Hope, Greed and Bad Advice.

This post was inspired by the closing this week of one of the handful of units that originally sold at completion at a big, new south Cocoa Beach condo complex in 2007. Nigel and Keanu are fabrications as is the story but the numbers are real. I have no idea who the actual parties to any of the pre-construction transactions were other than the cracker-jack real estate agent who sold several of the pre-construction contracts. He is very real but shall be identified only as "Cracker Jack".

It's the year 2005 and it seems almost everyone is making money hand over fist speculating in real estate. Keanu's neighbor, Nigel, refinanced his house and has been using the cash-out money to reserve pre-construction condos for 10% down and then flipping the contracts prior to closing for several times his investment. He made over a hundred thousand bucks on just two contracts at Portside Villas and is currently sitting on contracts at Solana on the River, Somerset in Titusville and Island Pointe in Merritt Island. These contracts look to profit several hundred thousand by the time he flips them next year.

Nigel calls Keanu one afternoon with the news that his cracker-jack young agent has somehow scored a pre-construction list for a just approved riverfront project in south Cocoa Beach. If Keanu wants in, 10% will reserve one of these to-be-built units starting at $549,900. The price only has to move to $600,000 to double the investment and a triple or more is possible depending on where the market is by the time the contract is flipped to another buyer. Both of them decide to go for one of the $549,900 units and plop down $54,900 each for the reservations.

As the buildings go up, things are looking good. Nigel flips one of his other contracts for a tidy profit but decides to sit tight on the remaining ones for more money. Both list their pre-construction units summer of 2006 for mid-$600s and mentally begin counting the profits. One little snag, the developer hasn't been able to sell all the units and is still offering identical units for $549,900. A few months later the notice of impending completion goes out and closings are set for early in 2007. It is now time to come up with the remaining $500,000 and close on the unit or, gulp, default on the contract and lose the $54,900 deposit. Nigel has a slick mortgage guy who will finance the entire remaining balance with a no documentation, interest-only jumbo mortgage at 6.5%. That's his plan as he expects to resell the unit for much more after the developer unloads his remaining units. After much thought and with much regret Keanu makes the very difficult decision to walk away from the $54,900 deposit. Nigel closes and mortgage, fees, taxes and insurance on his unit run just over $3900 a month.

Something feels different going into 2007. The optimism has evaporated almost overnight. The developer hasn't sold another unit and only closes eleven units that year. Nigel's cracker-jack agent suggests renting his unit while waiting for the market turnaround and is able to get a tenant for $1350 a month. After bleeding money every month for two years Nigel lists his unit for sale for $398,500. No takers and he rents again for $1350. Fast forward to summer 2014 and the unit is listed again sans tenant for $410,000. Unfortunately, the developer still has unsold units and is offering an identical unit for under $400,000. Nigel's unit sits empty until this week when it finally closes for $346,500. That's over $200,000 less than paid in 2007 and after almost eight years of over $2500 a month negative cash flow. For all Keanu knows, Nigel may have stuck the lender and association for a good portion of the losses and is vacationing in Cannes. For Keanu the evidence suggests that the decision eight years ago to walk away from the $54,900 deposit may have saved him more than a quarter million dollars. He has no idea how Nigel's contracts at the other complexes played out. Nigel hasn't mentioned them since 2007. The cracker-jack agent is still around, older and, hopefully, wiser and still closing a couple of deals a year. His star faded significantly after evaporating over a million dollars of client money with ill-timed pre-construction recommendations. I have a fond memory of the developer asking me after giving me the same list of available pre-construction units "Why aren't you selling any of these units to your clients? Cracker Jack is on fire." Really? Less than a year later the National Association of Realtors launched their ill-advised $40 million "Now Is a Great Time to Buy or Sell" campaign. They were half right. 

“We are ripping you off like no one has ever ripped anyone off as a per-unit basis,” but ”We are also building a time bomb that’s going to flatten us forever.” Sasha Frere-Jones talking about the music industry's shift in the 90s to CDs selling at higher prices than albums but, in the process, setting up the apparatus for music pirating with digital copies in the hands of the now-pissed-off consumer.

What's It Really Worth?

