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Island Guardian


UNDERSTANDING THE VALUATION PROCESS FOR YOUR REAL ESTATE

9/19/17


IG-Merri_Ann_Simonson-3 (21k image)By Merri Ann Simonson
Coldwell Banker San Juan Islands

written by Merri Ann Simonson
Simonson@sanjuanislands.com
360-317-8668


The definition of “market value” is rather boring sounding when you take into consideration that you are addressing one of the highest value assets that a property owner may have or the most expensive item that a buyer may purchase in their lifetime.

Emotions run high when it comes to the selling and buying of real estate. If we all could just buy low and sell high, life would be so much more rewarding.
Definition: Market Value is the price a property is most likely to command in a competitive and open market, with a willing buyer and a willing seller in an arms-length transaction, wherein the parties have each acted knowledgeable, prudently, and without compulsion and in their own best interest.

A Competitive Market Analysis (“CMA”) is an opinion of value produced by a real estate professional. Upon request, a real estate agent will process a CMA for the purpose of assisting a property owner with the valuation of their property when they are considering selling. A CMA may also be processed as a service for a buyer who is considering making an offer to purchase real estate.

The real estate agent will evaluate the property by reviewing all recent property sales and determining what a typical sized property is selling for given such factors as square footage, number of bedrooms, amount of land, size of view, waterfront, etc. Our islands can make this process a challenge as most of our properties were improved as owner designed construction and built very custom; finding similar properties can be difficult.

In addition to reviewing recent sales, adjustment factors may need to be applied such as current and predicted market demand, the appreciation or depreciation calculations, the cost approach based on present value of each component, the amount of comparable properties currently available, and the subject property’s special features.

Comparison against current unsold inventory is something an agent can consider but an appraiser is unable to heavily consider in the process of formulating an opinion of value. This restriction on the appraisers insures that their approach to value is more conservative but may hinder their ability to report that the market is in transition. They are licensed to value here and now, not the market right around the corner; good or bad.

Completing the CMA allows the real estate agent to develop an opinion of the value. This is part science and part art; it requires experience and boots on the ground.

Consumers should be cautious when using on-line home value estimators as they do not function very well in San Juan County. These sites rely upon the various County Assessor’s information and valuations to process their own calculation. The on-line estimators do not have representatives that physically inspect and evaluate the property nor do they have local market knowledge.

The assessor’s office performs appraisals for the purposes of ad valorem taxation. This is part of the process for how we provide funding to all local government services. The assessor’s appraisers only have access to the exterior of the improvements. They also use a “blanket” approach with comparable sales from the immediate neighborhoods, district or regions versus singular. The assessor’s values assigned are for their tax purposes and are not used for lending or listing property for sale.

The website value estimators may be more reliable in Metropolitan areas where subdivisions of very similar homes are bought and sold on a regular basis. The website value estimators have historically performed poorly in small, low volume, custom construction markets such as San Juan County.

Due to the popularity of real estate websites with estimators, agents spend a lot of time explaining to buying clients why the values presented not reliable in our area. Below is the accuracy table as of August 2017 for San Juan County with a 2 star rating or a fair estimate. King County also has a 2 star. Our 2 star rating has not improved since 2014 when I first reviewed the chart.

chart (67k image)

Agents are not licensed appraisers and there is no regulation surrounding how they calculate a property’s value; there is not a uniform calculation. However, it is an agent’s duty as contained in the REALTOR Code of Ethics, to process an honest opinion and not to mislead the owner as to the market value of a property.

Further, requests for valuations for legal purposes such as divorce, estate planning, trust work, etc., are referred to local appraisers. A CMA is not an appraisal as defined in chapter 18.140 RCW but is prepared by a real estate licensee who is not state certified or licensed as a real estate appraiser.

We have three active appraisers in our area. I recommend Mike Paredes 360-378-5474, Mike Aikens 360-424-0331 and Sheila Bienenstock 206-915-5537.

If you are seeking an appraisal for loan application purposes, then the lender is the one that selects which appraiser to use as the report is for their benefit.

If you have any questions regarding our real estate market or the valuation process, please be sure to contact me.






San Juan County Waterfront Parcels

9/19/17


MAS (70k image)

written by Merri Ann Simonson
Simonson@sanjuanislands.com
360-317-8668

If you own a waterfront parcel in the County, or hope to purchase one, I have detailed below some items to take into consideration. Historically, waterfront parcels were the most coveted investment in the islands but due to ever changing regulations, they are now the most confusing parcels to develop. For REALTORs they can be a challenge to sell due to our inability to give buyers concrete answers to their questions while on site.

Important Considerations:

Timing
Once you purchase a waterfront lot it is prudent to move forward with your plans as soon as possible as the regulations in the future may change and what you had hoped to build at the time of acquisition may not be approved in the future. The County has said they will never render a parcel unbuildable but regulations may restrict the size of residence and dictate the location of where you can build on the lot.

Residential Pre Application (RPA)
This is a conceptual approval of the footprint for the residence under the rules that exist at the time of review. While the RPA report is non-binding on the County, constructive reliance can be used for planning your new home including the home site, setback, tree removal, the location for the driveway, and well and septic, if applicable. This is a valuable tool to utilize upfront so that your design team and contractor have solid direction from the County early on in the process.

Your designer or architect may process the RPA for you as part of their service. If not, you can hire a land use consultant. The cost to process an RPA with a land use consultant is around $900-$1400 which includes County fees.

As an RPA is not binding, and in light of proposed regulation changes, one should only be used for near term planning. Currently the Shoreline Master Program is being updated and the likely 2017 implementation may change shoreline regulations, possibly voiding some conclusions from an existing RPA. In order to bind or vest your project under the current rules, a complete permit application must be submitted to the County. Once the application is deemed complete that becomes the effective date prescribing which version of the regulations applies.

Shoreline Setbacks
This is a difficult topic to address. The Critical Areas Ordinance (CAO) was approved in 2013 and significantly altered the setback regulations by placing the majority of the shorelines in the County into a Critical Areas designation. Basically a very simplistic definition of the current setback regulation impact includes there being a “no touch zone” in the first 35 feet from the shoreline, although a 5 foot trail to the beach is permitted. Only dead, dying and dangerous trees may be removed in the area located behind the first 35 feet to a total of 110 feet from the shoreline. It is possible to brush and clear for view and fire protection in the 110 foot zone and it may be possible to build between 110 and 75 feet if you have a forester design and the clearing planned will have a minimal impact to healthy trees.

