Ten questions for prospective condo buyers

I’ve seen many a search for a beach condo grind to a halt or take an abrupt turn when a buyer encountered an issue that they hadn’t considered earlier. One’s mental image of the perfect beach getaway may be at odds with the reality. Below is a list of ten pertinent questions prospective buyers of beach condos should have asked and answered prior to beginning the search.

1. If planning to get a mortgage for the purchase, how much down payment will the lender require? Mortgage requirements for Florida condos are different than those for condos in other states and for houses. Expect to have to put down 25 to 30% in most cases for Florida condos. Your pristine credit does not matter.

2. What will my taxes be? Forget what the current owner is paying. It does not apply to the new owner except (sometimes) for the first partial year of ownership. Estimate your taxes here.

3. Will there be a problem with my English Mastiff? Probably. Most condos have rules limiting the number and weight of pets. Some don’t allow any pets at all.

4. Do the condo fees cover all expenses? No. In most condos the monthly fees cover insurance and maintenance for the building, water and sewer, basic cable, lawn care, common area electric and other common expenses. Some condos also include hot water in the fees and some even cover AC units. At the other end of the scale, some 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 wind changes direction. Be suspicious of condos with too-good-to-be-true low monthly fees.

5. Will the insurance on a Florida condo be sky high? No. As the condo fees cover the insurance for the building, the unit owners have only to cover the interior and contents of their units. I pay less than $1000 per year for a small 2 bedroom beach rental condo.

6. If I don’t like the layout will I be allowed to remodel my unit? Yes. In most cases, any interior alterations that do not affect the structural integrity of the building are allowed. Removing non-load-bearing walls and building new walls are common alterations. Exterior alterations in most cases are more tightly restricted. Replacing the tired wooden front door with a hip new stainless steel door will likely not be allowed.

7. Are ground floor units undesirable? Not according to the people living in them. If you don’t plan to go to the beach often, you will prefer the view from an upper floor. If you’re one of those people or families that will be on the beach a lot, you may want to consider the lack of barriers (stairs or elevators) between your unit and the beach. I’ve found that the people in the ground floor units are the ones who spend the most time on the beach. Bonus here is that the ground floor units usually sell at a decent discount to higher floor units.

8. Can the condo association bill me for repairs to the building without my consent? Yes. All owners in a complex share the expense of maintaining the common elements and the board has a duty to maintain those shared assets. When the time comes to repair the balconies or replace the roof, if sufficient reserves don’t exist, each owner will be assessed their share of the total. Sometimes an association will get a loan to pay for a large expense and increase monthlies to cover the repayment of the loan. This is why it is vital to review the condo budget and to read minutes of recent meetings. A buyer should be aware of recent and/or upcoming repair projects. Some buildings have reserves to pay for future expenses and some have none. Lack of reserves may kill chances of a mortgage. If considering a unit in an older building, all other things being relatively equal, a building that has recently completed a large renovation project is more desirable than one staring at an upcoming project.

9. If the seller agrees to pay the assessment for the upcoming concrete restoration project should I be concerned about anything else? Yes. The assessment might not be enough to take care of unexpected issues that surface during the project. Even more important, are you prepared to deal with the noise and inconvenience of the project for an extended period? Major concrete projects in addition to being expensive, are unbearably noisy, balconies are out of use and often pools are covered for the duration. As stated in number 8, a building with recently finished project is preferable all other things being equal.

10. Will I be able to rent my unit out for some income when I’m not using it? Maybe. Some condos have no rental restrictions while others have up to a one year minimum rental period. If you are prohibited from renting for less than a year, you won’t be using the unit at all if you choose to rent it. If you buy a unit in a building with a one month or longer minimum rental, you may have a hard time picking up a monthly or longer tenant outside of the January through April season. You can read my detailed post on rental restrictions and their implications here.

This is by no means a comprehensive list but it’s a good start. Knowing about restrictions and issues may eliminate a lot of wasted effort in your search. If anyone has others I’ve not included, please add them in the comments below.

