Governmental Intervention in the Housing Market

Yesterday, President Bush discussed his plan to aid homeowners at risk of losing their homes. Most of the plan focused on assisting borrowers to refinance their adjustable-rate loans to more conventional loans provided by the Federal Housing Authority.

I took a look at his recommendations and of particular interest to me was his proposal to temporarily suspend the tax liability that is owed by homeowners when performing a short-sale. As of now, the IRS has the right to tax the loan amount that is forgiven by the lender. It is considered a forgiveness of debt.

Short-sales have become very popular, as of late, because home prices have dropped in recent years and adjustable-rate mortgages have begun to reset. It has become more common for the value of a home to be less than what is owed to the bank. For example, let’s say that you purchased a 2 bedroom condo in 2005 for $500,000 and financed 90 percent of the purchase price. Two years later the value of your home has dropped and you have fallen two months behind on your payments. In the past, when homeowners were in this situation they would tap into the equity on their home by refinancing to take cash out. This is no longer an option, however, to most, because home prices have fallen. Oftentimes, two possibilities exist: lose your home through foreclosure or sell your home through a short-sale.

In the example above, let’s say that the price of your 2 bedroom condo has fallen to $400,000. You owe the bank roughly $450,000. You’ve talked to some knowledgeable acquaintances and they’ve advised you to do a short-sale. Basically, a short-sale means that the bank is willing to accept a pay-off amount that is short of what is owed to them. You contact a local real estate agent to list your property and within a few weeks an offer of $380,000 is submitted.

What is important to note is that two parties need to accept the offer: the seller and the bank. The reason why the seller has to sign off on the offer is because the IRS has the right to tax them on the amount of the loan that is forgiven. In this case, a tax on the $70,000 forgiveness of debt will be due the following April.

The bank also has to approve the offer because they are the ones who are accepting the shortfall in the original amount owed. The banks will ask the homeowner to have an appraisal performed at their expense. Banks are not stupid. They realize that the market has declined but they aren’t going to accept just any offer.

Recently, I’ve come across a few short-sales in the MLS that just don’t make any sense. For example, there’s a 2 bedroom/2 bath listed for $295,000 at Vue at Brickell. There’s also a 1 bedroom/1 bath listed for $217,000 at The Club at Brickell Bay. I’ve written about both buildings in the past and how prices in each building are inflated due to the mortgage fraud that has occurred. However, these prices are a step in the wrong direction and are unjustified. The 2 bedroom at Vue at Brickell is the best priced unit in the entire building, including the 1 bedroom units. The 1 bedroom condo at The Club at Brickell Bay is better priced than even the studios.

Listings like these are a waste of time for everyone involved in the transaction: the seller, the buyer, the bank and the two real estate agents. Just because it is a short-sale doesn’t mean that you can list a property at a price that will get you an offer within a week. As of right now, it is also doing a great disservice to the seller who will have a large tax bill come next April should the offer get accepted by the lender.

As I mentioned earlier, however, President Bush has proposed to temporarily suspend the tax that is owed to the IRS on the amount that is forgiven when a distressed homeowner performs a short-sale. If this becomes a reality it will alleviate a lot of problems for distressed property owners. Short-sales will become more common.

It wouldn’t surprise me, however, if we start seeing mortgage fraud occur in reverse. Appraisals will start coming in very low to justify the offers that are submitted to the banks. It’ll be a nightmare for banks. Accredited local appraisers need to be in place for these banks to be able to cleanly wash themselves from the mortgage mess at hand.

The Fate of Prices at Vue at Brickell and The Club at Brickell Bay

Vue at Brickell The Club at Brickell Bay

For months I’ve been writing about the rampant mortgage fraud that has occurred in certain buildings located in Brickell such as Vue at Brickell and The Club at Brickell Bay.

The August Brickell Condo Index revealed that over the last six months Vue at Brickell had closed sales with an average price per square foot of $522.37 while The Club at Brickell Bay sold at an average price per square foot of $723.35. Both averages have been inflated as a result of the mortgage fraud that has occurred in these two buildings. Both figures seem outrageous to me since both are non-waterfront buildings and, by most, would not be considered top buildings in Brickell.