"What do you think it's worth?" That's the (literally in some cases) million dollar question. No one wants to sell for less than actual value or pay more than, but no one, appraisers, tax authorities, Realtors nor Zillow, has an always accurate method for determining present value of a property. In the rare situation of multiple recent sales of identical properties we can get very close. For everything else, looking at recent sales of the most similar properties, holding a wet finger in the breeze and adjusting accordingly is the best anyone can do to estimate current value. These adjustments are where the variations happen.

How much more, if any, is an identical 10th floor unit worth over a 4th floor? 3rd over 1st? How much should I deduct for no garage or add for a second garage? No elevator? High ceilings? Forty year old versus 15 year old building? Is a weekly rental unit worth more than a three month minimum rental unit? How much discount for a compromised ocean view? Is a complex with tennis courts worth more? How about reserve account balances? There are so many variables that the best anyone can do is come up with their best idea and hope to land on the good side of their estimate.

This is where it can get interesting. If I do my homework and crunch the numbers carefully and come up with a number that I trust is close, I will probably still have to be flexible if I hope to consummate a sale as the other party's opinion of value is almost certain to be different than mine. If I treat my number as a line not to be crossed, I am setting up for failure. I have seen deals fall apart with buyers and sellers whose drop-dead numbers were ridiculously close but which neither would violate. If I am selling in a dropping market, it may not matter if I accept an offer for less than I had hoped. Same holds true for buying in a rising market. If similar properties have been appreciating, paying more than my opinion of value might make sense. This is especially true when inventory is low. For everyone involved  it helps to remember that both sides' numbers are ESTIMATES.

Where do we start? Let's look at our bread and butter property here in Cocoa Beach and Cape Canaveral, a direct ocean condo with at least two bedrooms and two baths. The usual starting point for properties of similar size and condition with similar attributes is price per square foot. Units currently for sale (with one notable exception) have an asking price per square foot ranging from a high of $454 to a low of $154 per square foot. Both the high and the low may actually be priced to perfection. There are 18 units asking more than $300 per square foot. Only one unit has sold for more than $300 a square foot in the last 90 days. Remember, opinions and differences thereof. For the record, sixteen of those $300+/sf units are less than 15 years old. Newness generally commands a premium.

The bulk of the recently sold units with an unobstructed east ocean view sold for between $215 and $295 per square foot with half landing between $250 and $260 per square foot. To put that in perspective, that means a typical 1300 square foot 2/2 unit has recently been selling in a range of $279,500 to $383,500. Don't marry your opinion of value. There is a lot of wiggle room surrounding it.

Our takeaway: Your opinion of value, just like mine and every seller's and every buyer's is just an opinion. The owner of the luxury Cocoa Beach condo who just increased his price to $691 per square foot this morning no doubt thinks his opinion of value is correct. Now if he can just find a buyer with the same opinion he may be able to sell. Before a Meridian penthouse closed last month for $1,250,000 I thought that $500 a square foot was crazy for any condo here. My opinion had to change. Flexibility, my people.

"When I found the skull in the woods, the first thing I did was call the police. But then I got curious about it. I picked it up, and started wondering who this person was, and why he had deer horns." ___Jack Handy

Cash. What Is It Good For?

It's time for a statistics trip through the recent Cocoa Beach and Cape Canaveral residential real estate market. The more we know about the current market conditions and trends the better chance we have of being successful in a quest to buy or sell.

Sales have been brisk in 2015 outpacing every year for the last ten although we look to finish the year only slightly ahead of last year's 682 condo units closed. Unless we get an infusion of inventory, unlikely in my opinion, next year could show the first decline in ten years in sold units. Demand remains strong and prices continue to inch upwards.

Condos
Looking at the last 90 days of activity as recorded in the MLS, there have been 144 closed condos and townhomes. Another 62 have gone under contract in the same period but have yet to close. Cash remains king for condo purchases with 59% of the sales closing with cash. All sales over a half million dollars were cash. Just over half of the condo listings (74) sold in the first month on the market with a quarter of the total (35) selling in the first week. Dollars per square foot paid for direct ocean units had a wide range with a Meridian penthouse SE corner bringing a whopping $508 per square foot. The median for direct ocean units was $268 per square foot. If using this metric realize that it can have a wide range. Size of unit, condition and parking can account for wide variations. There are 204 condo and townhome units for sale this morning on our MLS.