“Trust your hunches. They’re usually based on facts filed away just below the conscious level.”
________Dr. Joyce Brothers

 

November Numbers

The Cocoa Beach real estate market maintained it’s unseasonably strong pace through November with the year’s total sales of condos in Cocoa Beach and Cape Canaveral exceeding 2008’s total (371) before the end of the month. November 2008 saw only 18 closed condo sales in the two cities. Like the rest of the year, sales were concentrated in the lower price ranges with only three of the of 34 total recorded sales (as of this morning) over $325,000, all three at the Meridian on the ocean in north Cocoa Beach. Those units went for $640,000, $535,000 and $510,000.

Sales of note among the rest included;

3rd floor direct ocean Emerald Seas 2/2, 1602 sq ft $325,000

3rd floor south view “C” Mystic Vistas 3/2, 1686 sq ft, furnished $315,000

2nd floor direct Windward East, 1394 sq ft, 2/2, furnished $304,500

3rd floor direct Windrush 2/2, 1495 sq ft, furnished $265,000

2nd floor side view Spanish Main 2/2, 1153 sq ft, furnished $240,000

1st floor Captains Cove canal front w/boat slip, 3/2, 1650 sq ft $215,000

2nd floor Solana Lake 2/2, 1698 sq ft short sale $200,000

5th floor Solana Lake 2/2, 1828 sq ft short sale $190,000

2nd floor direct Royale Towers 1/1, 888 sq ft, furnished $180,000

4th floor south view River Lakes 2/2, 1244 sq ft $169,000

2nd floor direct river Cape Shores 2/2, 1034 sq ft furnished $128,000

6 yr old foreclosed Cape Gardens townhouse 3/2, 1706 sq ft $114,000

All of these had garages with the exception of the Cape Shores unit. More sales from November are sure to push the total number up as tardy listing agents update the MLS. I’ll edit this post with the updated numbers in a few days with a graph of the year so far. For what it’s worth, there are 103 condos under contract but not yet closed in the two cities.

“I have made this letter longer than usual because I lack the time to make it shorter.”
__________Blaise Pascal

 

That’s not a Baby Ruth

As of this morning, November 17, we are eight condo sales away from matching the total for the entire year of 2008 in Cocoa Beach and Cape Canaveral. Sales recovered from a miserable first half of the year with a tremendous second half push that caught most everyone by surprise. Let’s parse the numbers as they stack up today.

The bulk of the sales activity this year was concentrated in the lower price ranges with half of all condo sales closing below $180,000. Only 72 condos closed for more than $300,000.

Inventory levels for the active parts of our market are once again at healthy levels. The sub-$180,000 condo inventory will last less than 13 months at the average sales rate of 2009 so far. If we use the more recent sales rate, that supply will be gone in less than one year. As we move up the price scale, the absorption rate extends. In the $200,000 to $300,000 price range, we have a 17 month supply using the average sales rate for the year, slightly less using the more recent rate.

The bracket between $300,000 and $500,000 is holding a 23 month supply, slightly less using a more recent sales rate. High but far below levels of the last two years. Even I, perennially cautious, am encouraged by these numbers. But, wait. There’s something unsavory floating in the champagne, orange sherbet punch. My half-empty sensibilities are to be rewarded when I look into the luxury condo numbers.

Of the 363 recorded MLS condo sales in the two-city market, only 23 were for more than $500,000 and only 12 were for more than $600,000. Of the 23 sales, more than half were at the Meridian where buyer’s agents were being paid as much as 5% to bring a buyer.

Inventory for over-$500,000 condos stands at 66 this morning. Only four remain at the Meridian, all resales, and the excessive buyer’s agents’ commissions disappeared with the last developer’s unit. If I use all >$500,000 sales so far this year to determine supply I get 30 months worth of inventory in this price range. However, if I strip out the Meridian sales and the Meridian listings to get a more accurate picture of the luxury segment, I see that we have a 59 month supply. However, as bad as this looks, it is not an accurate picture. This is just the number of MLS-listed units. The shadow inventory in luxury units is substantial. There is but one Magnolia Bay unit listed on the MLS with dozens remaining unsold. One Ocean Club unit is offered on the MLS, the only recorded sale in the empty building. No Villa Verde units are MLS-listed in that entirely unsold building. There are others but these hint at the size of the invisible supply that is hanging on the sidelines.

