The Fallacy of Short Sales in Key West

A couple of days ago the Key West Association of Realtors held a lunch hour lecture on Short Sales. The attorney for our association conducted the lecture. There were about 110 Key West Realtors in attendance.

There are a significant number of active short sale listings in our market. There are so many short sale offerings that the Florida Association of Realtors and the Florida Bar Association have adopted a Short Sale Addendum that is to be attached to an Exclusive Right of Sale Listing Agreement when a short sale is offered. The form defines a short sale this way: A short sale generally occurs when the Seller's net sale proceeds after payment of customary closing costs from the sale of real property are insufficient to pay outstanding mortgage and /or other lien(s) in full at closing. Typically, a short sale seller is in default of loan or lien obligations and is able to document the financial inability to meet ongoing repayment obligations.

The Association's lawyer cited one ominous statistic that only 18% of the contracts between sellers and buyers actually close (lender approves the mortgage release at a discounted payoff). Assuming his statistics are correct that means that 82% of potential short sales do not close.

I have been promoting short sales in Key West as buying opportunities, and I think they still are. But I may have mislead potential buyers into believing that just because a property is offered at an attractive short sale price that some lender will actually approve a discounted payoff. It is not that simple.

I found a very well written blog on this subject and I hope you will read it. Short Sales - A misnomer AND a Marketing Ploy. The blog and the comments point out all of the downsides to a short sale.

I think Short Sales are a marketing tool, not a panacea, especially in Key West. We have a lot of properties on the market right now because many second home owners and investors are walking away from properties, and short sales are one method of marketing those properties.

High Anxiety? -- 701 Elizabeth St. Key West

In my March 1st blog called "Season's Beatings" I said "Most of the sales that have occurred [recently] are a result price reduction. There is still a hesitance by many buyers who think the market will fall further, especially after Season ends. I agree. But bargain hunters may miss getting the plum properties just to save money. Homes in Key West are not like fungible goods. They are unique. So the smart buyers are buying location and value at a good price. Some people may make good money buying what is leftover at the end of the day." I then said to expect more price reductions because sellers who need to sell now must expect the worst. "When the buyers leave, the party is over till next year."

So Season is done and gone. My prediction about more price reductions is exactly what has happened. Today the asking price on a great property in a great location was just reduced from $1,295,000 to $1,100,000 or $555 per sq ft. That is a very competitive price for being located in the heart of Old Town. 701 Elizabeth Street sits at the top of Solares Hill (hence "High Anxiety" as a title--no inference to anything else is intended). The listing Realtor describes the property this way "Perched atop Solares Hill, the high point on the island, this duplex includes a 2 bedroom 2 bath owner's unit with private heated pool and outdoor shower and a 1 bedroom 1 bath separate apartment that is currently rented for $1300 per month. Designed by Tom Pope and built by Erik DeBoer in 1984, the floors are recovered river heart pine and the windows are shuttered with metal louvers. Includes off-street parking." Key Westers know that Erik deBoer built many quality homes during the 1980s (this one happened to be his own residence for a while).

This property is another one of those buying opportunities I have written about: quality property, great location, good price. Think back four years ago when buyers were falling all over themselves looking for deals. Here's a deal people. CLICK HERE for more details on this property and more photos. Then please call me, Gary Thomas, 305-766-2642 or e-mail me at kw1101v@aol.com.

23 Whistling Duck Key West Golf Club - Bank Owned

There are two ways to look at bank foreclosures: (1) dumps that nobody in their right minds would buy or (2) buying opportunities. I think the 3 bedroom 2 bath 1060 sq ft condo at 23 Whistling Duck is located in the Nature Preserve area of the Key West Golf Club Development is a buying opportunity. The property is bank owned so we already know we have a motivated seller. The asking price was just reduced to $364,900 or $344 per sq ft. The property is vacant and easy to show. If potential buyers get pre-qualified through Countrywide Home Loans to purchase this (or another Countrywide owned property) they will receive a free appraisal and credit report if buyer finances through Countywide. I'm not a pitchman for Countrywide. But it is sweetening the deal for would-be buyers.