Single Family Homes
In the same most recent 90 day period, 36 single family homes closed in our two cities. Two thirds of them were financed with a mortgage. Half sold in the first 45 days on the market with eight of those selling the first week. The median price was $408,000. There are currently 54 homes for sale on the MLS.

Karma police, arrest this man
He talks in maths
He buzzes like a fridge
He's like a detuned radio
____________________Radiohead

A Couple of Shout-Outs

Just wanted to give a shout out to the listing agent who neglected to put her email address or her cell number in her Cocoa Beach condo listing. My clients asked late Friday afternoon to include your listing in our showings for Monday morning. The appointment phone number you gave in the listing was to an office that was closed all weekend. Unfortunately, because of your omissions your client's unit wasn't able to be shown. Perhaps they've instructed you to make it difficult to show. I understand your weekend vacation was a blast.

Shout out number two goes to the off-duty gate guard walking his dog at a popular Cocoa Beach oceanfront condo complex when I pulled in to show a unit for sale last week. You decided to approach me AND my clients to launch a tirade about my parking technique not being to your satisfaction. Rather than pull me aside to discreetly express your displeasure at my slight infraction, you decided to launch an angry attack directly in front of my clients. You're hurting the very people who pay your salary with that behavior. I and my clients and, I think, even your little dog were embarrassed for you. If the homeowners knew how you were conducting yourself in front of potential buyers and new neighbors, you'd probably be out the cushy gate job. As Don Henley said, "Keep carrying around that anger, it'll eat you up inside." Yours is the first face visitors see when entering the complex. First impressions and all that.

Condo and townhouse for-sale inventory in Cocoa Beach and Cape Canaveral has climbed back above the 200 mark with 204 units for sale this morning. A total of 26 units have received accepted contracts since November 1. In the same period six single family homes have gone under contract with 56 still for sale. Half of the total combined residential inventory has been on the market more than two months, an indication of the picked over nature of our tight inventory. The priced-right properties are usually under contract in days. The over-priced ones tend to linger.

Hope everyone is enjoying the mild temperatures. We are forecast to break 80 today for the first time in several days after lingering in the high 70s. The wind has shut down most ocean fishing since it cranked up this weekend. I did manage to slip out for a couple of hours last week to land a couple of giant catch and release redfish in the Canaveral Bight. River fishing is still on fire with redfish, trout, snook and tarpon there for those who know where and how to catch them.

"Give me your tired, your poor, your huddled masses yearning to breathe free. Unless they're darker than, say, beige."- Statue of Liberty inscription if written by Donald Trump

Million Dollar Listing Cocoa Beach

The luxurious life of a real estate agent; roll out of bed by 10, pick up a latte and check emails, drive a client to a couple of listings, fill out a few forms and collect a giant check for doing practically nothing while never breaking a sweat. Occasionally attend a fancy brokers' open, drink wine and eat fancy hors d'oeuvres with the other elite while gazing over the city and ocean from a seven figure condo balcony. Rinse, repeat.

I wish. The reality is somewhat less glamorous but there are moments even in Cocoa Beach that compare to some of the moments portrayed on Million Dollar Listing Los Angeles. I experienced one last week at a broker's open high in the Riomar building on the ocean in south Cocoa Beach across the street from The Fat Snook.

The listing agent was somehow able to talk the folks at The Fat Snook into sending over their chefs from the Snook and it's sister restaurant, Crush Eleven, to craft appetizers for the agents and their clients attending the open. The usual fair at an Open House is a grocery store vegetable plate with some ranch dressing for dipping and bottled water. Not so for this one. The Snook folks knocked it out of the park. Their creations, not surprisingly, had the attendees jostling for seconds. Even this somewhat food-snobbish pescatarian was at a loss for descriptors. For just a few moments I felt like Josh Flagg without the fluffy hairdo. This is the list of hors d'oeuvres. Try not to drool. They tasted as good as they sound.

