Sunday, November 05, 2006

Wasting Away in Margaritaville...

"Wasting away again in Margaritaville,
Searching for my lost shaker of salt,
Some people claim that there's a woman to blame,
But I know it's nobody's fault. "

Ah yes, that great tune from Jimmy Buffet lends a certain irony to the current affairs of Key West real estate.

As reported in today's Key News, home owners were shocked when they went to auction up their slices of "paradise." Even in the city of Hemingway, Mallory Square, Duval Street and incredible sunsets, there's a shortage of greater fools.

"The number of people attending Saturday's housing auction at the Doubletree Grand Key Resort was high, but unfortunately for the 22 property sellers, most of the bids were not. "

"The bidding was OK on some and tough on others, but that's an auction," said Steve Slokumb, chief operating officer of Hudson & Marshall, the auction firm that conducted the event. "

"The owners of 14 homes listed with Resort Realty & Appraisals of Key West and eight listed with Truman & Co. Real Estate Services decided to give the auction a try during a stalled market that in previous years experienced 20 percent to 40 percent increases. Realtors have blamed the past two busy hurricane seasons and the cyclical nature of the business for the slowdown. "

"None of the asking prices were met. The closest bid fell $149,000 short, while bidding on the most expensive property, located at 1411-1415 South St., fell more than $2.5 million shy of the almost $6 million asking price."

Victor Heymann, a broker with Resort Realty & Appraisals Inc., had one of his own properties in the auction. He said he was "somewhat disappointed" that his three-bedroom Azalea Street home appraised at $985,000 only went for $820,000. Others weren't as lucky. Jack Anderson and Kevin Broomell, the owners of a condominium at 1211 Olivia St., said the final bid of $495,000 did not meet their reserve, or lowest acceptable price, and so they would not be selling. "
"The highest bid on his 2,297-square-foot property was $1.3 million, well below his reserve price. The house was recently appraised at $2.15 million. "

"Her clients, Rhonda Florence and Pamela Childs, viewed the auction as unsuccessful considering their 1021 Johnson St. property, which recently had undergone a major renovation and was appraised at almost $2.9 million, received a top bid of only $1.8 million.
"It didn't work for us," Florence said. The pair will continue to try their luck on the open market, as will many others who participated. "

"There are 1,400 residential properties for sale in all of the Lower Keys, and almost 900 of them are in Key West, according to Resort Realty. "

I remember Warren Buffet saying once, " Price is something you pay. Value is what you get." Markets could care less what something "appraised" at. If the homes were "worth" that amount, they would have sold for that amount. Sellers will have to learn that properties have become a commodity, like stocks, bonds, art, precious stones, and even a Mickey Mantle rookie card. They are "worth" what the market will pay, not a penny more.

Just as appraisal value meant nothing on the way up, it means nothing on the way down. How many of us have purchased a diamond ring, only to have the "appraised value" some 30% more than what we paid? It's to make you feel like your not a shmuck. But try and sell that diamond ring and you will quickly learn of the true market value. Real Estate is no different.

The bloom is off the rose. The patient is out from under the ether. The honeymoon is over. The clock has struck midnight and Cinderella's coach has turned into a pumpkin. Reality is hard to accept for many people. as this is not 2005 anymore. One of the sellers commented that buyers were looking for "desperate sellers." Come back in a year and these sellers will be desperate. Regardless, those 22 homes are still wasting away.


At 12:12 PM, Blogger jrinlv said...

Well stated analysis of the Florida market, which could also be applied to other areas. All buyers should heed the advice here: "If the homes were "worth" that amount, they would have sold for that amount. Sellers will have to learn that properties have become a commodity, like stocks, bonds, art, precious stones, and even a Mickey Mantle rookie card. They are "worth" what the market will pay, not a penny more.

Just as appraisal value meant nothing on the way up, it means nothing on the way down."

Excellent reporting!

At 10:38 PM, Anonymous Anonymous said...

Another concern that I have seen no comments about: One of the guys working for me here in Florida made the bad mistake of jumping in to the investment circus especially considering that he is only here on an L1 visa that can at best only be extended up to a total of 5 years. Anyway now he got the really bad news, the insurance company he had is dumping all their policy holders and he just found out to be able to get an insurance from the state run company you need to be a permanent resident (green card) and the home has to be your primary resident! With no insurance he can not hold his mortgage so now he is scrambling to dump the condo he bought. I did a quick review on my street and pretty much all of us are or have been foreigners including myself and several have the property as a second home. I can only guess that there must be thousands that may potentially be in this trap especially all those investors that own multiple home not just foreigners. I actually got a hint that something was going on because registrations at schools are way down, my boy only have 17 kids in his class! Naturally just having moved here in March I asked how can that be to a neighbor and he said it is simple, everyone has gone home or are on their way home, huh? There seem to be an exodus not just going North by all those happy people that cashed in but also going South & East because they have a hard time sticking around! One of my best moves ever was not to move at all i.e. buying a house down here, coming from Midwest it is amazing to see how sick this market is, people seems to have put common sense outside the door. I spend less then half on renting a huge 2800 sqft compared to buying it and yes it was for sale. Where will this end? First we said lets wait a year now we are saying lets rent a few years and then the kids will be in college and we can get a right sized home and if the rent goes haywire we simply move out of state, yes it is nice here but c'mon it ain't that great! There are so many negatives in this market that it is scary. I would appreciate if you could investigate the issue about state insurance vs temporary residents and second or more home dilemma (investors). You write really well and the stories are very interesting.

At 6:07 PM, Anonymous Anonymous said...

I think you nailed it...

Sellers seem unable (or unwilling) to accept the new reality of the real estate market (esp. in coastal Florida areas), & it'll take another year (my bet) for these individuals (in denial) to come to grips...

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