I'm cheating on this listing because the pics above are of the property when it was listed by the previous owner. He paid $753,000 in July 2005. Fast forward to today and the asking price is around $300,000 lower. The actual sales price will most likely be even lower. CLICK HERE to see more info about the unit and see photos of how it looks today. Don't worry it's not all messed up or trashed. This could be a sweet deal. Other units in the same area are priced much higher. CLICK HERE to see what other similarly sized and located units are priced at in today's market.

If you would like to see this unit up closed and personal please call me,Gary Thomas, 305-766-2642 to schedule a showing. It isn't my listing, but it is my job to help people find good deals.

823 Johnson Lane

It is really unfortunate that it is coming to this. Good people with dreams of making something nice and creating a future for themselves are seeing those dreams being dashed through no fault of their own. The sad fact is that now even homes in the Old Town area have been dragged down into the Short Sale pool along with so many properties in the Mid Town and New Town areas that were over priced when they sold 3 or 5 years ago.

The beautiful home (and it is a home, not a house) at 823 Johnson Lane is located in Old Town Key West. It sits midway between the landmark St. Mary's of the Sea Catholic Church at the corner of Windsor Lane and Truman Avenue and the City of Key West Cemetery one full block to the north. Johnson Lane parallels Truman and runs easterly off Windsor Lane.

The home is a newly constructed two story home. The photos speak for themselves about the quality of thought, design, craftsmanship, cabinetry, tile & marble, quality finishes, and top of the line appliances that went into the construction of this home. The kitchen is not only beautiful but also user friendly. It is a cook's delight! The living room has a working fireplace to take off the chill on the one day a year it gets chilly in Key West. The loggia by the pool is as hip as all get out. Upstairs there are two incredible bedrooms and each has an incredible bath. CLICK HERE for more detailed information on this property and additional photos. Well worth the look even if you are going to buy.

The property was originally listed at $2.6 million and was reduced on April 18 to $1,875,000 or $1,050 per sq ft for this very high end 1785 sq ft home that sits on a 3091 sf ft lot. Very few homes in Key West are worth over $1000 per sq ft. This is one of them. If you would like to schedule an appointment to see this property please call me, Gary Thomas, 305-766-2642. I think this is a real buying opportunity. This is not a short sale.

Key West Real Estate Q & A

I have been getting e-mails and phone calls regarding some pretty basic real estate issues in Key West. So I thought I would start a Q & A thread.

Explain the difference between Transient Rental and Vacation Rental The City of Key West has an ordinance that prohibits homeowners (and condo owners) from renting their homes on a nightly basis unless the house has a transient rental license. Transient rental licenses are limited to specific areas that are zoned for such use, and those areas are specific and very limited by design. There are a limited number of new transient rental licenses that the city can issue. Some transient rental licenses are available for purchase through Realtors, but the transfer of these licenses from one property are restricted. The City of Key West issues a medallion that is to be affixed to the outside of any property to identify it as being a legally licensed transient rental. I encourage any potential purchaser to verify with the city licensing office and private counsel to ensure that a license if purchased may be transferred and used for the purpose intended.

Since the transfer of transient licenses is so tightly regulated you may appreciate the value of such a license. A transient rental license is a license to make money, sometimes lots of it. Tourism is the biggest business in Key West and tourists who flock here need a place to lay down and rest their heads in beds. In recent years several established guest houses and motels were converted into condominiums, so the number of available hotel type rooms decreased.

The City of Key West does permit property owners who have obtained a non-transient occupation license to rent there homes or condos legally once per month for a period of 28 dyas or less. That means a property owner can rent his or her home for one week in January or for the entire month to the same renter. The property owner may not rent the property for one week to one tenant, skip a week, and then rent the same property to someone else for the remainder of the month.