It is inevitable that in upcoming months both figures will come down drastically. Both have a lot of short-sale and foreclosure units that are currently listed. For example, Vue at Brickell currently has 8 condos that are marked as either short-sale or foreclosures. The Club at Brickell Bay currently has only three but I suspect that many more will arise in upcoming months.

One bank-owned property at Vue at Brickell is listed at $325 per square foot while another is listed at $343 per square foot. These represent an almost $200 per square foot reduction compared to what has sold at Vue at Brickell over the last six months. That is a difference of over 35 percent. Keep in mind also that these are the list prices. They will ultimately sell for less. These transactions will bring the averages down to a more realistic figure. Anyone who purchased a condo in Vue at Brickell about a year ago won’t be able to refinance for many, many years. This will lead to more foreclosures which will bring down the average even more.

The best price per square foot currently offered of the foreclosure or short-sale units at The Club at Brickell Bay is $471. That is a difference of $252 per square foot when compared to what has sold in the past six months, or a little over 34 percent. I feel that there is a lot more room for this figure to drop. There are just too many other brand new non-waterfront units that will be coming onto the market in Brickell within the next 12 months that offer much better prices than those offered by some of the existing Brickell condo buildings that were riddled with mortgage fraud.

My prediction is that a year from now Vue at Brickell will have an average price per square foot of around $325 for units sold over the preceding six months while this figure for The Club at Brickell Bay will be around $375. Of course, this is just an average, so some will sell for less while some will sell for more. I don’t think this will be the bottom though for condos at The Club at Brickell Bay. They will likely plateau around $350 per square foot. The latest foreclosure and short-sale listings shed new light as to the fate of prices at Vue at Brickell and The Club at Brickell Bay.

I feel that other non-waterfront condo developments in Brickell are in jeopardy as well. A lot of people are talking about the thousands of new units that will be coming onto the market in Brickell within the next couple of years but many fail to mention that only two, Epic and Icon Brickell, are bayfront. The rest are either riverfront or non-waterfront buildings. The bayfront buildings will have a slight downward adjustment in prices but will fare well overall. Once those two developments are completed there will only be one bayfront parcel of land left for development.

Miami Condo Index – Brickell – August 2007

Brickell

I just finished compiling the data for this month’s Miami Condo Index for Brickell. Last month I revealed that the 18 buildings below had a total of nine closed sales from June 19, 2007 to July 18, 2007. That number surprised myself and many others who follow the real estate market in Brickell. Be prepared to be surprised some more because this figure has dropped. There were a total of eight closed sales from July 19, 2007 to August 18, 2007 in the 18 condo buildings below throughout Brickell. Eight!

Of the eight closed sales, one appears to be yet another fraudulent transaction. A one bedroom/one bath condo with 825 square feet sold for $625,000, or $758 per square foot, on August 3, 2007 at The Club at Brickell Bay. It doesn’t even have a direct water view! The same broker represented the seller and buyer in the transaction. What is really crazy is that a different brokerage had the condo listed for $425,000 in May. It was later canceled and relisted with the broker who sold it for $625,000.

If you think that transaction has the word “fraud” written all over it then take a look at the one bedroom/one bath condo that closed on May 18, 2007 at The Club at Brickell Bay. It too had 825 square feet of interior space and a view of the water from the balcony. The buyer of that unit paid the full asking price of $680,000, or $824.24. The Club at Brickell Bay now has the highest price per square foot of condos sold in the past six months of the 18 buildings included in the index because of these fraudulent transactions. When is somebody going to step in and do something about this? Supposedly the Miami Herald and the FBI are investigating the situation but I’ve been hearing those rumors for months. What is taking so long?

The average price per square foot of condos listed in the 18 Brickell buildings covered in the index went up slightly to $529.05. Last month this figure was $528.84. The weight-adjusted average, however, went down to $537.67 from last month’s weight-adjusted average of $540.17.

Average price per square foot of units currently listed on the MLS:

The average price per square foot of condos sold over the past 6 months actually went down slightly to $471.94 from June’s average of $473.95 despite the fraudulent transaction at The Club at Brickell Bay. Take note that The Club at Brickell Bay now has an average price per square foot of $720.15 for condos sold over the past six months. That is simply ridiculous. This average is based on the three transactions that have occurred at The Club at Brickell Bay over the past six months, two of which appear to be fraudulent. A little over 20 percent of the building is available for sale but nothing is moving. Hmmm…maybe it’s because the list prices there don’t make any f@&#ing sense!!!