What are we to conclude from this exercise? Overlaying my elementary arithmetic on elementary economics, I foresee a bottom up recovery in the Cocoa Beach and Cape Canaveral housing market. The lower price range appears to be at or close to a stable supply and demand level with the mid-range not far behind. The turd in the punch bowl at our recovery party is obviously the luxury condo segment. With the supply so skewed from the demand I can only predict more price erosion and an indeterminate recovery time for $500,000 plus condos. For those of you thinking of venturing into this market segment, be aware of the numbers and the very real possibility of more depreciation before the bottom is reached. Buzzword for you is Cuidado! If you’re unlucky enough to be trying to sell a unit above a half million dollars my advice is to price aggressively unless you can wait for years and are willing to risk further price erosion. In addition, you may also want to consider following the Meridian’s successful strategy of luring buyer’s agents with excessive commission and/or bonuses. It’s a distasteful practice but one that has been proven to work.

In other news, the surf has been magnificent and is still beautiful this morning after days of good waves. A visiting friend from Miami paddled out with me this weekend and caught his first waves after 16 years out of the water. He was as stoked as a 12 year old grommet and is now in love with Cocoa Beach. I am honored to live in this special place.

“Two out of three ain’t bad.”______Meatloaf

 

Estimates of Time

Have you ever noticed that estimates of time are almost always optimistic? “Your car will be ready at 1. The doctor will see you at 10. I’ll meet you at 12. We’ll have an answer on your loan on the 3rd. The game will start at 8.” The universe conspires to delay everything. At any rate, I have adjusted my behavior to accommodate this universal leakage of time. I expect everything to be late. Life has become less frustrating.

“All estimates of time are overly optimistic. Adjust accordingly.”___Larry

This recent major uptick in monthly year-over-year condo sales got me to thinking about whether or not we are getting a signal of a trend shift. Year over year monthly numbers are the best metric available to me by which to measure the sales trend. The first half decade of the new millennium saw closed condo sales on a steady year over year increase until 2005 when the number of months that showed an increase were equal to the number of months that showed a decrease. Even though the numbers for the last half of that year were abysmal by comparison, 2005 exceeded 2004 in total sales by 1%. The boom years were over although most did not recognize the signals or did not want to believe them. By the end of 2006 it was apparent to all but NAR that a major decline was happening. We had not a single month in 2006 with higher monthly year-over-year numbers. The total number of condo sales for the year of 2006 was 38% below 2005.

The trend continued in 2007 with eight months showing lower year over year numbers with total year over year sales down another 21%. We began 2008 with the same hopes of a “spring selling season” that many were clinging to the two previous years. It was not to be and 2008 saw nine months with lower year over year numbers and the total sales for the year declined another 6%, thankfully a slower pace of decline.

We began 2009 with sales at the slowest pace of the last five years and clocked five sequential month over month declines until the trend shifted in June. Since June we have substantially beaten last years numbers every month but one with the last two months seeing blow-away comparisons. Even though this year’s total sales will still be less than 50% of the peak year, 2005, there is evidence to support optimism. Buyers taking advantage of the first-time home buyer credit almost certainly contributed to the recent bump in the numbers. The extension and modification of the credit through next June will likely continue to add more to the sales through that time. Draw your own conclusions, retain some skepticism but be aware that the market is active with substantial numbers of buyers cherry picking the inventory. While inventory is still heavy in the over-priced, new luxury condo segment, finding a screaming deal in a lower-priced oceanfront building has become a needle-in-a haystack exercise. The ability to recognize a jewel when it appears and the willingness to pull the trigger has become vital. Market knowledge will pay handsomely. Do your homework and, if you want an inside advantage, I’m here to help. You can email me at larry@southcocoabeach.com