In addition to the CAO regulations impacting shoreline properties, the Shoreline Master Program, as mentioned above, is currently being reviewed for adoption and could place further restrictions on shoreline development. The Shoreline Master Program dictates land use within 200 feet of the shoreline. While some key elements of these regulations are under legal challenge, they remain binding and in effect. Under the current SMP, setbacks differ from Critical Area setbacks. If you have "adequate" screening, you can build 50 feet back from the top of the bank. If not, you must stay back 100 feet. A screening analysis is an important component of an RPA.

However, because the two sets of rules differ, the law says that the most restrictive rule applies. This means that the home site will most likely be established around 110 feet back from the shoreline. It is also possible to average the 110 foot setback for certain, very specific reasons.
Due to the individual geometry of each lot, the geological conditions at the water’s edge, the adjacent property home sites and the amount of vegetation available for consideration as screening, each setback can vary. One size doesn’t fit all, and given the complex and somewhat subjective nature of shoreline setbacks, we recommend obtaining professional advice to assist in planning your project.
Additional rules regarding house location include the possibility of an unstable bank, which requires a site visit by a coastal geologist or engineer; and the fact that all the salt water is protected "fish habitat", which requires a proposed development impact analysis prepared by a marine biologist.

Property Survey
It is always prudent to have the corner stakes properly identified for any construction project but it may be more important on the waterfront. If you don’t know the lot line measurements, you may design a 65 foot wide home then find out you may only build a 50 foot wide home if the shoreline is only 100 feet wide (you are limited to a 50% lot width coverage). Having a survey will also confirm any encroachments and other issues that you may need to address.

Tree Removal
A tree removal permit is required for any tree removal work done in the shoreline (200 feet from the water’s edge) When tree removal is a necessary part of construction, trees to be removed must be clearly noted in your plans submitted for your building permit. Your plat Covenants, Conditions and Restrictions (CC&Rs) may also have an impact on your tree removal plan. If the plat CC&Rs are more restrictive than the County, they override the County regulations and guide the process.

For shoreline properties with existing development, tree removal may only be done with a standalone tree removal permit. Consultation with a certified arborist is recommended to discuss the condition of your trees and how the shoreline regulations would apply.
A tree removal plan will catalog and locate all trees on the lot and identify those designated for removal. Basically, to retain views, the County does allow 4% trimming per year or 40% over a ten year period. Good luck with figuring out the calculation, you may want to consider hiring an arborist to calculate the 4%.

Building Plans
Having a clear, complete plan set is an essential early step in the process of building your new home. You may select an architect or designer to work with or engage one of the several general contractors on the island who provides design services. The design process should include working with an engineer for the structural elements of the design.

The plan creation process is typically 4-6 weeks or more. The fee range is too wide to quote as it depends on the complexity of the design and whether the service provider stays involved and conducts the inspections during the course of construction.

Builder
It is prudent to interview several general contractors and find one who is compatible with you and your goals. A new build or significant remodel can be a lengthy process and it is not always about the pricing, it is important to find a general contractor that you communicate well with. Your REALTOR, architect or designer will have suggestions. Obtaining bids may take another 30-90 days as the contractor will bid out the major components with their subcontractors. On certain types of jobs, contractors will only work for time and materials as the homes are just too complex.

Permits
The architect, designer, land use consultant or your contractor can submit to the County for permits. You may submit your plans directly as well. That process is quoted by the County at 10-12 weeks but further time may be needed depending on the complexity of your home design and completeness of your package.

Many factors come into play at the San Juan County building department. The County provides a detailed checklist for each type of permit. While comprehensive, the volume of paperwork and order of operations may be overwhelming to someone unfamiliar with the County’s process. Your file travels through several departments with each reviewing their component and hopefully issuing approvals. The components include, but are not limited to; water source and testing, septic permit, storm water management plan, energy study, engineering, lot lines and corner stake confirmation and possibly an archaeological or geological study.

Archaeological Sensitive Areas
Cultural resources are evidence of past human activities. It is not uncommon for waterfront lots to have items of cultural significance or be located in the buffer zone of an existing identified site. In order to confirm whether the lot you own or are considering purchasing has archaeologic sensitive areas, a property owner must contact San Juan County. Due to preservation and protection of the sites, the maps are not of public record.

Flood Insurance

As you may be aware, the majority of our waterfront properties are designated as being in the flood plain as determined by the current Federal Emergency Management Act (FEMA) maps. What you may not realize is that almost 90% of the homes and other structures, when further analysis is done, do not actually require flood insurance. Contacting a surveyor to process a Base Flood Elevation (BFE) for your property should be on your checklist. The fee charged by the Corps of Engineers is in the range of $105-$350, subject to previous determinations in your immediate area and it typically takes 2-3 weeks. Base Flood Elevation certificates are required in order to obtain flood insurance and are also used to obtain a Letter of Map Amendment (LOMA) which is required to waive flood insurance. Processing a LOMA will be in the range of $2200-$2500.

Budget
Again this topic is very custom and will depend on the type of home you plan to build and your building site. I know of some contractors on the island that can build for $175 per foot but that would be for modest construction. I know of some homes that have been built on the island for $1,000 per foot. Your budget needs to be established then monitored with every change order processed.

Site Development Costs
You should budget around $25,000 for a septic system installation and $20,000 for well drilling and associated plumbing with a bit more if you plan on a water storage tank and a well house for all of the equipment.

Utility line trenching will vary due to length and terrain, but typically the excavation costs run $9.50 per foot unless you hit rock then it can be as high as $15.50 per foot. Don’t forget to drop optical fiber in the trench for future use.

For your power, you can contact OPALCO and have them locate the closest transformer to the building site, then provide you the distance that the trench will need to run. This allows you to bid out the secondary power line installation with the local excavators.
Of course it is easier to have your general contractor include the site development costs in their bid or estimate.

Professionals
I highly recommend hiring professionals at the start of your project, not that our County employees aren’t pleasant to work with and always helpful, but they are often busy or unavailable, plus the regulations can be confusing and consultants work with the County on a regular basis and are more familiar with the procedures. Permit consultants in particular can monitor the entire process leading up to a building permit application, and can also assemble a team of specialists to provide the numerous site specific reports.

Construction Loans
You can obtain a land loan to acquire the lot then once you have your plans, builder, costs and permits, you can apply for a construction loan. It is convenient if the seller will provide financing for you for a short term such as 1-3 years. Seller provided financing can be less expensive than a land loan at a lending institution as the rates are closer to 5-6% and there are no loan fees. Banks had a high level of defaults in their land loan portfolio so they currently charge a premium to fund land loans.

