When Options Fail…Lease Purchase, Lease Option?


“I’ll gladly pay you Tuesday for a hamburger today.”  J. Wellington Wimpy – Popeye Cartoon

Lease options, lease purchases and delayed closings sometimes go badly.   As a broker, I always look for potential ways to make a sale, but am cautious as the closing times grow.  A lease option can be worded in a few ways, but is essentially, a way to delay closing for a particular reason.   Usually, the buyer wants time to gather funds, restore credit or even for an acceptable job history.    The owner is taking some risk and I would always recommend considering the negative impact of a failed option.

Sales price trend

Average Sales Price Residential Sales Amelia Island 2012 to 2017.  Long delay in closing should consider changes in market value. Source: NCMLS 4/25/17

Deposits are important, but think about contingency as well.  If a request for a lease purchase or lease option involves substantial time, how much is reasonable.  Have you considered the market and price trends for an area?  I would normally look for around 1% per month, but for longer terms, I might look at the change in price.  Our area appreciated a great deal in the last 2 years.  If the market changes 20% or 30%, what point is there to a lease purchase?    A simple lease makes more sense, given financial means to wait to remarket and sale.  Regardless, there is much more to consider, beyond a simple binder.

Tax implications might be part of the consideration.  Are you selling a homestead?  If you

rent for too long, does the exemption on capital gain diminish or go away entirely?  What about depreciation?  The time you wait can add costs you may not have considered.   Insurance might increase or you might be faced with maintenance you didn’t cover in the original agreement.  In a true lease purchase, longer terms might need to include discussion of maintenance for the property.  What about insurance?

I recently posted a brief update on Flood Insurance Rate Maps and the pending date of August 2017.  What happens if an unforseen change increases a buyer cost?  What happens if, during the long occupancy, a buyer has second thoughts.

Contingencies are usually good for one party, but can cost the other.  Consider a contingency on financing.   Financing for a short agreement is a reasonable contingency.  As the term increases, I would prefer cash or removal of all contingencies, including financing.  The risk of a change in job or circumstance is just too great.  Making a deposit either non-refundable or turning the deposit into purely option money paid to the seller might make sense.  As the agreement grows in length, I would prefer fewer ways for either party to find an exit and a way to compensate the seller for time, lost opportunity, tax consequences and increase in value.

Lost opportunities or opportunity cost is usually ignored in a short agreement, but timing is important.  The tax code can change or you might be subject to loss of a tax advantage, but consider the other reasons you might prefer to have money earlier.   Look at the increase in stock value in the last 6 months.   Even if you don’t plan to reinvest the money in real estate, the lost interest rates or appreciation of any investment is still a cost.  A hot market can go cold or a cold market can move prices beyond your reach.   In Nassau County, I would far prefer buying at last year’s price or the year before, instead of today’s market value.    I can think of properties 20 or 30% lower in 2015.   Just think about the real cost, before agreeing to terms.  Time to close almost always adds risk and it makes sense to either remove contingencies or be paid for the time.

On a final note, at a minimum, be sure to have an attorney prepare lease agreements for terms in excess of 12 months, have an attorney review with you and make certain to ask questions.  Consult a CPA and consider the tax consequences.    Last,  I always assume longer agreements have a greater chance of failing.    Having a backup plan is prudent.

Reminder….Flood Zones Effective Change August 2017

Areas in low elevation or near a flood zone, should pay particular attention to changes.

FEMA will adopt new Flood Insurance Rate Maps (FIRM) for Nassau County in August.   It is important to know whether your property’s flood zone will change and, if building, whether construction cost might change.  In the past year, I ran into an unusal issue with one sale and became far more aware of the potential consequences of change.

All properties are in a flood zone designated, based on their relative risk of flooding in the future.  These areas and the areas designated by FEMA can have a dramatic effect on your insurance rates.   The biggest issue, in my opinion, is a structure built prior to an area becoming a designated flood zone.  If you want to check your property for changes, you can search at www.msc.fema.gov/portal/search or “THIS LINK TO DOWNTOWN FERNANDINA“, if you’re just looking for a “zoomable”, “dragable” map.   Another resource showing both the old and proposed maps can be found on the Nassau County GIS System.  This search shows before and after views or can, if you know how to configure, but might give you an idea of changes.  As always, a survey and your insurance agent are the best sources for determining your flood zone, but a change can increase or decrease your insurance rates.