    chilled carrot ginger soup shooter / candied ginger
    smoked seafood sausage /key lime mustard / black garlic and serrano crostini
    salmon belly "bacon" / green tomato kimchi / house-made sesame cracker
    old bay potato chip / local ossetra caviar / creme fraiche / micro radish
    chocolate bourbon pot de creme / graham cracker crumble / toasted marshmallow

We are lucky that this caliber of food is available to all of us here, all the time and not just at fancy broker opens. The Snook is open seven nights a week on A1A in south Cocoa Beach. Miami has NAOE. LA has Providence. Chicago has Everest. Cocoa Beach has The Fat Snook.

Coming soon, a tale of my saga of the last few weeks with one of this year's contenders for difficult agent of the year. He has spun a toxic blend of dishonesty, disinterest and arrogance into one of the more challenging transactions of my career. If the seller knew how her agent was handling her sale, he'd be flung aside faster than a booger on a 5th grader's finger.

"All you need is love. But a little chocolate now and then doesn't hurt." __Charles Shultz

Slow and Content

For your entertainment, the cashier's check pictured is a very good fake. It looks and feels legit. It has the micro-perf edge and all the expected printing on both sides. I received it from a scammer trying to book a vacation rental and then using the old "travel agent wrote check for too much money, please return the overage through Western Union or Moneygram". I get a few of these attempts every year and always try to play along long enough to get another check for my collection.

Inventory is slowly creeping back up in Cocoa Beach and Cape Canaveral, mainly because sales activity has slowed. There have been 44 new condo listings since October 1, with 7 of those already under contract and another 2 already closed. Eight of the remaining 35 are asking above $500,000 and two top the million dollar mark. Twenty eight units have closed in the same period leaving us with 197 actively for sale condos in Cocoa Beach and Cape Canaveral.

Single family home numbers are less as always but following the same trend; five closed in October and another six under contract. A total of 57 for sale with ten new listings in October.

Most agents I'm talking to are reporting slowed activity but we are still on track to clock the highest annual number of units sold in any year since 2005. Hopefully we'll get a fresh surge of new listings after the holidays. Fingers crossed. Temps have been pleasant in the 70s and low 80s for a couple of weeks and expected to continue in the same range. The ocean has been very rough for a week with hard onshore winds. Not good conditions for surfing or fishing. Protected lee shores in the rivers are still producing fish for those willing to make the windy run to find those protected spots. Five and a half weeks remain in the 2015 hurricane season. Nothing but a good run of surf for us here.

"Real G's move in silence like lasagna"  _______Lil Wayne

3Q - The Year On The Beach So Far

How is the real estate market doing in Cocoa Beach and Cape Canaveral? I get this question more often than "How have the waves been?" or "Catching any fish?" Based on personal observation I would say the market is the most active it's been in ten years. After crunching the numbers, that impression is confirmed. Comparing sales in the first three quarters of the year for the last ten years, 2015 tops the list with the highest number of closed MLS-listed residential properties. What other trends are we experiencing? Let's dig a little deeper.

The number of property sales in our two cities peaked in 2005 with a sharp dropoff in 2006 that continued until flattening in 2008-2009. I graphed condo and townhome sales only because they make up the majority of residential properties in our cities. Single family homes sales mirrored the trend in condos. Prices continued to fall for most properties for a little longer before stabilizing. From 2009 sales activity began rebounding and has increased every subsequent year.  Note that 2014 finished higher than 2013 even though we were lagging at the end of September that year.

Prices have been steadily creeping upwards for most properties since around 2010 although there are pockets that haven't moved as much as others. Condo complexes that experienced heavy investor buying during the boom years took longer to stabilize. The years of distressed sales in Cocoa Beach and Cape Canaveral have ended. There are no bank-owned nor short sale single family homes for sale in either city this morning. Only nine of the 190 condos and townhomes for sale are bank-owned AND all of us; buyers, sellers, real estate agents and title companies, should be celebrating the fact that there is but one short sale listing of any kind here today.