The construction loan can be a combination of construction term that will roll over into a permanent loan. You can set the construction period at 6-12 months with the remaining 29 years being the permanent loan portion. During the construction period of the loan, the bank will make regular inspections and disburse your funds based on a percentage of completion. Once the home is complete and loan fully disbursed, they roll it into the permanent loan terms.

Builder’s Warranty
Many property owners believe that Washington State requires a one-year builder’s warranty on new construction, this is not correct. However, most builders will stand behind their product in order to maintain a good relationship with their client and future referrals.

Conclusion
Other than dealing with the shoreline regulations addressing tree removal, setbacks and a higher likelihood of having an archaeologic area, there is no difference in the process as compared to building on an interior lot.

As the existing home inventory on San Juan is being absorbed, buyers are now determining that building a custom home may be their best option. Their ending product will be exactly what they want and we currently have ample inventory of land for sale at great prices. Waterfront lot sales have been slow over the last few years due to the lack of recovery from the recession and regulation changes; now is a good time to purchase a waterfront lot.

Recommended Professionals:
Casey Baisch 317-5559 Tree removal, Arborist
Jack Cory 378-4900 RPA, Permit Processing, Septic Design, Home Design
John Geniuch 317-6741 - RPA, Tree Removal Plans, Permit Processing, Arborist
Francine Shaw 378-6278 RPA
Bob Quarry bobq@thepermitcenter.com RPA, Permit processing

If you need a reference for archaeology, construction lenders or general contractors, please be sure to contact me.




Rental Property Options

12/30/16


IG-Merri_Ann_Simonson-3 (21k image)By Merri Ann Simonson
Coldwell Banker San Juan Islands

San Juan County currently has several mechanisms for legally renting a home in the County.

The information below is meant for informational purposes only, and does not incorporate all of the rules and regulations. It will however provide those who want to learn more about residential renting of homes in the County an overview of at least some of the things they need to consider, and do, prior to listing property for rent.

Long Term Rentals. No permits are required. A long term rental is typically a term lease, but can also be month-to-month. Like short term rentals, professional property management is available and the rates are normally equal to one month’s rent paid at the commencement of the occupancy. If rent, collection and property monitoring is included, then the fee is generally 10% per month.

Vacation Rentals. A vacation rental permit from the County is required. Vacation rentals are allowed in all Land Use Districts except Resource, Conservancy, and Natural. The permit application can be processed by a property owner or by a professional who specializes in land use permits. The range for a Provisional Use Permit, including the consultant is $1,400-$2,800. As long as the property qualifies lawfully, the County will approve the permit, even if a neighbor objects.

If the property is improved with a main home and a guest house, only one of the dwellings may be designated as a vacation rental. If either the main or guest house is a vacation rental, the other dwelling must be owner occupied or rented to a long term tenant. A Guest house may be internal, attached or detached.

Under a vacation rental permit, the tenant rents the use of the entire house -a house is defined as one that includes at least a kitchen, bath and bedroom(s).

Details of all County requirements can be reviewed on line under Section 18.40.270 Vacation (short-term) Rentals of Residences or Accessory Dwelling Units (guest houses) in the San Juan County Code www.codepublishing.com/WA/SanJuanCounty/html/SanJuanCounty18/SanJuanCounty1840.html#18.40.270

AIR B&B. Surprise, this requires a B&B (Bed & Breakfast) permit from the County, and they are not allowed in all land use designations. There are two options; B&B Residence which is 1-2 bedrooms or a B&B Inn which is 3-5 bedrooms. The permit allows the rental of a bedroom (which may include a bathroom) on a nightly basis, and the tenant shares in the kitchen and other rooms.

No permit is required for the renting of a bedroom for a period of at least 31 days or more.

The requirements for each type of B&B vary and are detailed in Hospitality Commercial Establishments -- Bed and Breakfasts Section 18.40.250 of the San Juan County Code.

I have generally defined B&B restrictions below; however, a property owner should read the entire regulation when considering their property’s qualifications. The land use designation (zoning) of the area, and the site and building configuration are determining factors in how a building may be rented. Some general statements:

B&B Residential 1-2 bedrooms.
Maximum occupancy limit of 6 guests.
Must be owner-occupied single-family residence.
Parking must be provided.
Maximum of 3 guests if located on a private non-surfaced road and when the residence is more than 500 feet along the non-surfaced road.
Maximum guest stay is no more than 30 consecutive days.

B&B Inn 3-5 bedrooms.
A standard of three people per room is used to determine maximum capacity.
Must be proprietor-owner occupied single-family residence.
Parking must be provided.
If the property is served by non-paved County road for more than 500 feet, the permit will be limited to three guest rooms.
Not allowed if access is by means of a shared private non-surfaced access road.
Maximum guest stay is no more than 30 consecutive days.

Other Considerations

Prior to making a decision about which type of rental is suitable and what is best for the property, an owner should consider the expenses associated with each type of rental, proposed income, and the potential impacts. One expense commonly overlooked is B&O (Business & Occupation) tax on the income.

Short Term Property Management. Professional property management fees vary slightly and there are only have a handful of property managers on the island. The fees may sound high at 30-35%, but a property owner should consider that these firms are operating your investment similar to a hotel and managing crews for repairs and cleaning. They have service providers on staff or available that respond to their requests in a timely manner. If you decide to self- manage your property, the honeymoon with vacation rentals may be over in a short period of time.

An important note: Those who manage long term rentals for other people are required to have a broker’s license and maintain a trust account. Management of short term rentals does not require a broker’s license.

Consultants. I highly recommend that you utilize a land use consultant for the permit process. The consultant will not only guide you through the process, they will assist you with the discussions you may need to have with adjacent property owners, with County officials and help you hire service providers such as surveyors, septic inspectors, well testers, etc. They can also give you a list of suggested rules to post in your home to insure that the tenants understand the home’s functions and restrictions.

Covenants, Conditions and Restrictions (CC&Rs). As you may be aware, many plats have voted to restrict vacation rentals, as they deem them as a commercial or non-residential use. Even though the property may qualify for a vacation rental or B&B permit under the County code, the plat CC&Rs will over-rule the County’s allowed use. Many plats made the decision to prohibit vacation rentals due to negative experiences. They most likely considered that some tenants were not respectful of the adjacent property owners with their music, loud voices and trespassing. Further, with delicate water and septic systems, vacation rental occupants can add pressure to these systems unless the tenant received proper instructions. Occupancy numbers may be elevated if the tenant decides to have a party just like I had last week.