For over 10 years, Fernandina Beach has participated in the Community Rating System (CRS) of the National Flood Insurance Program.  The City’s class 6 CRS rating results in a  20% discount on flood insurance rates for residents and business owners within a Special Flood Hazard Area (SFHA). For businesses and residents located in a Flood Zone X or not within a SFHA the discount is up to 10% Source: Fernandina Beach, FL – Official Website – Flood Protection

FEMA publishes a FAQ on Elevation Certificates, I found helpful.   When selling a home last year, I spent time searching for the correct flood zone and category for a Basement/Walk-out/Storage area.   The look of the area seemed so ambiguous, even the surveyor needed to verify the correct category.  We see few home with basements and the construction seemed to match more than one category.  Finally, actually reading through the descriptions and referring to the original building permits made the category clear.  Oddly, it appeared to have been insured incorrectly for a number of years.  Never assume an old survey is always correct or that flood zones remained the same.  Verify with a new survey and new flood certification.  Years ago, the “FFE” (finished floor elevation) might have been enough to be certain.

Another consideration is the property use.  I know one property with a grandfathered use, built below the current flood zone.   A change of use or renovation of the property would require a change in elevation, essentially making it impossible to use the building for most other uses logical for the location.   Quirks with the elevation, correct classification or changes to areas defined can all have in impact on the purchase, sale, financing, insurance rates or even damage likely to your home in a flood event.

Helpful Resources:

 

Social Advertising Sells

Accessibility?  I learn a little each year and I’m occasionally left speechless.   Some time ago, a client, very vocally, complained about publication of pictures to promote a home.  Ordinarily, I don’t read a lot into an unreasonable complaint, but I remember the unusual.   Apparently, I published pictures of a home online.  First, listing agreements note permission to publish and promote information for listings and pictures are a huge part of  that promotion.  Beyond Facebook, Twitter, Linkedin, Google+ and Instagram, I pay for online promotion in a variety of places (with color pictures of course) and usually keep track of exposure.

Broker Authority: Seller authorizes Broker to: Advertise the Property as Broker deems advisable including advertising the Property on the Internet unless limited in (6)(a)(i) or (6)(a)(ii) below.   Source: FAR Exclusive Right of Sale Advertising

Anyway, the client, unbeknownst to me, must have been unhappy with some of the pictures.  I’ve had clients micromanage pictures or ask repeatedly to change the order or placement, but usually, if the property is not to be promoted online or with images, the verbage in every listing shown above, is followed by selection of an opt-out.  As long as I’m allowed to make some reasonable effort to sell a home and as long as the client understands the limit to promotion will slow a sale, I don’t mind.

That said, images, mobile friendly access and social media have become essential to selling homes in recent years.  Opting out of online promotion, signs, shortening a listing unreasonably or making it difficult to show a home, all make selling more time-consuming or occasionally nearly impossible.   Promoting homes through a strong online presence can mean almost as much as a sign years ago.   Classified ads and open houses have been replaced by targeted advertising and detailed pictures or video.   Personally, I find the change refreshing.  Every change is just a way to match my combined presence to the way clients communicate.

My advice to a potential client would be to seek out agents with connection.  Look for agents with a network and communication skill.  Searching their name online with the area name isn’t a bad idea.

 

First Time Buyers, Thoughts and Listening

First time buyers have so much to consider and, often, no real estate or sometimes thinking beyond an average lease term. They come from a variety of backgrounds and cultures. Jobs, goals, age…everyone has a different need, but what should all buyers and first time buyers consider, before buying?

What do you need? Are you buying because it seems like the thing to do or have you considered what you expect from a home? Sometimes expectations and budget don’t quite match. I like to spend time getting to know clients. We talk about where they live and how they live. Do you enjoy knowing neighbors, walks, sports or the gym? Are schools important? Where do you work and do you plan to commute? Are any changes planned? Will you need proximity to medical care? Will stairs be an obstacle?

Thinking about why you want to buy and how you want to live makes sense. I’ve watched so many buyers pick a home they love, in an impractical location. Location, location, location can mean more than just finding the perfect neighborhood. The best neighborhood might be too far from work or school. It might be beyond your budget. Consider homeowner’s fees. If you need a loan to buy, like most first-time buyers, have you considered the monthly payment for an association? I know of one neighborhood with the finest amenities. I won’t go into detail, but they have everything…seriously! The monthly fees amount to an added $150,000 in loan payment or qualification. This fee, although a great value, becomes an obstacle to subsequent buyers and

No big purchases or debt.

sometimes a burden to the buyer. Developers will sometimes pay the fee for a period of time in new construction, but considering the sticker shock for the next buyer or the shock as the “free period” runs out can be important. Will you refinance? Adding debt like a car, changing income or other plans, can mean you no longer qualify for the loan on the home you own. Don’t spend your down-payment or borrow money before closing!