Are there any special rules for transient rentals at 1800 Atlantic? The rules cited above apply to 1800 Atlantic, and it is in an area that is zoned to receive transient rental licenses. But you cannot purchase a license from one place (even within the complex) and transfer it to a unit that has not previously had a transient license. If you purchase a unit at 1800 Atlantic that has a transient license you are not required to rent your property out as a vacation rental. But you should pay the annual license fee to the City of Key West and Monroe County to maintain the license (about $80 total) because that license adds about $50,000 in additional value to your unit at 1800 Atlantic.

By the way there are some good buying opportunities at 1800 Atlantic. CLICK HERE to checkout all of the current condos listed for sale. Some have transient licenses, some are rented as vacation rentals, and some folks actually call 1800 Atlantic home. If you see a unit that interests you and you want more info, e-mail me at kw1101v@aol.com.

April 22nd: CLICK HERE to see a new listing at 1800 Atlantic with a transient rental license. Although this unit is not listed as a short sale, it may in fact become one because the amount the owner owes on the mortgage cannot be satisfied even if the unit sells at full asking price. The unit is on the second floor on the Bertha Street side (east) of the complex and is located 5 units from the Atlantic Ocean so it does have an ocean view. It does have a new kitchen and baths, but the asking price is high in my opinion for this demanding market. But should not deter a serious buyer from looking.

What is HARC? HARC is a board of Key West citizens appointed by the Mayor of Key West to oversee the development plans and execution of same in the historic district of Key West. CLICK HERE to see the official City of Key West Historic Architectural Guidelines. The guidelines provide a simple statement of the types of materials that are generally permissible in the restoration or renovation of historic properties or the construction of new properties in the historic district. If you intend to buy an renovate a property in the Old Town area it is essential that you review these guidelines before you start planning to demolish anything or construct anything that is new.

What happens in Short Sale if I am a Buyer? A Short Sale offering is made by a Seller who owes more against a property than he believes the property will sell for in the current real estate market. The Seller will have contacted his lender(s) and provided detailed financial information about himself and his inability to sell the real estate for the amount(s) owed to secured lenders on the property. The Seller asks that the lender(s) agree in principal to permit the property to be sold at a market price that is negotiated between seller and buyer. The lender then determines whether to release the existing by examining the nature of the offer: is the price reasonable given the condition, location, and comparable recent market sales in the area.

The Key West Association of Realtors requires that a Short Sale Addendum accompany any Short Sale Contract for Sale and Purchase of Real Estate. The addendum references the contract and then interjects a provision that permits the lender a specific time period within which to accept or reject the terms of the contact. If the lender accepts the purchase price, the lender normally agrees to either release the mortgage on the real property subject to receipt of the sales proceeds less closing costs, taxes, and real estate commissions.

Other than the lender acting as the final arbiter of price, the seller and buyer are still free to negotiate the other terms of the contract. The lender's primary objective is minimizing loss and mazimizing recovery. So contracts that are all cash with no contingencies (other than inspection, survey, and clean title) are recommended. Get pre-approved for your financing before you attempt to buy any short sale property or any bank owned property.

Who pays the real estate commission? In most instances the Seller has a signed contract with the Seller's Real Estate Broker agreeing that Seller will pay a specific percentage of the purchase price as a real estate commission at closing as a fee procuring a purchaser. This fee is usually divided between the listing broker and the broker who procures the buyer. If you are a buyer you do not have to pay a Realtor for his/her services (unless you have a specific agreement to the contrary).

If you have a Question please leave a comment or send me an e-mai at kw1101v@aol.com.

Garden of Eden 120 Angela Street Key West

The listing broker to the setting of the cute Key West condo at 120 Angela Street as the Garden of Eden. When you enter thru the gates into the entry and pool area you really are transported to a very serene place.
The pool sits to the front of a large variety of palms and tropical foliage. There are only four condos in this building and each has its own designated paved off street parking space. The building itself is a very handsome structure that is the anchor of the block just to the south of Truman Annex. Angela Street is supposedly going to be a pedestrian and bicycle path when the Truman Annex Beach and Harbor redevelopment is completed. CLICK HERE for more info and photos of this property.