I was unable to locate any statistical data to support that a person on vacation does more dishes, laundry or uses the bath facilities or road systems any more than a family of four living in a home. My guess is they do use the refrigerator door more to get a fresh beverage and I assume the BBQ never gets a break. I can’t imagine any person on vacation creates more recycle than my family, but it is possible.

Town Water. Homes on the Town’s water system that are not zoned commercial do not qualify for a vacation rental permit. The best rumor I could find on this decision was at one time the hotel, B&B and motel owners felt that single family homes with vacation permits were direct competition and asked the Town to restrict the permits; water was a good vehicle to do so. However, now that periodically during the year the hotels, motels and B&B are fully occupied, it may be something that the Town should reconsider. Again, is there evidence that a vacation rental occupant on Town water uses more water than a primary resident? This will be a tough decision for the Town to weigh the pros and cons on.

Insurance. For the operation of a vacation rental home or B&B the property owner should have adequate insurance. Their carrier must write a commercial policy, the standard rental policy assumes month-to-month or long term, not nightly. The property owner should also consider having a liability umbrella policy in the event of a major injury to the tenant. The property manager’s policy insures them, not the property owner. Commercial homeowner’s insurance may be twice the price of a standard owner occupied insurance policy.

Options

Having said all the above, options may change in the future. Rumor has it that the Council is considering amending the vacation rental ordinance and the need for a moratorium has been mentioned in public meetings.

One stated reason on the need for a moratorium on the issuance of additional vacation rentals permits is to increase the pool of long term rentals available to island families in disparate need of a place to live.

The unintended consequences of a moratorium may be that property owners will illegally operate a vacation rental in their home or use the 31 day loophole to avoid non-compliance. If a property owner has a rental agreement with a tenant for 31 days or more, that is defined as long term. Whether that tenant is on vacation and is paying what would be considered “Summer Rates” and only stays for 10 days isn’t an issue, they contracted for 31 days.

If the Council decides to place a moratorium on the permits, they may also need to consider enforcing non-compliance under a proactive pattern versus compliant based response. Enforcement may require a full time vacation rental police person.

How will that look? A cease and desist order is provided to the property owner who must call all of the future booked tenants and tell them that they were operating illegally? Now the County is no longer allowing them to rent their home, so sorry that your 10 year reunion with your entire family is now cancelled. Good luck with finding a new location.

This issue is not unique to San Juan County, this is a national issue due to demand created by people traveling and not overly excited about going to other countries or staying in large and expensive hotels. Other cities are considering moratoriums -although some are not as dependent upon the tourism industry as we may be.

The vacation rentals by owner (VRBO) or Air B&Bs are a newly created industry, and not yet fully regulated in most cities. We are all in the same boat and must review how these units are functioning and review the governing ordinances; similar to how cities are addressing Uber; which I assume is heading our way as well.

Lack of affordable rentals and housing in general must be addressed, but is it the best option to restrict how a property owner decides to have their property produce income? A lot of unanswered questions; and affordable housing is related, but an entirely a different topic that needs to be dealt with.

Neither vacation rentals nor long terms rentals “pencil” on this island. Rents may be high enough to pay taxes and insurance and some maintenance, but our levels do not typically meet or exceed the debt service of a highly leveraged property -such as one with an 80% Loan to value mortgage.

I believe that the vacation rental versus long term situation will correct itself for homes that are valued under $500,000. When a property owner does the math and realizes that the net income is very similar for both a long term tenant versus a vacation rental, the romance of vacation rental income will tarnish. It will be quickly replaced with a property owner’s overly burdensome, never ending, chore list of maintenance, repairs and tenant requests.

As in the case of real estate sales, many property owners here assume if Seattle is a robust market then the San Juan Islands are one as well, but that is not the case. Our sale and rental markets are very different from the metropolitan areas, and yes, a vacation rental in the Seattle area will debt service much better than one located in San Juan County.

As someone that works in the industry, I believe that before a moratorium is considered, a revision to the regulations should be implemented first. The greatest opposition is concerns over the tenant’s behavior and that is directly attributed to a lack of rules and use instructions provided by the property owners. I believe that the vacation rental permits should be renewed periodically. Complaints should be taken into consideration at that time and the permit suspended if there were ongoing violations.

In a perfect world, the County would collect evidence of business license and B&O tax payments as part of the renewal. Having the property owner evidence their septic inspection and well testing is reasonable, but a nightmare for administration to monitor and follow-up. Unfortunately, this type of administration would require another full time vacation rental police person and would no doubt increase the fee structure.

Impacts to the Economy. Homes offered into the long term rental pool provide local housing for islanders. Residents living and working here over the long term tend to have pride in community which results in maintenance of the home and may result in a lifelong commitment to being a San Juan citizen.

Vacation homes offer economic gain into the community and to the owner. While visiting, tenants enjoy retail therapy, restaurants, kayaking, and whale watching. Some may end up deciding that residing here is in their future.

B&O tax is generated back from the state into our local government.

The vacation rental homes are mostly occupied in the summer months and this coincides with when the second home owners return and desire to hire staff or service providers to help with their property maintenance. These service providers may be the very ones seeking rental housing.

Lots of pros and cons and last, but not least, to the SJC Council: good luck with the decision on how to restructure the vacation rental ordinance and whether to consider a moratorium. It is going to be a very difficult process.

Referrals:
Consultants in Alphabetical order for Vacation Rental or B&B Permit

Jack Cory 360-378-4900
Bob Querry 360-378-7053
Francine Shaw 360-378-6278

Property Management Firms:

San Juan Property Management -- Vacation Rentals Only 360-378-2070
www.sanjuanpm.com
Vacation Doorways -- Vacation Rentals Only 800-391-8190
www.vacationdoorways.com
Windermere Property Management -- Long Term Rentals 360-378-3600




ARE YOU CONSIDERING SELLING YOUR PROPERTY?

12/30/16


IG-Merri_Ann_Simonson-3 (21k image)By Merri Ann Simonson
Coldwell Banker San Juan Islands

Thinking about selling your property? You may want to consider researching, collecting and completing the items detailed below.

This is not a check list for planting flowers on your porch and painting your front door, you can go to the internet for that information. This list is to prepare sellers in San Juan County for marketing their property. The issues below are for regulatory compliance, contract performance and will prove beneficial and worth the effort in the marketing and transaction management of your property sale.