Our inventory numbers for Friday the 13th of November, 2009 are:

MLS-listed Properties in Cocoa Beach and Cape Canaveral

Condominiums, all prices______579
Single family homes, all prices__122

Condos over $500,000________65
Homes over $500,000_________47

“The world’s greatest fool may say the Sun is shining, but that doesn’t make it dark out.”
___________Robert Pirsig

 

Non-repeating history

I’m back after getting the boat to Abaco from Florida. Photo above from yesterday morning at the home mooring off Lubbers Quarters with Elbow Cay in the background. This 42′ Lagoon Hybrid sailing cat is now available for charter, either bare boat or captained in the crystal clear waters of Abaco from CruiseAbaco.com

Our little real estate market has been on fire this normally slow time of year. After setting a four-year record for closed sales in the month of September, October followed suit with another four-year record. [EDIT] Due to a glitch in the MLS, the numbers I reported yesterday were not accurate. The charts are now corrected. October was unseasonably strong but not our biggest month of the year for closed condo sales as I reported yesterday. It was, however, the busiest October since 2005. The bulk of the activity, as has been true all year, was concentrated in the sub-$300,000 range and short sales and foreclosures accounted for just less than a quarter of all closed sales. November looks to continue the trend with both barrels loaded with pending sales. During the last 13 days, 36 condos and townhomes have gone under contract in Cocoa Beach and Cape Canaveral as reported on the MLS.

Foreign buyers taking advantage of the weak US dollar are part of the recent activity. Without making any predictions, the evidence suggests that our market is stabilizing. Even as some prices drift lower, some condo complexes have seen closed sales notch upward. Will prices resume the downward slide after a false recovery? No one knows but with prices in many cases well below 50% of the peak, buyers are stepping in. Markets work on supply and demand and demand is at a four year high right now. First chart below is 2008 and 2009 only.

Notice in the four year chart below that October 2009 has the highest number of sales of any October in the last three years. A trend with legs? We’ll see. I’m encouraged.

“History is more or less bunk. It’s tradition. We don’t want tradition. We want to live in the present and the only history that is worth a tinker’s damn is the history we make today.”
______________Henry Ford

 

I’m good.

Space shuttle launch as seen from the International Space Station.

September’s unseasonably strong sales trend is intact halfway through October. As of this morning twenty condos and townhomes listed on the Cocoa Beach MLS have closed in the two-city market, eight of them in Cape Canaveral. Last October saw only 23 total closed sales in the month. We look to easily trounce that number this year with 31 newly accepted contracts since the 1st of October in addition to those already pending. Half of the closed condo sales so far are for less than $180,000 with only one for over $500,000. The price trend continues to creep downward in most instances with a few notable exceptions.

There have been three single-family home sales in the two cities so far, highest price; $226,000 for a nice, updated 3/2 on Curacau in Cocoa Isles.

A top floor Mystic Vistas “A” building, east-facing, 3/2, furnished, closed for $403,500, twice what lesser view units have closed for recently in the complex.

A 3rd floor north corner, 3/3 Meridian, also furnished, sold for $725,000.

A top floor never lived in Garden Bay 3/3.5 closed for $410,000 or about $200,000 off the original asking price.

A 4th floor south view River Bend 3/2 in south Cocoa Beach sold for $240,000 as a short sale. Incidentally, only two of the twenty closed sales this month have been short sales, a surprising trend I noted last month.

A very nice, four year old Bayport 3/2 townhome with 2-car garage in Cape Canaveral closed for $205,000.

The uncertainty of association health was apparently mitigated enough by a super-low price on a foreclosed South Beach Keys unit that someone was willing to step up and take the risk. This direct Banana River 3/2 unit with 2-car garage in south Cocoa Beach that sold new in 2006 for $495,000 went for a shocking $175,000. Expect more news from this small complex.