Average price per square foot of units sold in the past 6 months:

  • Atlantis – 2025 Brickell Ave | 33129 | $335.12
  • Brickell on the River – 31 SE 5 St | 33131 | $409.44
  • Bristol Tower – 2127 Brickell Ave | 33129 | $412.44
  • Emerald at Brickell – 218 SE 14 St | 33131 | $474.85
  • Four Seasons Residences – 1425 Brickell Ave | 33131 | $720.15
  • Imperial at Brickell – 1627 Brickell Ave | 33129 | $319.56
  • Jade Brickell – 1331 Brickell Bay Dr | 33131 | $666.87
  • Neo Vertika – 690 SW 1 Ct | 33130 | $361.99
  • One Miami – 325 & 335 S Biscayne Blvd | 33131 | $450.94
  • Sail on Brickell – 170 SE 14 St | 33131 | $373.16
  • Santa Maria – 1643 Brickell Ave | 33129 | $643.95
  • Skyline on Brickell – 2101 Brickell Ave | 33129 | $471.39
  • Solaris at Brickell – 186 SE 12 Ter | 33131 | $450.43
  • The Club at Brickell Bay – 1200 Brickell Bay Dr | 33131 | $723.35
  • The Mark on Brickell – 1155 Brickell Bay Dr | 33131 | $478.95
  • The Palace – 1541 Brickell Ave | 33129 | $363.32
  • Villa Regina – 1581 Brickell Ave | 33129 | $316.62
  • Vue at Brickell – 1250 S Miami Ave | 33131 | $522.37

Sold-to-Listed Ratio expressed as a percentage:

  • Atlantis – 2025 Brickell Ave | 33129 | -2.56%
  • Brickell on the River – 31 SE 5 St | 33131 | 12.45%
  • Bristol Tower – 2127 Brickell Ave | 33129 | 19.48%
  • Emerald at Brickell – 218 SE 14 St | 33131 | 12.67%
  • Four Seasons Residences – 1425 Brickell Ave | 33131 | 25.18%
  • Imperial at Brickell – 1627 Brickell Ave | 33129 | 23.35%
  • Jade Brickell – 1331 Brickell Bay Dr | 33131 | 23.98%
  • Neo Vertika – 690 SW 1 Ct | 33130 | 13.66%
  • One Miami – 325 & 335 S Biscayne Blvd | 33131 | 3.51%
  • Sail on Brickell – 170 SE 14 St | 33131 | 33.53%
  • Santa Maria – 1643 Brickell Ave | 33129 | 10.59%
  • Skyline on Brickell – 2101 Brickell Ave | 33129 | 5.99%
  • Solaris at Brickell – 186 SE 12 Ter | 33131 | 14.30%
  • The Club at Brickell Bay – 1200 Brickell Bay Dr | 33131 | -11.98%
  • The Mark on Brickell – 1155 Brickell Bay Dr | 33131 | 4.41%
  • The Palace – 1541 Brickell Ave | 33129 | 3.39%
  • Villa Regina – 1581 Brickell Ave | 33129 | 36.73%
  • Vue at Brickell – 1250 S Miami Ave | 33131 | 2.85%

I noticed that a handful of fraudulent transactions will be falling off next month so I’m expecting the average price per square foot of condos sold over the past six months to go down in September. That is, however, assuming that other fraudulent transactions don’t appear in the next 30 days to take their place. We shall see.

Miami Condo Index – Brickell – July 2007

You may have noticed that some of the June numbers have changed. This is because I originally took out the closed sales that were obviously due to mortgage fraud. I recently went back and included those sales because I wanted to present things just as they were. However, this made listings appear to be priced more accurately, which they aren’t. To condo owners, and to some Realtors not in the know, these fraudulent transactions have made their listings appear justified. They need to realize that these transactions are just that, fraudulent, and very inaccurate.