If you hire a good agent, they will assist with the process of gathering and helping you arrange for the various services. That is what good agents do.

This list will not apply to all properties and it is not meant to be all encompassing.

Single Family Residence

“As Is” Sale
Washington is a due diligence state with the buyer able to process the suitability of the property with no risk to their deposit if their contract has contingencies. Some property owners believe by writing in “as is” on the contract that they are excused from making repairs and/or disclosing information about the property and buyer recourse. The statement indicates to the buyer that the seller has no intention of making repairs but the buyer may still obtain a home or other inspection reports as they deem necessary. Disclosure and recourse are requirements and rights granted by law.

Appraisal
It is difficult in a recovering market to provide an opinion of value and an upfront appraisal may be an option, although I don’t recommend one. The report cost range will be $500-$800. Unfortunately the report can't be used by the buyer if a lender is involved. The lenders have their approved appraisers list and must be the party that orders the report. Further, due to licensing regulations, appraisers are only able to utilize closed sales as comparable. The agents are able to use pending sales and current inventory to process their opinion which takes market trends into consideration.

Buyer Feasibility
It is not uncommon for the buyers to contract for a feasibility contingency that runs concurrent with the home inspection contingency. The home inspection contingency addresses the condition of the existing structures on the property and the feasibility study addresses the “what ifs”. It will be used by the buyer to confirm the cost of a remodel, to research what the home may rent for or the likelihood of obtaining a Vacation Rental By Owner (VRBO) permit and other similar items.

Some buyers are also processing soil stability and environmental studies which include mold and air quality within the buildings, at their expense. Bottom line, the feasibility contingency insures that the property is suitable and inspection results are acceptable to buyer, at their sole discretion. As a seller, you want the buyer to have the opportunity to process their due diligence and not rely on statements made by you or the agents.

Carbon Monoxide Monitors
Per national regulations all homes must have CO monitors and this language is contained in all purchase and sale agreements. The monitors can be purchased locally at ACE Hardware or Browne’s Home Center. The cost range is $25-$75 and the plug-in variety will suffice. The regulation directs you to comply with the instructions on each monitor as to installation. Basically, one CO monitor outside or near each bedroom and on each floor.

Corner Stakes
It is very important to locate the corner stakes on the property and mark them with flag tape. The old stakes on the island can be in the shape of a coin or pipe or wood . . . . . If you are unable to find the clear evidence of property corners and property lines, a surveyor should be hired. Locating and marking the corners may discover any encroachments that may exist. A full survey will be in the range of $2000-$2500 for 4 corners and level terrain. Each missing corner is approximately $400. Buyers want to know what they are purchasing.

Easements
Make sure that if your property is granted or burdened by any type of easement, e.g., view; landscaping; access; or utility; that a proper, recorded easement exists. Verbal agreements are not valid in real estate.

Encroachments
If your neighbor’s fence or outbuilding is over the line on your property, this needs to be resolved. The remedies that the buyer, lender and title firm will be of accepting of include a license, a recorded easement, boundary line modification or removal of the encroaching item or use. If you intend to remedy via a license or easement, you should hire an attorney and insure that language is included that requires the encroaching party to waive their rights to future adverse possession of the affected property. A license or easement will be in the range of $500-$1,000 subject to the complexity and whether all parties are in full agreement. If a boundary line modification is the solution, then a surveyor must be hired and that will be in range $1800-$2000.

First Right of Refusal
If your property is burdened with a first right of refusal, you must disclose this to your agent and potential buyers. Ideally the first right is recorded on your property and of public record but some are “hand shake” deals between neighbors, ex-wives/husbands, and relatives and they can get inadvertently overlooked which can be a fiasco down the road. Make sure you understand how the first right is “ripened” and the likelihood of it being acted upon by the grantee. An attorney should be engaged if the agreement is unclear.

Final Building Permit
Per the boilerplate language contained in our purchase and sale agreements, seller is required to provide buyer with a copy of their building permit with final occupancy signed off within 10 days of mutual acceptance. A copy of the permit can be obtained by emailing lisab@sanjuanco.com. The department may charge up to $140 to research and then issue a copy to the property owners. If the permit final was not issued, an inspection from San Juan Building Department must be obtained and all work or repairs completed in order to secure the final. If the home was built prior to the existence of the Building Department, the home is grandfathered-in. If the home was illegally built without permits then a recreated set of plans and permit application must be submitted to the County. I would start by hiring a consultant for this type of project.

Forms Required to List
Be sure to request your agent to provide you with copy of the Exclusive Listing Agreement, Seller's Disclosure and all addenda so that you may review in advance at your leisure.

Guest Houses
Just because your outbuilding walks and quacks like a guest house, it may not be a legal guest house. Be sure to check how it was originally permitted prior to the marketing of your property. You can obtain copies of the building permits by emailing lisab@sanjuanco.com. Some structures on this island had a range/oven installed after the final studio or bunk house occupancy permits were issued. If your outbuilding was not permitted as a guest house, you must not market it as such.

Home Inspection
It is common in many markets for the property owner to obtain a home inspection prior to the marketing of their property so that they may correct any deficiencies that are reported. The report cost range is $500-$600. Unfortunately, the buyer may not use the same report unless it was ordered in their name; otherwise there is no recourse against the inspector so another report will be required.

Home Owner's Association
Be sure to gather information regarding your HOA including the dues amount, regularity, and what is included in the dues such as water, sewer, and/or road maintenance. Have the contact information available as escrow will need this to confirm the proration’s at closing. Be sure to disclose special assessments and/or High Speed Fiber loans.

Indebtedness
You need to know your total secured indebtedness. This includes your first mortgage and any other secured instruments. Agents will compile a list of your standard closing costs and those should be added to your total indebtedness. If the net proceeds are not adequate to pay off the indebtedness, you must bring in cash to close, or research if you are qualified to process a “short sale” with the lender.

Internet Speed
Most buyers want to know what internet speed is available at your property to make sure that it is suitable. You can download a free App called SpeedTest by Ookla and run a test on your property. If you already have fiber installed, be sure to let your agent know as they will want to include that in their ad copy to market your home.

List of Excluded items
Be sure to communicate with your agent the items that are not included in the sale e.g., your favorite mirror that is attached, your mom's light fixture, etc. Make sure those exclusions end up in the actual purchase and sale agreement. Just because the information is contained on the listing in the North West Multiple Listing Service (NWMLS), that is not part of the binding contract.