A Majestic Bay townhouse in Cape Canaveral that sold new in 2005 for $274,900 sold as a short sale for $140,000. Not bad for a 4 year old townhome with 2-car garage.

And, a Brisa del Mar condo conversion on Ridgewood Ave. that sold for $200,000 in 2005 closed for $90,000.

I was sitting in the water recently on a small, glassy day on a 7′0″ fun shape when my 15 year old neighbor paddled over and asked why I wasn’t riding my longboard. I said, “I’ll ride it if you’ll go in and get it for me.” Laza looked at me like I’d suddenly sprouted antlers, said, “I’m good” and paddled off for saner waters. Kids.

I’m off on a boat delivery tomorrow and will be incommunicado for a week or so, weather depending. In the interim, Danielle can be reached at danielle@walkerbagwell.com for any issues or inquiries. As a wise man once said, “All work and no play makes Jack a dull boy.”

 

A tale of two sales

Short sale craziness continues. The short sale team in my office took two short sale listings a few days apart in August. At the time, neither seller had done any preliminary work with their respective lenders. The team went to work getting the hardship and other required documentation together from the sellers for submission to the lenders. Both properties got offers shortly which were submitted within days of one another to the lenders along with all requested documentation. Both sellers had legitimate hardship. Forty days later, one sale was approved in writing and ready to close while the other lender was still asking for more and more documentation. The seller confessed yesterday that he had continued to make mortgage payments the whole time that we were trying to negotiate a short sale with his lender. Asking a lender to approve a short sale while the mortgage is current is like panhandling in an Armani suit. Chances of success are slim.

The take-away: If a property owner has the resources to stay current on the mortgage and does so, the lender will be way less motivated to agree to a short sale or modification. Why should a lender write off tens of thousands of dollars when they can just continue to accept timely payments? Any reader considering pursuing a short sale needs to understand that hardship must be real and able to be proven. Prepare to be asked for documentation similar to that required to obtain a new loan. Without proof of hardship, chances of approval approach zero. With proper documentation, real hardship and an experienced short sale negotiator a seller stands a good chance of successfully selling a property short.

“You have to learn the rules of the game. And then you have to play better than anyone else.”
___________Albert Einstein

 

Wake up – September’s finished

How bout that graph? September condo sales in Cocoa Beach and Cape Canaveral spiked up considerably over the previous year with 45 closed MLS sales of condos and townhomes during the month. There were four closed single-family home sales during the month, all in Cocoa Beach. One surprising stat was the fact that, of the 45 condo sales, only five were short sales.

The lowest price condo sale was $13,800 for a foreclosed 1/1 Golden Gate Manor unit in Cape Canaveral that sold in 2006 for $82,500. That’s a mind-numbing 83% off the peak. The highest price condo sale was $555,000 for a never-lived-in Michelina 5th floor corner, 3/3, 2524 sq. ft. This same unit was asking $849,500 just one year ago. It was the only condo sale for more than $500,000 in the month. The adjacent, slightly bigger Michelina unit (not a corner) also closed for $450,000 or $177 per square foot. Not bad for brand new oceanfront, even if side view.

A 7th floor, 3/2 Crescent Beach Club in south Cocoa Beach closed for $325,000 which bumps the comps down slightly for that building which is well into a major and very expensive concrete restoration project.

Harbor Isles was on fire in September with five closed sales. Not surprisingly, the ever-present Betty Siegel was involved in three of those sales. Looking back over the stats for the year, there have been ten MLS sales in Harbor Isles. Of the ten, my office has represented one or both sides of eight of those transactions with Betty being involved in six. You go, girl.

Another Hacienda del Mar direct ocean 2/2, 4th floor with garage sold for $248,500. It was in original condition.

I was able to close a short sale at Cape Winds of a direct ocean ground floor 2/2 with the wide patio for $210,000, a new low for direct ocean units in this very popular complex. With this sale and two other pending short sales there, the other overly optimistic sellers will now have to come to terms with the new reality.

