Key West got a double whammy during the economic downturn. A huge number of the homes and condos people own in Key West are second homes. Some bought little getaway places thinking they could rent them and let their investments appreciate in value until some time in the future when the owners could sell at a profit and buy something bigger, perhaps the actual wintertime retreat they had dreamt of owning. Some locals also bought permanent residences as prices began to rise during the early 2000s.
When the tide turned and the getaway places and the permanent residences became worth less than the price owners paid for them, many of the new owners defaulted on their mortgages and either let their lenders foreclose or tried to short sale their properties. Even good hearted owners gave up as the value of their homes diminished in value. And since so many others were walking away from debt, there was no shame in walking away.
Some owners hired lawyers to delay the foreclosure process as long as possible so that they could continue to collect rent. In may instances these owners did not pay real property taxes or home owner association dues. The cost of educating kids, providing police and fire protection and other vital community services was passed along to everybody else-people like you and me who play by the rules and pay our taxes. Many home owner associations had to increase monthly fees to make up for the short fall in revenue.
Some unscrupulous owners ripped out appliances, kitchen cabinets, air conditioners, ceiling fans, light fixtures, you name, they took it. Others conjured up schemes to move or sell property rights (such as transient rental licenses or ROGO units) to other locations or other persons. These shenanigans diminish the value of the real property and often put money in the hands of defaulting borrowers.
The second part of the whammy was the BP oil spill. Even though the BP oil slick never hit Key West, the public stayed away from the Florida Keys in droves. Many Realtors lost deals over the prospect of the oil slick hitting Key West. One broker told me of two instances where buyers walked away from significant escrow deposits because the buyers feared their planned investment in Key West real estate would turn into a financial disaster. Local guest house owners, restaurateurs, shopkeepers, and a host of tourist-related businesses saw their respective income drop dramatically. That loss in tourist revenue spread throughout our local economy. No tourists, no shifts, no income.
The oil slick predicted in 2010 did not happen. The tourists returned in 2011. Tourism skyrocketed in 2012. Good times were here again. Fixer houses that were purchased within the past couple of years turned into renovation projects in the Old Town and Casa Marina areas.
730 Southard Street - May 2012The large number of bank owned properties and short sales that scared away potential buyers who feared a further downward spiral of the Key West real estate market between 2008 - 2011 all but disappeared in 2012. Oh, we had new bank owned properties hit the mls and new short sales as well. But we did not have the same volume of bank owned properties or short sales as in previous years. And buyers who previously were apprehensive about buying a foreclosure or short sale welcomed the opportunity thinking that they could get a bargain.
My sense was that we had properties linger in our mls for several months during the regular selling season. Then in late March 2012 buyers started buying again. First one and then another. Buyers took over and grabbed what was available. And the most interesting thing I noticed was the return of the big spenders. Several properties that had lingered in the mls for two years or longer suddenly went under contract. Most full time agents have a list of potential buyers for properties that do not exist. We all have people that want to buy a two or three bedroom home in Old Town with a pool and off street parking that is priced under $500,000. They didn't make enough of them. But there aren't very many trophy houses left either. These are high end homes with all the amenities and great locations. They are gone too. Agents have been calling other agents to see if anyone has a pocket listing. Some agents have resorted to calling homeowners to see if they would consider selling. I foresee a buying frenzy next season which means sellers will rule again. When sellers rule, prices go higher and there are fewer sales. If you think I am being overly dramatic, wait and see.
The reason some houses in Key West have not sold is their greedy owners. (I'll make lots of friends with a statement like that.) But it is true. I believe that houses that are fairly priced tend to sell rather quickly and that houses that are over-priced stay on the market too long and begin to resemble old fish. Sellers will believe they listed a house too low if it goes under contract as soon as it gets listed. But isn't that the point anyway - to find a buyer?
Some sellers like to play mind games with buyers. They think if their house did not sell at "X" price, it ought to be listed at "X+1" that way the seller can negotiate back down to "X" and the buyer will never be any the wiser. It does not work. Smart buyers know how to search the Internet. They know how long properties have been listed for sale and at what price or prices.
I have seen home sellers raise their asking price just so they can lower it. I recently represented a buyer who was trying to buy a house from a seller who has re-priced the same property five times (up and down) over the past 18 months. All this nonsense does is irritate people who follow the rules of life. It serves no useful purpose.
I remember one young buyer I was working with in the early part of 2005, before Hurricane Wilma. His mother passed away and left him and his brother about $500,000 each. He bought a sports car and planned to buy an investment property in Key West with the balance. He had made a couple of attempts on buying a place on Northside Drive that I repeatedly told him I thought was over priced. The seller there was very demanding and refused to budge. My guy decided to look elsewhere and bought two places in St. Pete for the price of the Key West property. I lost a sale. The seller lost a sale. The place did not sell that season. Then Wilma hit the north side of the island. Housing prices in that particular housing complex were devastated. The complex was plagued with lots of short sales and foreclosures. Seven years later housing prices there are still down compared to other parts of town.
I remember another deal back in 2005 that illustrates how seller greed can interfere in making a good business decision. I represented two cousins that inherited a 1960s vintage ranch home located in our New Town area. The house was as plain Jane as you could imagine. Another Realtor told the cousins that he could sell the house for a lot more money that I thought it was worth. I suggested we get an appraisal and list the house at appraised value. I told them anyone can promise big dollars, but I wanted to price the place to actually sell it. We got a near full price cash offer of $750,000. My sellers hesitated at first and worried that they were leaving money on the table. I told them you never know what could happen. They followed my advice and accepted $750,000. Three months later Hurricane Wilma flooded that house (along with the east end of town) with about four feet of water. The tenants moved out leaving their worldly possessions on the front lawn. Had my sellers not accepted the $750,000 cash, they would have killed the golden goose and lost the huge gain they did received. Accepting a good deal should be preferable to getting no deal.
If you are looking to buy a home or condo in Key West, please consider working with me, Gary Thomas, 305-766-2642. I am a buyers agent and a full time Realtor at Preferred Properties Key West. I try not to be a fool when it comes to other people's money (or gold).