Owner Builder Permit Program
San Juan County is one of the few counties that allow for owner builder permits, which is not the same as owner contractor. If your home was built under the program after 1988, you are required to have the County perform a Life Safety inspection within 30 days of selling or renting the property. The cost of the inspection is only $111 and all repairs must be completed in order to obtain an acceptable final inspection. Fred will most likely be your inspector, so be prepared. . . . J

Repairs
It is prudent to repair any dangerous items before you begin marketing your home. Potential buyers with their family and agents will be walking around your property and to avoid an accident, you should repair those loose handrails and the wet rot in your deck boards. Posting signs on any unsafe areas on your property is helpful but making the repairs prior to marketing is the best avenue.

For big ticket items such as decks, roof or siding, it may be beneficial to obtain bids for the repair. These bids also aid in the pricing of the home and your decision to either make the repair prior to marketing or hope for a cash buyer willing to assume the condition of the home. Lenders require at least a 5 year roof life expectancy and will not lend with less. Obtaining that roof certification or bids for repair will save time and delays versus waiting until you are under contract with a buyer.

Road Maintenance Agreement
Be sure to have proper, recorded road maintenance and use agreement for your access. If one is not in existence, contract with an attorney to arrange for one. The cost range will be $500-$1500 subject to the number of users and cooperation. Not all of the property owners are required to sign, just the majority. Lenders require this document. To confirm if one exists check with Chicago Title 378-2126.

Seller's Property Disclosure Form 17
This form will be provided to you by your agent and is a uniform instrument created by NWMLS in compliance with the State of Washington regulations. You must complete the form to the best of your knowledge but the advice is to always disclose issues even if you footnote that they have been repaired. This is a disclosure that the buyer is presented with as well as the home inspector. It is not a representation or warranty and is not incorporated into the contract however, if an issue arises after closing and the result is litigation, the form 17 will be popular. If in doubt, disclose!! Don't forget those un-permitted outbuildings, critical areas or your Pinocchio dock. The form 17 is mandatory.

Service Provider list
It is very helpful to compile a list of your current service providers to share with your future buyer. On this island each property has unique systems that must be maintained, it is amazing how long your list will be. Often buyers will contract for a system orientation from the seller as part of the purchase and sale agreement.

Septic
Your septic system must be inspected by one of the county approved inspectors. They will determine if the system needs to be pumped and whether any maintenance components will be required. The County code requires observation ports, risers and other maintenance components be installed prior to any sale. Be sure to specify when you order the inspection that it is “for the purpose of a sale” inspection versus a standard. Cost is $99-$200 for the inspection and $600-$800 for a pump out. Maintenance components will vary.

You need to have a copy of your septic “as built” to evidence that the system installation was permitted with a final inspection. You can obtain this on-line at www.sanjuanco.com/health/septicinspections/septicpermits/ with your tax parcel number. You need to make sure that the system size is equal to the number of bedrooms you have in the house and other structures. A bedroom is defined as a room with a closet and a closing door. If your system is only a two bedroom system and your home has three bedrooms, you need to market the home as a two bedroom. It is not uncommon in the marketing ad copy to read that the home is a two bedroom plus a den with closet.

If you determine that a permit was not obtained during the installation of your septic system, you can hire one of the licensed designers to remedy the issue. They will inspect the system, size it, locate the drain field and other components and draw up a recreation “as built” and submit that to the county. I have had those done for as low as $300 and as high as $1500, subject to the service provider finding the system components. Many items on the island are grandfathered in but health and safety issues are not; seepage pits are illegal.

Showing Instructions
Be sure to communicate the showing instructions for the home for you and your tenants; no one likes surprises.

Utility Expense
Most buyers want to know what reoccurring expenses involved in ownership of your property. Having those details available will be most helpful. OPALCO will provide you with an average monthly and annual amount.

Vesting
All owners of the property must sign the legal documents required to list. If you use a power of attorney or the property is held in a Trust or LLC, those documents need to be submitted to your agent and the title firm.

Water Source Testing
Your well needs to be tested for quality which includes a bacteria test and a San Juan Short which includes testing for arsenic, barium, chlorides, sodium, electric conductivity, nitrate-N, and fluoride. The cost will be approximately $300.

Evidencing well quantity is also necessary. If you don't have your original well log you can obtain one from the State DOE website fortress.wa.gov/ecy/waterresources/map/WCLSWebMap/default.aspx The well log report indicates the depth and quantity via an air test at the time of drilling. You want to avoid the buyer being forced to complete a draw down test on your well as it can be hard on your well and to other wells nearby. The draw down will increase your risk for salt water intrusion.

If you had to purchase water at any time during the year, be sure to complete Paragraph 2 section A-4 on the seller's property disclosure accordingly. Don't be on the wrong side of a water quantity issue.

Wells - Shared
You want to be sure that you have a proper, recorded well agreement for all parties using the well which includes a maintenance provision. Wells with three or more properties being served require additional language, restrictions and County approval. If no agreement exists, I would contact an attorney. The costs will be in the range of $300-$1000 subject to the number of participants.

Wetlands
You need to determine if you have wetlands on the property so that you can disclose to the buyer their existence. You can determine this by using the County site sjcgis.org/ps2/default.aspx. Search by tax parcel number then add map contents and mark critical areas including wetlands. If the program maps wetlands on your property they will have an impact on any future owner that intends to remodel or construct an outbuilding as setbacks may be imposed. If the wetland is a high value type, a delineation and survey may be required prior to any construction on the site to determine the setbacks. Cost to delineate is in the range of $3,000-$6,000.

Waterfront Home

Archeological Sensitive Areas
If you are on the waterfront it is quite possible that your property contains archeologically sensitive materials such as Indian Midden. You need to disclose this to any prospective buyer as they may plan to disturb the soil in the future through a remodel or landscaping, the presence of Midden will have a huge impact on their costs. If archeological sensitive materials are found on the property, no soil disturbance can occur without the presence of an archeologist standing by. They will monitor and audit all materials. If something is found that they determine is valuable, the job will be suspended until further research can be conducted and contact made with the State and Tribes. Not just waterfront property may be impacted by this regulation; properties across the street may be in the 500 foot buffer area of an actual site of sensitive material. Properties located near cemeteries are subject to this regulation as well.

To find out if you have archeological sensitive areas on your property, you can email nadinec@sanjuanco.com with your tax parcel number. She will respond with an email to confirm whether you are in the designed site area or buffer areas. Should your property be in an area or buffer, the buyer will need an archeological study processed on the property prior to closing. The cost of the report is in the range of $3,000-$6,000 subject to whether materials exist.