There were three sales in the month of 2 bedroom units at Ocean Woods in Cape Canaveral at prices from $129,000 to $155,000.

In head-scratching news, in a year in which a total of only 20 units have closed for over $500,000 ( half of those at The Meridian) eight pre-construction units in an unbuilt oceanfront building in south Cocoa Beach popped up on the MLS this week at prices from $800,000 to $1,050,000. The same developer is offering 16 other units in four different completed new buildings on the MLS, most or all having been reduced substantially in price. A+ for optimism.

Fishermen, the mullet run is back on in force. There are acres of mullet moving south along the beach with packs of predators in attendance. This is the best time of year for fishing from the beach with opportunities to catch snook, Spanish mackerel, bluefish, kingfish, trout, redfish and tarpon among others. Take advantage if you enjoy fishing but, whatever you do, enjoy October for all the other reasons that make this month my favorite of the year in Cocoa Beach.

“As my memory rests but never forgets what I lost
Wake me up when September ends.”____Green Day

 

No one the wiser

I often write pieces that never see the light of day here on the blog. The piece that I wrote yesterday and intended to post today will become one of those lost letters. In my next-day read this morning the account appears somewhat inflammatory and would probably have caused some ruffling of feathers and almost certainly some backlash. Perhaps less specific references to the guilty parties will make the story acceptable. Here goes.

There once was a broker who ran a successful real estate office in a cute coastal town. One of the broker’s trusty agents found an opportunity to pocket $325 of his client’s money in a property management transaction with no one the wiser. The client from whom the money was stolen found out quite by accident a few months later about the theft and confronted the agent. The agent played dumb and referred the client to his broker for resolution. The broker defended the agent and refused to return the client’s money. The client elected not to pursue the matter. The larcenous agent continued his career with now-obvious support for his business style and the broker rose to a more prominent position in the local real estate community and continued to prosper. No one the wiser.

“The greatest way to live with honor in this world is to be what we pretend to be.”
_____________Socrates

 

Mid September Update

Thanks to all who chimed in on the last post. Closings are slow but plugging along with 20 closed condos and townhouses so far in the month of September in Cocoa Beach and Cape Canaveral. Sales ranged from $32,000 for a foreclosed, 464 sq. ft. 1/1 condo conversion in Cape Canaveral to $335,000 for a brand new, 3rd floor, direct river, 3/2.5 with 2210 sq. ft. at Garden Bay in Cocoa Beach. Other sales of note closed so far included;

Ground floor 2/2 Cape Winds direct ocean for $210,000

2nd floor, direct river, Harbor Isles 2/2 for $220,000

16th floor, direct ocean Stonewood 2/2, very nice for $315,000

6th floor, south ocean view Royale Towers 2/2 for $225,000

There have been three single family homes sold so far, all in Cocoa Beach. They ranged from a small, trashed 3/2 short sale on Samar that sold for $110,000 to a direct river 4/2 on Bali that closed for $389,000.

Checking the MLS this morning I find a total of 131 pending or contingent residential properties in the two cities. Over half of these contracts are short sales. Of 716 total active residential listings, only 94 are short sales. This skew between offered and contracted numbers makes it clear that the action in MLS-listed properties is heavily concentrated in the distressed properties. If you’re hoping to take advantage of the market, don’t make the mistake of only looking at distressed properties. There are a few sellers who understand the market dynamics who have priced their properties accordingly without the hassles of the short sale process. On the other hand, if you have a good property contracted as a short sale at a good price and are losing patience because of the length and opacity of the process, be strong. Unless you find something better in the meantime, your patience may be eventually rewarded with approval. We have had a flood of short sale approvals recently after months of very little contact from the lenders, so, be aware of the frustration of the process, be patient and have a Plan B in case you don’t get approved.

Snook are still being caught in the surf and the mullet run hasn’t really peaked yet, so, there’s plenty of opportunity for everyone to get out there on the beach and catch a great dinner.

“The unspoken word never does harm.”_____Lajos Kossuth