential properties that are being sold as is. 

Buyers are still advised to do their own due diligence and to be suspicious of written and verbal disclosures. Human nature makes sellers forgetful especially where large sums of money are concerned.
 
“Success in investing is not a function of what you buy. It’s a function of what you pay.”
  ___Howard Marks

Condo Sellers, Get Your Act Together

Birds of a Feather

If you are currently or soon to be selling a condo unit, you need to do some paperwork preparation. Rounding up as many of these documents in advance will smooth the selling process. The documents required to be provided to all condo buyers (if requested) include current copies of the declaration of condo, articles of incorporation, the by-laws and rules, the most recent year end financial information, and the frequently asked questions document. If a buyer asks for these documents and they aren't provided then he has the right to cancel the contract right up to day of closing. Buyers will usually also ask for minutes of recent meetings so it's good to have those on hand as well.

If your buyer is getting a mortgage, expect to have to endure requests for other documents from the lender that you may not have anticipated. Those can include, among other things, detailed condo questionnaires, master insurance policies and possibly an elevation certificate. If you want to reach the closing table, you'll have to play along, as frustrating as it can be. A little advance preparation can reduce that frustration. Know who to contact when the requests come and make sure you can trust that person to round up the documents promptly. A slow or non-responsive contact can kill your sale. There is a grumpy, well-known property manager on the beach who will take great pleasure in refusing requests from your buyer's lender and your Realtor if she happens to be your contact. It might be a good idea to go ahead and touch base with the person who will be fielding the requests for documents and ask for cooperation. An advance box of chocolates could pay dividends.

Good luck in your selling. The market is strong but the lenders' current documentation requirements and guidelines for condo loans is making the process more stressful and difficult.

"It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong."   ___Thomas Sowell