The asking price on the 2 bed 2 bath unit is 852 sq ft was just reduced to $599,000 or $703 per sq ft. At this price you get a beautiful kitchen with upscale cabinets, granite counter tops and stainless steel appliances. The baths are way upscale over what you would find across the street in the smaller Shipyard units (680 sq ft with just one bath). To make it easier for you to do some comparison shopping CLICK HERE to see other Old Town condos or town homes with 2 bedrooms and 2 baths at $599,000 or less. And CLICK HERE to compare this unit with units at Shipyard. I'm not taking sides because I want to sell. Like Sargent Joe Friday used to say, "Just the facts!" I do think this property looks superior to most of the other similarly priced properties.

It is my understanding that two of the other units are only used as vacation homes by the other owners so there is not a lot of contact with neighbors. But that can change as ownership changes. It is easy to see this little gem. Please call me, Gary Thomas, 305-766-2642 to schedule a showing.

Just Listed: 916 Fleming Street Old Town Key West

Just Listed: 916 Fleming Street, Old Town, Key West, Florida. No it is not my listing. But if you have the glue, you need to checkout this stunning new addition to one of the best streets in Key West.

Two years ago a friend who owned the house next door at 912 Fleming was in the process of starting the renovation of 916 Fleming when he passed away. His estate sold the property very quickly at a very good price at the time. The new owner completed the demolition of the interior of 916 Fleming and created his own vision of how to redevelop the property. For years the property had been known as the Baker House and all I can say is that it wasn't pretty. CLICK HERE and CLICK HERE to see pics of what the property looked like before renovation.

Fast Forward to today and the revelation of an exquisite designer Old Town Home offered turnkey, stunning furnishings with state of the art amenities included. Dramatic great room welcomes you with coffered ceilings, wood walls, sophisticated gourmet kitchen, wet bar & beautifully appointed living & dining area. Indoor/outdoor living room finished in IPE flooring, pool, waterfall & new guest house. Unsurpassed craftsmanship & custom designer materials grace this home including walnut counter tops, marble selections, bamboo & sea grass treatments, plantation shutters, generator. This gem comes fully furnished with 9 flat screen T.V.'s, all accessories, most of the art & linens. A Truly impeccable work of art to be appreciated by the most discriminating buyer. Offered at $3,400,000 or $1063 per sq ft. CLICK HERE for more photos and additional information on this home.

The home two doors west at 908 Fleming recently sold for $3,600,000 ($1,158 per square foot) and is undergoing a massive remodel. That house is huge and sits on a huge lot. The house across the street at 911 Fleming sold in 2007 after 120 days on the market for $4,340,000 or $1401 per sq ft. The other homes on the block are not as expensive, but they are very attractive and share what I consider to be an excellent location. The homes are a short 5 minute walk to Duval Street and an equally short walk to the Historic Key West Seaport.

Of course if you are looking for a house that is perhaps just a wee bit smaller and maybe not quite as expensive, there are several available in all price ranges--even in Old Town. CLICK HERE to do your own search of the Key West mls database to find your new home in Paradise. Please call me, Gary Thomas, 305-766-2642 or e-mail me at kw1101v@aol.com to schedule a showing of 916 Fleming or some other great property.

826 Olivia Old Town Key West -- Short Sale

I wrote about 826 Olivia Street a while back. I am totally surprised that this little gem has not sold because it is so sweet. Let me tell you the negatives before I expound on the positives. It has no off street parking, there is no pool or room for one, and it is located across the street from the Key West Cemetery. Oh, the house next door to the east isn't as cute as it could be. (But the house directly behind this home is gorgeous and it is on the market for $2,595,000.)