In the first three quarters of 2014 there were 118 single family homes closed in the two cities. Only two were short sales and 17 were bank-owned. Fifteen houses (13%) closed for $500,000 or more. This year sales increased by 14% with 135 closed through September. None of them were short sales and 16 were bank-owned. Thirty houses (22%) brought $500,000 or more. There are 55 houses for sale this morning with zero short or bank-owned offered.

From January 1 through September 30 of 2014 there 523 closed condos and townhomes. Distressed sales (short and bank-owned) made up 17% of the total. Seventeen units or 3% of the toal sold for $500,000 or more. 2015 saw activity increase by 8% with 564 units closed in the first three quarters. Distressed sales accounted for 13% of the total and $500,000 and above sales held steady at 3% (19 units) of the total. Inventory this morning is 190 units which is just over three months supply at the current sales rate.

Our takeaways:
Sales are increasing even as inventory shrinks (two thirds what it was just two years ago). New listings are being sold as fast as they are coming on the market propping up the activity for the moment. As is to be expected, with demand exceeding supply, price momentum is upward. Let's hope new lsitings don't dry up.

Short sales and bank-owned properties are no longer a factor in our beach market. Price direction (up) is reflecting the absence of these properties. Sellers are in the power position at the moment so buyers should negotiate accordingly. As is the case in any market, many are unrealistic about the value of their property and those will have to be ignored until they accept reality. The sales numbers tell us that many others are realistic. Those buyers and sellers who understand fair value and are willing to accept it can complete a successful sale/purchase. Any agent familiar with our market can approximate fair value for a property here. Speaking of; Beware the expert from afar. Zillow may be willing to sell an agent space on the "Search for a Cocoa Beach Agent" page but it's safe to say that three quarters of the 250 "Cocoa Beach Experts" displayed there probably can't distinguish high tide from Tide detergent and would have to consult Google maps to find Indian Creek Drive on their drive over from their office in another city. How's a consumer to know? Easy. Where is your office? If there is a bridge between that office and the beach...next.

"When kids hit one year of age it's like hanging out with a miniature drunk. You have to hold onto them. They bump into things. They laugh and cry. They urinate. They vomit."  __Johnny Depp

Ah, October

There has been good surf every day in Cocoa Beach for almost three weeks now. We had two different overlapping swells under our belts by the time the first pulse from Hurricane Joaquin peeked around the corner of the northern Bahamas last week. That swell was manageable the entire duration with several perfect days of waves a few feet overhead with glassy conditions. The last remnants of the swell are still pushing in out of the north this morning as Joaquin chugs towards southern Europe with the promise of good waves for the Quiksilver Pro in Landes, Aquitaine France.

Property sales remained strong in September with 17 single family homes and 51 condos and townhomes closed in Cocoa Beach and Cape Canaveral in the month. Of the 68 sales, five were bank-owned and one was a short sale. Eight of the single family homes were over $430,000 and only five sold for less than $337,000. Highest sale was $700,000 for a remodeled waterfront 3/2 on Danube River. Lowest price paid was $195,000 for a handyman special on Park Dr.

Condo sales were concentrated in the lower price range with over 70% of units closing for less than $186,000. Only two units closed for more than $400,000, both direct ocean units above the third floor. Direct ocean units above the ground floor in good condition in older buildings have been commanding $240 to $295 per square foot depending on condition and size. When we begin to see sales of pristine units in newer buildings again (built since 2000) we can expect those units to bring considerably higher dollars per square foot, up into the mid-$300s.

Inventory of condos and townhomes in our two cities this morning stands at 189 units with another 69 under contract awaiting closing. Eight of the condo listings are bank-owned and one is a short sale. There are 53 single family homes for sale with no short sales and only one bank-owned.

We can probably expect the good surf to persist through the month as more storms pass offshore. The mullet are still running along the beach although the waves have made for challenging surf fishing. Fishing in the river is on fire with redfish, snook and trout there for the taking. Get out and enjoy some or all of it. This is the best month of the year in Cocoa Beach with no crowds, warm water and pleasant air temps. I am remined every day why I love this place.

According to Morgan Housel there are four types of investment returns:

• Consistently bad.
• Mostly bad and occasionally good.
• Mostly decent and occasionally good.
• Consistently good and fraudulent.