The average price per square foot of condo units listed in the 18 Brickell buildings covered in my index dropped $7.44 since last month. A drop in the price of condos listed in Brickell over the last month was highly expected. I actually thought that prices would have come down even more though. These 18 buildings in Brickell had an average price per square foot of $528.84 this month versus $536.28 in June. The weighted average price per square foot was $540.17 for July versus $547.06 in June.

The most shocking thing that the July Brickell condo index revealed was the number of transactions that occurred in one month’s time. There are a total of 5,348 condo units represented in the 18 buildings that comprise my Brickell condo index. Take a guess at how many units have closed from June 19, 2007 to July 18, 2007.

Had enough time to come up with a guesstimate? Nine. That’s the number of units that sold during that time period throughout the 18 buildings that make up the Brickell condo index. Everyone knows the market is slow but I don’t think anyone could have guessed to what extent. Nine! I still can’t get that out of my head. There are a total of 875 units available on the market right now in those 18 buildings. This equates to 16.36 percent of the total units. This number is actually much higher in many of the newer buildings. Many of the older buildings have 20 or less listings in the entire building. The instability lies in the newer buildings; the buildings that were heavily funded by speculators.

The average price per square foot of condos sold over the past six months in Brickell actually went up slightly. But keep in mind that there were nine transactions in all 18 buildings. Most Realtors would focus on the fact that prices are actually going up. However, I will tell you, first hand, that these numbers are attributed to fraudulent transactions. The price per square foot went from $471.76, in June, to $473.95, in July. Most of this was due to a transaction that appears to be fraudulent at The Sail on Brickell.

The reason why I feel that this transaction is fraudulent is for a number of reasons. One, the unit was sold at the highest price per square foot in the building with concrete floors, two, the broker is a discount broker who charges 4 percent per transaction, three, in every transaction he seems to find the buyer and already holds the listing, and four, he finds the buyer within four days. I did a search by the broker’s email to see what other transactions have occurred. I’m not going to name names but let’s just say that this broker has at least six transactions where this has occurred. The same exact thing. He finds a buyer to acquire a condo at The Sail on Brickell within four days at the highest price possible. Let me tell you, firsthand as a Realtor, that it is hard enough to find a buyer in this market to buy something at the best price available. How is this guy finding a buyer at the highest price available? Within 4 days? Like I said, I’m not going to name names but something fishy is going on there. If someone, like the Miami Herald, wants to investigate this thoroughly and name me as the source, then so be it, but I’m not divulging names. I don’t want to have a hit-man after me. Hopefully I’m wrong about what has occurred in The Sail at Brickell, but I doubt it.

Average price per square foot of units currently listed on the MLS:

Average price per square foot of units sold in the past 6 months:

  • Atlantis – 2025 Brickell Ave | 33129 | $335.12
  • Brickell on the River – 31 SE 5 St | 33131 | $397.69
  • Bristol Tower – 2127 Brickell Ave | 33129 | $417.82
  • Emerald at Brickell – 218 SE 14 St | 33131 | $570.51
  • Four Seasons Residences – 1425 Brickell Ave | 33131 | $763.51
  • Imperial at Brickell – 1627 Brickell Ave | 33129 | $319.56
  • Jade – 1331 Brickell Bay Dr | 33131 | $668.23
  • Neo Vertika – 690 SW 1 Ct | 33130 | $375.53
  • One Miami – 325 & 335 S Biscayne Blvd | 33131 | $453.66
  • Sail on Brickell – 170 SE 14 St | 33131 | $369.08
  • Santa Maria – 1643 Brickell Ave | 33129 | $605.15
  • Skyline on Brickell – 2101 Brickell Ave | 33129 | $471.39
  • Solaris at Brickell – 186 SE 12 Ter | 33131 | $436.21
  • The Club at Brickell Bay – 1200 Brickell Bay Dr | 33131 | $636.74
  • The Mark on Brickell – 1155 Brickell Bay Dr | 33131 | $498.17
  • The Palace – 1541 Brickell Ave | 33129 | $352.77
  • Villa Regina – 1581 Brickell Ave | 33129 | $316.62
  • Vue at Brickell – 1250 S Miami Ave | 33131 | $543.37

Sold-to-Listed Ratio expressed as a percentage:

  • Atlantis – 2025 Brickell Ave | 33129 | 0.77%
  • Brickell on the River – 31 SE 5 St | 33131 | 17.23%
  • Bristol Tower – 2127 Brickell Ave | 33129 | 17.19%
  • Emerald at Brickell – 218 SE 14 St | 33131 | -3.02%
  • Four Seasons Residences – 1425 Brickell Ave | 33131 | 16.68%
  • Imperial at Brickell – 1627 Brickell Ave | 33129 | 22.35%
  • Jade – 1331 Brickell Bay Dr | 33131 | 24.50%
  • Neo Vertika – 690 SW 1 Ct | 33130 | 9.87%
  • One Miami – 325 & 335 S Biscayne Blvd | 33131 | 3.72%
  • Sail on Brickell – 170 SE 14 St | 33131 | 32.46%
  • Santa Maria – 1643 Brickell Ave | 33129 | 13.51%
  • Skyline on Brickell – 2101 Brickell Ave | 33129 | 4.51%
  • Solaris at Brickell – 186 SE 12 Ter | 33131 | 14.86%
  • The Club at Brickell Bay – 1200 Brickell Bay Dr | 33131 | 2.70%
  • The Mark on Brickell – 1155 Brickell Bay Dr | 33131 | 1.01%
  • The Palace – 1541 Brickell Ave | 33129 | 8.68%
  • Villa Regina – 1581 Brickell Ave | 33129 | 30.64%
  • Vue at Brickell – 1250 S Miami Ave | 33131 | 1.53%

Miami Condo Index – Brickell – June 2007

Brickell

Last week I mentioned that I was planning to create a Miami Condo Index to provide pricing insight to homebuyers in various neighborhoods in Miami and Miami Beach. This week I decided to kick things off with Brickell.

It was difficult to come up with a final list of buildings that should be included in the Brickell index. For example, is Neo Vertika in Brickell or should it be in a different category like West Brickell? Is One Miami part of downtown or should it be grouped with Brickell buildings? After much thought, I decided to include both. There simply aren’t enough buildings of interest in West Brickell or downtown to necessitate a separate neighborhood index for West Brickell and downtown. Eventually, One Miami will be grouped with downtown buildings as more developments are completed north of the Miami River. Another question remained as to whether buildings in Brickell Key should be grouped with buildings in Brickell to create a Brickell/Brickell Key index or should a separate index be created for each? I decided on the latter.

Earlier today, I finished crunching the numbers and evaluated my findings. Much of it was quite shocking. I took 18 prominent buildings in Brickell and created two separate spreadsheets. The first spreadsheet calculated the average price per square foot of units currently listed in the 18 buildings in Brickell. The second calculated the average price per square foot of units that have sold in those 18 buildings in the past six months. I also weighted each building according to how many units they had when compared to the sum of the units of all 18 buildings. This helped to arrive at a more accurate representation of the typical Brickell condo.

First I’m going to show you the average price per square foot of the units currently listed on the market:

Some of those averages shocked the hell out of me. How can condo units at The Club at Brickell Bay have an average list price of over $650 per square foot? (I’ve heard reports of mortgage fraud in that building as well as at Jade and Vue at Brickell.) The average price per square foot for condos currently listed in Brickell using these 18 buildings came out to $536.28. The weight-adjusted average came out to $547.06. The Club at Brickell Bay, with 642 total units, skewed the weight-adjusted average higher than the regular average.

Brickell

Next we’ll take a look at the average price per square foot in these buildings based on closed sales. Keep in mind that this is the average price per square foot. Condos that have a better view or are on a higher floor than the average condo in the building will obviously have a higher price per square foot. These figures were equally shocking.