This charming home, with extraordinary ambiance and comfortable, convenient floor plan, is located in Old Town Key West. Upon entering the large Great Room, with soaring wooden, beamed Cathedral ceilings and wood floors, you view the landscaped yard with deck, patio and Jacuzzi. The windows, and the French doors on 3 sides, make this space spectacular! The kitchen, which is open and airy, lends itself perfectly for entertaining, is all new with wood cabinets, stainless steel appliances, granite counters and tile floors. The bathroom, also all new, features granite counters, neutral tile and new cabinetryIt is now offered at only $645,000 or $640 per sq ft. This is a short sale so you may be able to negotiate an even better deal. CLICK HERE to checkout what the listing Realtor/Owner says about this property.

The property has been successfully rented as a seasonal vacation rental. CLICK HERE to see the vacation rental company's website for the cigar maker's cottage.

Want to see this little charmer? Call me, Gary Thomas, 305-766-2642 or e-mail me at kw1101v@aol.com.

Million Dollar Short Sales -- Key West

There are currently 222 Key West single family homes priced at $1,000,000 or more. Six of those properties are shown as either potential Short Sales or Bank Foreclosures. CLICK HERE to checkout each of the properties.

I have written about a few of the properties previously. I think there are some real buying opportunities on some of these listings. The house at 1021 Johnson for example is located on one of the most desirable streets in the Casa Marina Area. It is flanked by many multi-million dollar homes that will only continue to increase in value as the years pass by.

The home at 3500 Flagler Blvd. is listed at only $1,200,000 ($420 per sq ft) for a 4 bed 6 bath home with a pool that sits on a 10,312 sq ft lot. Its' kitchen is pictured to the right.

The house at 716 Olivia Street could make you cry. The beautiful Arts & Crafts home was renovated by a friend who is also a Realtor. He put so much into the house as far as quality and workmanship that he was not able to finish the project. That makes it difficult to sell a house in this wicked environment. So the house just sits there. Undone. If you go inside you'll see the beautiful floors, woodwork, cabinetry, custom tiles, elegant light fixtures that were so thoughtful introduced into this property. The house is listed at $1,995,000 or $845 per sq ft. It's going to take some money to finish the house. But a smart buyer ought to be able to negotiate a good deal on this property because of the shortfalls.

Then there is the big house at 23 Sea Lore Lane on Shark Key. It is offered at $1,650,000 or $628 per sq ft. The 4 bed 3 bath home sits on the water amid many multi million dollar homes. How often do you get a chance to own a waterfront home in Key West for that kind of price?

And finally there's that sweet little house on Seminary Street with a nice pool and lots of charm. It's offered at only $1,000,000 or $697 per sq ft. The house has 3 bedrooms and two baths.

The houses on the click list are those whose Realtors have shown them as Short Sale or I identified as bank owned. But there are more properties offered that are "financially challenged". I would suggest that if you are looking for a deal on a larger home that you consider looking at one of these properties. The asking prices are just that: asking. Short Sale prices can be negotiated between the seller and the buyer. The lender will ultimately decide whether to approve the deal or not or perhaps offer a compromise price. This may be your opportunity to buy a big house for a small price in Key West. Please call me, Gary Thomas, 305-766-2642, or e-mail me at kw1101v@aol.com if you would like more info or if you would like to schedule a showing.

$3 Million Bathtub

(Carnac holds the sealed envelope up to his turban)
CARNAC: Three Million Dollar Bathtub.
ED McMAHON: Three Million Dollar Bathtub.
(Carnac rips the envelope open and removes the card)
CARNAC (reading): What your friends call your private town home pool.

The other day someone asked me what I thought about current property prices in Key West. I responded that they are still too many properties that are way over priced on a per square foot basis. I was referring primarily to the new generation of high-end luxury condos and town homes built or being built in the Old Town area. I have mentioned specific developments before and discussed the merits of the properties. I even offered to show them to prospective buyers. But no one has taken me up on my offer. I think the reason is that the properties are priced too high.