  • Location (proximity and preference)
  • Budget changes? (car, family, retirement?)
  • Needs (wants vs needs)
  • Future Changes to available income?
  • Prequalify with lender. (I always prefer local)
  • Check down-payment and source.
  • Don’t add new debt.
  • Lifestyle

When I work with a client, hopefully you, I try to think ahead. I’ve been doing this for a long time…literally half a lifetime. Sharing the questions or offering advice is what any agent should offer, but thinking of the things you might not even know to ask is my profession. My goal is always to know you, listen to you and help you make the best decisions.

I’ll leave you with a few tips. First, always think about resale. No home is forever and circumstances almost always change. Drive the neighborhood you like on a weekend evening. Sometimes parking and the feel of an area is much different on a weekend after 5PM. Documents to see before making an offer should, ideally, include a survey, termite bond, utility history, insurance coverage and a 4-point inspection, if available. Old appraisals or inspections are nice, if the owner/list agent will release. Ask for more than one valuation. I will often pull comparables, with 2 or 3 estimates/Broker Price Opinions. Ask for a written estimate of closing costs. Nothing, well almost nothing, is more awkward than a big surprise for the buyer at closing. I produce an estimate for “ballpark” payment, cash to close and costs.

Agent Performance and List/Sell Ratios…Small Coffee Shops and Big Burgers

List to Sale Percentage 7 Year History Amelia Island NCMLS 4/19/2017 List to Sale AVG Percentages

I care about clients.  Their homes, future, savings….every penny they spend…I care.  It becomes personal when you care.  Years ago, I started in the industry with our family business.  Our motto at one time was “Think Pink”…changing to “Quality Service from People Who Care!”.   The first got attention, but the second meant something to me.  To this day, I care about clients and try to give more than expected.

I have a theory.  Every broker has a finite capacity to manage active residential listings.  Too many residential listings means I would have less time for each client.  I might not be available when needed or have the time for each client.   Even if I wanted to manage that many residential listings, I would begin to turn down added work at around 8 or 10.  Homes take more work and more “hands on” time to schedule, show and promote.  It seems logical to think there might be a best performance number, hypothetically between 5 and 10 active residential listings per agent.

T-Ray’s Burger on South 8th Street

Recently, I took the time to look at listing percentages for a number of top producing agents.  Some have absolutely amazing sales figures and tend to focus on the sheer number of sales.  I tend to look at a different statistic.  At random, I compared 5 high production agents in the area.  I looked at several indicators of performance, but finally focused on one measurable number…the original list price, compared to the sales price.    I rarely have more than five active homes listed.  Because I own the location and have a small office in a great location, I make enough with a mix of homes, land and commercial property listings.   Depending on the property, I sometimes aggressively price and sometimes price to sell quickly.  However, I think my average number should fall in a general range near the average list to sell ratio for the area.

Surprisingly, the agents I compared ranged from 69% to over 97%  in average list to sell percentage.  Now, the kinds of listings and price can change the percentage, but we’re also talking about averages and reasonably representative numbers.  97% is impressive, but 69% tells me the original listing might have been high or the prices dropped substantially for another reason.  My advice would be to consider the experience of the agent “AND” the List/Sell percentage, when selecting representation.   Ranges a little below average aren’t necessarily bad, but consistent numbers far below list price, should prompt questions.   Higher volume isn’t necessarily better or indicative of superior “single listing” results.

What does sales volume mean?  With teams of agents often attributing all sales to a single agent, the volume means less, but I see it another way.   Listing simply based on volume is like choosing a coffee shop based on square footage.  The single agent, in my opinion,  carrying a mobile office 24 hours a day, is often as or more effective than a team, formed to handle a  high volume of listings.   I am a little biased as a one man shop for the last 15 years,  but I even like smaller coffee shops.    What about hamburgers?  The chain with drive through might boast billions served, but the best burgers on Amelia Island are still at T-Rays….an old gas station converted into a restaurant years ago.   All things equal, where would you choose to buy a coffee or burger?  What about choosing a broker to sell or for advice when buying?

Downtown Fernandina Beach Density Change…not quite what you think.

I’m going to weigh in on something the City of Fernandina Beach is considering. Opposing points of view seem to be charged, to say the least, but I think I might be able to add perspective. First, as a disclaimer, I work in Downtown Historic Fernandina Beach and own one of the buildings. I’m also the listing agent for two other properties potentially impacted by a change to density.