  • Atlantis – 2025 Brickell Ave | 33129 | $335.12
  • Brickell on the River – 31 SE 5 St | 33131 | $411.79
  • Bristol Tower – 2127 Brickell Ave | 33129 | $417.82
  • Emerald at Brickell – 218 SE 14 St | 33131 | $519.72
  • Four Seasons Residences – 1425 Brickell Ave | 33131 | $763.51
  • Imperial at Brickell – 1627 Brickell Ave | 33129 | $319.56
  • Jade – 1331 Brickell Bay Dr | 33131 | $668.23
  • Neo Vertika – 690 SW 1 Ct | 33130 | $383.23
  • One Miami -325 & 335 S Biscayne Blvd | 33131 | $458.56
  • Sail on Brickell – 170 SE 14 St | 33131 | $335.05
  • Santa Maria – 1643 Brickell Ave | 33129 | $606.44
  • Skyline on Brickell – 2101 Brickell Ave | 33129 | $471.39
  • Solaris at Brickell – 186 SE 12 Ter | 33131 | $436.21
  • The Club at Brickell Bay – 1200 Brickell Bay Dr | 33131 | $634.15
  • The Mark on Brickell – 1155 Brickelly Bay Dr | 33131 | $506.81
  • The Palace – 1541 Brickell Ave | 33129 | $350.88
  • Villa Regina – 1581 Brickell Ave | 33129 | $316.62
  • Vue at Brickell – 1250 S Miami Ave | 33131 | $556.59

Condo units at The Club at Brickell Bay had a higher average price per square foot than condos at Santa Maria when looking at closed sales. I had to double check my work once I saw that, but everything checked out.

I tried to eliminate any data that was irregular. For example, in the past six months Pharrell Williams purchased developer Ugo Colombo’s Penthouse unit at Bristol Tower for $13,950,000, or over $1,500 per square foot. I discarded it because it was deemed irregular.

The average price per square foot for these 18 buildings, based on closed sales, came out to $471.76. The weight-adjusted average came out to $495.13.

Using both data sets I also wanted to figure out how overpriced listings are in Brickell when compared to what they actually sell for, on average. I also was curious to find out which buildings were the most overpriced. Here is the data below:

  • Atlantis – 2025 Brickell Ave | 33129 | 0.73%
  • Brickell on the River – 31 SE 5 St | 33131 | 12.01%
  • Bristol Tower – 2127 Brickell Ave | 33129 | 16.82%
  • Emerald at Brickell – 218 SE 14 St | 33131 | 1.63%
  • Four Seasons Residences – 1425 Brickell Ave | 33131 | 19.37%
  • Imperial at Brickell – 1627 Brickell Ave | 33129 | 22.32%
  • Jade – 1331 Brickell Bay Dr | 33131 | 30.12%
  • Neo Vertika – 690 SW 1 Ct | 33130 | 6.76%
  • One Miami -325 & 335 S Biscayne Blvd | 33131 | 2.93%
  • Sail on Brickell – 170 SE 14 St | 33131 | 45.78%
  • Santa Maria – 1643 Brickell Ave | 33129 | 26.74%
  • Skyline on Brickell – 2101 Brickell Ave | 33129 | 5.26%
  • Solaris at Brickell – 186 SE 12 Ter | 33131 | 16.09%
  • The Club at Brickell Bay – 1200 Brickell Bay Dr | 33131 | 3.63%
  • The Mark on Brickell – 1155 Brickelly Bay Dr | 33131 | 2.78%
  • The Palace – 1541 Brickell Ave | 33129 | 9.99%
  • Villa Regina – 1581 Brickell Ave | 33129 | 29.67%
  • Vue at Brickell – 1250 S Miami Ave | 33131 | -1.04%

On average, condo units at The Sail on Brickell have a list price that is 45.78% higher than the average sales price of units sold in the past six months. Either owners of units in that building have unrealistic expectations or agents conducting business there have not provided their clients with an accurate comparable market analysis.

On average, Brickell condo listings were priced 13.98% over the average sales price of units sold in the past six months in these 18 buildings. When using a weighted average, the typical Brickell condo is overpriced by 10.48%. The weighted average is lower because most of the large differences occur in smaller buildings such as The Sail on Brickell.

Keep in mind that statistical data is never perfect. It grows more accurate as additional data is incorporated. The same holds true for a major league baseball player. The first five at-bats in his major league career won’t dictate how the rest of his major league career will fair. The Miami Condo Index will shed more light as time goes on and patterns and trends begin to emerge in the data.

In the next two weeks I will reveal the findings for Brickell Key and South Beach. I will follow-up each neighborhood index report with a post highlighting any fantastic deals that I come across in the buildings covered.