Most of the new developments are located on or very near the water, and that location supposedly justifies the very high asking prices. Santa Maria on the south end of Simonton Street has a slew of units still unsold. Unit # 16 is priced at $1.5 million or $1587 per sq ft for a 2 bed, 2 bath unit of 947 sq. ft. Shared pool here. On the opposite end of town at the new Key West Harbor Condominiums where you can buy unit WU#101 for $3,120,000 or $1,472 per sq ft for a 3 story 3 beds 4 baths on the waterfront. The views are spectacular and the finishes proposed look amazing.(Shared pool, however, at these prices.) There are several units at the Steamplant still available and a few owner re-sales. The least expensive (an owner resale) is unit #10, and it is priced at only $2,950,000 or $717 per sq ft. for 3 bed 4 bath unit with its own private rooftop pool. (Each of the 19 units has a separate pool--but not a big one. Photo of a pool is shown above on the right.) The Steamplant was designed to provide the very best of everything, and the offering price reflects the developer's view of the value being provided. There are several smaller new town home developments in the Old Town and Casa Marina Areas. Only the Washington Street Residences in the 800 block of Washington has actually sold out or nearly sold out. One six unit town home development in Old Town with individual pools, and priced at $1,850,000 or $1057 per sq ft, has yet to have one sale since it went on the market 16 months ago. The town homes are being rented out on a nightly basis. So much for preserving the value of your collateral Mr. Banker.

It amazes me that none of the banks that funded the construction of these properties has foreclosed yet. (I'm not including Steamplant because it is not complete.) Maybe the banks truly believe the units will sell for the prices being asked. Maybe. Or it could be that the developments were constructed using the funds of the builders and that no banks were involved. If that's the case, I beg your pardon.

Or maybe the banks have enough funds left in the construction loans to fund interest payments for several more months. But maybe the banks are just postponing the day when they will be forced to foreclose on the mortgages and take back the properties.

It is not just one bank that is doing this. I am not aware bank action to take possession of its collateral. The banks are in a difficult position. If they start telling their borrowers what to do and how to price the properties (e.g. price the units more realistically), the banks set themselves up for lender liability defenses of lender interference. By funding more interest and allowing the obligations to grow larger the banks may also see a defense that the banks should have intervened earlier thereby mitigating the loss. So no matter what happens the attorneys for the developers will try to convince a judge or jury that the bank should be held responsible for any short fall on the loans.

There are a lot of smart readers out there. Checkout the Monroe County Property Records CLICK HERE. Just see how many of the new generation of luxury condos or town homes with individual pools and high end finishes have sold in the past two years. (I'm talking about units priced anywhere from $1.8 million to over $3 million.) They are not selling. There is an over supply of such units. There are no buyers for such units at the price points being asked. Not in today's market.

I think this is what is going to happen. Bank examiners are going to require the banks to write down loans on some of the new Key West developments. That will force the banks to acknowledge the potential loss and either start foreclosure or workout a settlement with the borrowers to take back the properties. Once the banks acquire ownership of the properties they will either sell entire developments en mass at a huge discount or place individual units on the market with a liquidation strategy to sell all of the units within a defined time frame.

What is going on cannot continue. Prices are too high. Buyers are not buying. Banks are behaving imprudently. The other show will drop. That's my opinion, anyway. That's one of the great rights we have as Americans: the right to express our opinion.

That being said there are some good deals in Key West. There are many re-sale condos and town homes available in all areas of Key West at many price points. Many of these units are listed as short sales so there may be an opportunity to buy a vacation getaway at a bargain price. True you may not have your own private rooftop pool, but you will probably have many of the same amenities at a helluva lot less money. CLICK HERE to search the Key West Association of Realtors mls website. If you see something you like, please call me, Gary Thomas, 305-766-2642 or e-mail me at kw1101v@aol.com.