Before assuming I’m only considering this from an owner’s point of view, I’d like to paint a picture of how one property might look without the change or after an approval. The Boat House, a building directly across from City Hall, is an under-utilized corner property with great potential for redevelopment. If we’re talking about parking requirements and density, as they stand today, the boat house might become a meeting hall, office suites, hotel or a variety of other commercial uses. Why does increased density actually amount to a lesser intensity of use? The majority of interest in purchasing properties or redeveloping sites downtown is in creating livable loft space on second or third floors. Allowing density changes, actually encourages the use of sites for the more desirable and saleable (is that a word), conversion. At $200/foot or more construction cost, the likely configuration is going to be smaller footage, high-end, loft space. Unlike some supporters of increased density, I think the spaces nearer the water, in particular, will follow pricing you see in cities like Portsmouth, NH, Boston or even New York. Prime locations may start as affordable, but our real win is in creating a path for different hours of parking impact and creating variety in the kinds of users you see downtown. We have 24 hours in a day. Consider the times most office or retail locations impact the area and the benefit of creating living space for people also interested in shopping or spending money downtown. As owners or developers naturally seek the greatest benefit, I see this as a potential way to encourage a kind of complimentary diversity.

COMPREHENSIVE PLAN AMENDMENT – DOWNTOWN DENSITY – ORDINANCE 2017-02 AMENDING THE COMPREHENSIVE PLAN BY STRIKING POLICY 1.04.05 COMMUNITY REDEVELOPMENT AREA DENSITY BONUS INCENTIVE PROGRAM AND AMENDING POLICY 1.07.09 TO INCREASE THE BASE DENSITY WITHIN THE CENTRAL BUSINESS DISTRICT; PROVIDING FOR SEVERABILITY; AND PROVIDING FOR AN EFFECTIVE DATE. Synopsis: Amends the Comprehensive Plan specific to downtown density.

Source: www.FBFL.us Agenda 4/18/2017 City Commission Meeting Agenda item 9.1.

Some time ago, at first reading, I published an open letter to the Fernandina Beach City Commission. I have the same thoughts today. We face opportunity. As we watch downtown change, this is a rare opportunity to encourage smarter redevelopment and change the kind of diversity we see downtown. If you agree or don’t agree, I’d love to hear comments. As a real estate broker, native, owner and party involved in marketing more than one downtown property with redevelopment potential, I see the potential for shaping a more complimentary future. Diverse uses create greater potential for the area, should extend parking viability for many more years and should create an added vigor to downtown business. As far as I can tell, City of Fernandina Beach planning, Nassau County Economic Development, the Chamber, the Historic Downtown Merchant’s Association and Main Street, all support the change. I urge you to take a second look and understand density isn’t always what it seems. This change, by the way, is only a single added unit per lot. Wording to request a change, when subm
itted, requires a density calculated based on acreage. When lots are often 25’x100′, it sounds dramatic, but the real change is far less. The clear majority of properties could not take advantage of the change, but it will spur smarter development of properties like the Boat House, complimenting the vicinity through diverse redevelopment.

Social Media and Real Estate…Trees, Forest and Content

I’ve been using Facebook since 2007 and other social media for several years prior. During the last 10 years, use of this tool has become a more and more frequent part of my day. Brokers are required to be expert at communication and networking, but I continue to be amazed by “one dimensional” advertising programs, usually offering no interactivity, no feedback and consisting of a message on paper you hope someone might see.  How is it tracked? How many people read the ad or respond? Often these questions are simply impossible to answer with print advertising. My last print ad received a total of “ZERO” responses at a cost of more than $500.00! Compared to proper promotion by someone with an understanding of social media, print advertising is, literally, nearly worthless, in my opinion. I’ll stop beating the dead horse, but feedback from an old client last year made me think.

Concours d’Elegance Providing Content

Oddly enough, this one client thought I “ONLY” used social media to promote property. At the time, I took the impression as a backhanded compliment. The client liked social media and frequently visited my company page, so developed an impression based on their activity.  Sometimes we can’t see the trees for the forest, but social media, like it or not, is being used by well over 80% of the population. That would not include children too young to create a profile, those with various disabilities and, I’m guessing, those with an aversion to change. This equates to a higher percentage of the real estate buyer/seller target market, in my opinion. The point I’m trying to make is that we should adapt to the consumer preference and use any tool they are in the habit of using.