Flood Insurance
If you live on the waterfront your home may be located in a designated flood zone. You may have existing flood insurance if you are in a flood plain and used an institutional lender. In order for a future buyer to obtain flood insurance, you will need a flood elevation certification even if you were insured in the past without one. This document is required by all flood insurance firms as it confirms if the improvements on the property are above the flood plain and determines the type and amount of coverage that the lender will require. If the buyer is not using an institutional lender, they may elect to waive flood insurance. The cost of the flood elevation certificate from a surveyor is in the range of $1700-1800. The time frame to process a flood elevation certificate is at least 30 days.

Flood Insurance Waivers
If you are in a flood plain and flood insurance is required, you may also obtain a Letter of Map Amendment (LOMA) which allows you to remove a portion of your property out of the flood plain and cancel your flood insurance if it proves to the lender that the improvements are above the flood plain and at less risk. Surveyors estimate that about 90% of the San Juan properties are eligible for a LOMA. Flood insurance is very expensive as the government no longer subsidizes the FEMA program due to major losses throughout the country. To obtain a LOMA a surveyor must be hired and the cost is around $2200. The time frame to process a LOMA is at least 45 days.

Docks
You should obtain evidence of your dock permit from the SJC building department. If your dock was constructed prior to the department's existence you are grandfathered-in. If you own a shared dock, be sure that you have a proper, recorded dock use and maintenance agreement. If you need one, an attorney can draw one in the range of $500-$1,000

Dock Disclosure
Be sure to disclose if your dock was permitted and if the extension was a Pinocchio or legal. At some time in the future, the county may decide to enforce compliance with the dock permits and you want to be on the right side of that issue.

Unimproved Land

Water source
If your property is located within a plat with a community water system it would be good to confirm the amount of the water hook fee and monthly base fees.

If your property is on a shared well, be sure that a proper, recorded well use and maintenance agreement exists.

The days are long gone where a buyer will purchase an unimproved parcel without the well being installed and seller being able to evidence quality and quantity. All lenders require a water source be determined and buyers are just not willing to take the risks.

Power
If the most logical building site is a long distance from a transformer, it would be beneficial to contact OPALCO and determine the distance and what all they will require to hook up the proposed property. Once their specifications are determined, a bid can be obtained from an excavating contractor. The amount of this improvement is important as it aids in determining your sales price plus the transaction is not delayed waiting for the buyer to process the information while under contract.

Residential Pre Approval
If your property is on the waterfront or contains wetlands, the only way for a buyer to confirm where they can build, the location of the “no touch zones”, what trees can be removed and the allowed location of their utilities and outbuildings is to obtain a RPA. Most buyers will want this processed prior to a closing and will request a longer than normal escrow period. The cost range for the buyer is $800-$1500 and various consultants on the island process these. These are not binding so regulation changes void the approval. The only way to bind the County’s approval for proposed construction is to have a fully completed application for a permit on file; the safest way is to have the building permit in hand.

Once the Shoreline Management Program (SMP) regulations are in effect, it may be beneficial for sellers to obtain a RPA for the purpose of marketing their property. Any RPA processed at this time prior to SMP will be a waste of time and money.

If this list of potential issues is overwhelming, take a deep breath and contact a good agent. Realtors assist property owners regularly with all of these issues and their experience will help you process everything as painlessly as possible.

Recommend Service Providers:

Attorneys: Mary Stone 378-6778, Chris Skinner 378-2191
Surveyors: Robert Wilson 378-4300, Robert Anderson 378-5072, Andy Holman 378-0338
Septic Inspectors: Craig Starr 378-8070, Ted Lieker 378-7255
Septic Designs: Jack Cory 378-4900, Rick Pietro 376-2762
Home Inspectors: Tim Hance 298-1163, Darrol Scheffer 378-4969
Pest and Wet Rot: Jack Cory 378-4900
Well: Al Mauldin 378-6975, Martel 378-2842l
Archeology firms: Garth Baldwin 360-739-2451, Cascadia 206-366-0337
Appraisers: Mike Parades 378-5474, Mike Aikens 360-424-0331
Wetland Specialist: Scott Rozewood 468-4448, Mindy Kayle 376-5110

If you read this entire article, thank you. I apologize for the length but there are no shortcuts in real estate.




San Juan County Waterfront Parcels

12/29/16


IG-Merri_Ann_Simonson-3 (21k image)By Merri Ann Simonson
Coldwell Banker San Juan Islands

If you own a waterfront parcel in the County, or hope to purchase one, I have detailed below some items to take into consideration. Historically, waterfront parcels were the most coveted investment in the islands but due to ever changing regulations, they are now the most confusing parcels to develop. For REALTORs they can be a challenge to sell due to our inability to give buyers concrete answers to their questions while on site.

Important Considerations


Timing
Once you purchase a waterfront lot it is prudent to move forward with your plans as soon as possible as the regulations in the future may change and what you had hoped to build at the time of acquisition may not be approved in the future. The County has said they will never render a parcel unbuildable but regulations may restrict the size of residence and dictate the location of where you can build on the lot.

Residential Plan Application (RPA)
This is a conceptual approval of the footprint for the residence under the rules that exist at the time of review. While the RPA report is non-binding on the County, constructive reliance can be used for planning your new home including the home site, setback, tree removal, the location for the driveway, and well and septic, if applicable. This is a valuable tool to utilize upfront so that your design team and contractor have solid direction from the County early on in the process.

Your designer or architect may process the RPA for you as part of their service. If not, you can hire a land use consultant. The cost to process an RPA with a land use consultant is around $900-$1400 which includes County fees.

As an RPA is not binding, and in light of proposed regulation changes, one should only be used for near term planning. Currently the Shoreline Master Program is being updated and the likely 2017 implementation may change shoreline regulations, possibly voiding some conclusions from an existing RPA. In order to bind or vest your project under the current rules, a complete permit application must be submitted to the County. Once the application is deemed complete that becomes the effective date prescribing which version of the regulations applies.

Shoreline Setbacks
This is a difficult topic to address. The Critical Areas Ordinance (CAO) was approved in 2013 and significantly altered the setback regulations by placing the majority of the shorelines in the County into a Critical Areas designation. In addition to the CAO regulations impacting shoreline properties, the Shoreline Master Program, as mentioned above, is currently being reviewed for adoption and could place further restrictions on shoreline development. The Shoreline Master Program dictates land use within 200 feet of the shoreline. While some key elements of these regulations are under legal challenge, they remain binding and in effect.