Communication might be key, but the average client might not always see the difference between an agent spamming their personal news-feed with real estate listings and someone with a genuine following. As a single user it is difficult to see the broader spectrum beyond the few people you might follow or a single paid post compared to real content and interaction. Periodically, I use services like www.Klout.com to consider my “score” or I actually filter out spam with saved searches including the minus sign “-“. It is about followers/readers who like what you say and I like to know when content generates interaction.  Paying for content does nothing…especially without a live interaction at each end.  I pay attention to the things I feel create interaction and influence or define my presence.

Vladimir Putin won’t meet Rex Tillerson on visit to Russia – Negotiation 101

Over the morning coffee today, I watched commentary on the first formal visit to Russia by the current US administration.  Blogs and media seem to take the refusal to meet an appointed Secretary of State as some sort of snub, but I see it differently.    Consider the position of both parties.  One party is backing a very unpopular decision and it is almost a certainty the conversation will revolve around Russia support of Syria and it’s current leadership.   The position becomes difficult as you consider the, from Russia’s public point of view, position possibly denying use of SARIN and opposite views of use of force to incapacitate planes.

In any negotiation, how would you approach a choice, if you were faced with an answer you lose by giving directly.  This may sound like code, so I’ll give an example. An owner or group of owners want to sell.  Their positon is weak and absolutely nothing good will come from meeting with the buyer directly.   In fact, it is possible someone will ask an unpleasant question….”What’s your bottom number?” or “Didn’t you pay half the asking price last year?”.  Adding an intermediary makes all the difference.  The intermediary has time to consider the reply or can slow a reply by deferring to the owner.  As a broker, I’m really a professional intermediary.    Putin is just responding in a reasonable fashion.  It is far less damaging to Russia if they meet Tillerson, but buffer a reply.   Again, I’m assuming the answer is not yet mutually agreeable.  This is an early meeting and equivalent to meeting to discuss terms in a future relationship, leading toward mutual agreement, I hope.

Now, consider the trade with China and recent concessions to the US.   The best path is to offer “least offensive”, but mutually acceptable solutions, while keeping what I need to reach my objective.    Push only as much as necessary.

West of Crane Island, Minutes to Amelia, Spectacular Waterfront Acreage

Essentially a point of land fronting on McGirts and Lanceford Creek, I first visited the site about 20 years ago. Water frontage is usually very limited and waterfront is so expensive, it is very uncommon to find anything like this property. Normally, a property this special might be divided into 15 or 20 lots. I’ll leave the video here, but this is one of the finest views in the Amelia Island area. Around 1800 feet on the water, 22 plus total acres with 12 to 15 upland acres, make this a private retreat, but still only minutes to the nearby resort communities.

Brokerage services are provided by Ed Boner and The Realty Source, Inc.- Lic Real Estate Broker – FL. To submit an offer or for more detailed information, I’m available during or after normal business hours. (904)556-7554

 

Vision 2032 Invaluable Narrative for Nassau County

Shrimping was, at one time, a major part of the local economy.

Consensus reports like this represent a great deal of thought and care to match the community desires for growth and inescapable reality of change, coming to Nassau County.   Planning for the future is a part of good government and the requirement to plan for capacity, submit a comprehensive plan and need for a vision, beyond responsible planning, is interesting reading.

The recommended strategies of Vision 2032 reflect the community priorities identified in the visioning process. They became a primary source in the creation of the goals, objectives, and policies of the Nassau County 2030 Comprehensive Plan. Source: http://nassaucountyfl.com/ 4/4/17

As a broker, I make time to learn and read about my industry.  Reading over the story of where we were and where we want to go…well, invaluable is a good description. I grew up on the island and am one of the diminishing population of Nassau County/Amelia Island natives. Even for me, re-reading this confirms, but occasionally is a little surreal. When I was a kid, Citrona Drive stopped at the entry to the local dump. Most of the area along the beach was undeveloped, Sunrise Drive, Oak Marsh, Summer Beach, the Ritz Carlton and more, simply didn’t exist. Tourism was a much more minor part of the economy and nightlife for kids sometimes consisted of driving from the beach to the river and back again. Main Beach (an older generation called it Wolf Park), was filled with a skating rink, games room, Moore’s Grocery, a country bar and putt-putt. Over the years, it can be difficult to maintain perspective. Newcomers often hope to change everything and locals sometimes think nothing should change.

Reading the visioning narrative is helpful in other ways. Beyond simply being a thoughtful look at the county, it offers a combined theme for future growth. Everyone, myself included, thinks in terms of personal experience. We make judgements and assumptions. My island should look a certain way and growth should only move forward when it fits my view of the world…or so I’d like to think. All change in local planning requires consensus or public support. A document like this offers a less biased, more realistic view of a possible future path. Regardless, I hope you’ll take a few minutes to click the link and read more.