Basically a very simplistic definition of the current setback regulation impact includes there being a “no touch zone” in the first 35 feet from the shoreline, although a 5 foot trail to the beach is permitted. Only dead, dying and dangerous trees may be removed in the area located behind the first 35 feet to a total of 110 feet from the shoreline. It is possible to brush and clear for view and fire protection in the 110 foot zone and it may be possible to build between 110 and 75 feet if you have a forester design and the clearing planned will have a minimal impact to healthy trees.

The home site will most likely be established around 110 feet back from the shoreline. It is also possible to average the 110 foot setback for certain, very specific reasons.

Due to the individual geometry of each lot, the geological conditions at the water’s edge, the adjacent property home sites and the amount of vegetation available for consideration as screening, each setback can vary. One size doesn’t fit all, and given the complex and somewhat subjective nature of shoreline setbacks, we recommend obtaining professional advice to assist in planning your project.

Property Survey
It is always prudent to have the corner stakes properly identified for any construction project but it may be more important on the waterfront. If you don’t know the lot line measurements, you may design a 65 foot wide home then find out you may only build a 50 foot wide home if the shoreline is only 100 feet. Having a survey will also confirm any encroachments and other issues that you may need to address.

Tree Removal
A tree removal permit is required for any tree removal work done in the shoreline (200 feet from the water’s edge) When tree removal is a necessary part of construction, trees to be removed must be clearly noted in your plans submitted for your building permit. Your plat Covenants, Conditions and Restrictions (CC&Rs) may also have an impact on your tree removal plan. If the plat CC&Rs are more restrictive than the County, they override the County regulations and guide the process.

For shoreline properties with existing development, tree removal may only be done with a standalone tree removal permit. Consultation with a certified arborist is recommended to discuss the condition of your trees and how the shoreline regulations would apply.

A tree removal plan will catalog and locate all trees on the lot and identify those designated for removal. Basically, to retain view, the County does allow 4% trimming per year or 40% over a ten year period. Good luck with figuring out the calculation, you may want to consider hiring an arborist to calculate the 4%.

Building Plans
Having a clear, complete plan set is an essential early step in the process of building your new home. You may select an architect or designer to work with or engage one of the several general contractors on the island that provide design services. The design process should include working with an engineer for the structural elements of the design.

The plan creation process is typically 4-6 weeks or more. The fee range is too wide to quote as it depends on the complexity of the design and whether the service provider stays involved and conducts the inspections during the course of construction.

Builder
It is prudent to interview several general contractors and find one that is compatible with you and your goals. A new build or significant remodel can be a lengthy process and it is not always about the pricing, it is important to find a general contractor that you communicate well with. Your REALTOR, architect or designer will have suggestions. Obtaining bids may take another 30-90 days as the contractor will bid out the major components with their subcontractors. On certain types of jobs, contractors will only work for time and materials as the homes are just too complex.

Permits
The architect, designer, land use consultant or your contractor can submit to the County for permits. You may submit your plans directly as well. That process is quoted by the County at 10-11 weeks but further time may be needed depending on the complexity of your home design and completeness of your package.

Many factors come into play at the San Juan County building department. The County provides a detailed checklist for each type of permit. While comprehensive, the volume of paperwork and order of operations may be overwhelming to someone unfamiliar with the County’s process. Your file travels through several departments with each reviewing their component and hopefully issuing approvals. The components include, but are not limited to; water source and testing, septic permit, storm water management plan, energy study, engineering, lot lines and corner stake confirmation and possibly an archaeological or geological study.

Archaeological Sensitive Areas
Cultural resources are evidence of past human activities. It is not uncommon for waterfront lots to have items of cultural significance or be located in the buffer zone of an existing identified site. In order to confirm whether the lot you own or are considering purchasing has archaeologic sensitive areas, a property owner must contact San Juan County. Due to preservation and protection of the sites, the maps are not of public record.

Flood Insurance
As you may be aware, the majority of our waterfront properties are designated as being in the flood plain as determined by the current Federal Emergency Management Act (FEMA) maps. What you may not realize is that almost 90% of the homes and other structures, when further analysis is done, do not actually require flood insurance. Contacting a surveyor to process a Base Flood Elevation (BFE) for your property should be on your checklist. The fee charged by the Corps of Engineers is in the range of $105-$350, subject to previous determinations in your immediate area and it typically takes 3-4 weeks. Base Flood Elevation certificates are required in order to obtain flood insurance and are also used to obtain a Letter of Map Amendment (LOMA) which is required to waive flood insurance. Processing a LOMA will be in the range of $2200-$2500.

Budget
Again this topic is very custom and will depend on the type of home you plan to build and your building site. I know of some contractors on the island that can build for $175 per foot but that would be for modest construction. I know of some homes that have been built on the island for $1,000 per foot. Your budget needs to be established then monitored with every change order processed.

Site Development Costs
You should budget around $25,000 for a septic system installation and $20,000 for well drilling and associated plumbing with a bit more if you plan on a water storage tank and a well house for all of the equipment.

Utility line trenching will vary due to length and terrain, but typically the excavation costs run $4.50 per foot unless you hit rock then it can be as high as $15.50 per foot. Don’t forget to drop optical fiber in the trench for future use.

For your power, you can contact OPALCO and have them locate the closest transformer to the building site, then provide you the distance that the trench will need to run. This allows you to bid out the secondary power line installation with the local excavators.

Of course it is easier to have your general contractor include the site development costs in their bid or estimate.

Professionals
I highly recommend hiring professionals at the start of your project, not that our County employees aren’t pleasant to work with and always helpful, but the regulations can be confusing and consultants work with the County on a regular basis and are more familiar with the procedures.

Construction Loans
You can obtain a land loan to acquire the lot then once you have your plans, builder, costs and permits, you can apply for a construction loan. It is convenient if the seller will provide financing for you for a short term such as 1-3 years. Seller provided financing can be less expensive than a land loan at a lending institution as the rates are closer to 5-6% and there are no loan fees. Banks had a high level of defaults in their land loan portfolio so they currently charge a premium to fund land loans.

The construction loan can be a combination of construction term that will roll over into a permanent loan. You can set the construction period at 6-12 months with the remaining 29 years being the permanent loan portion. During the construction period of the loan, the bank will make regular inspections and disburse your funds based on a percentage of completion. Once the home is complete and loan fully disbursed, they roll it into the permanent loan terms.

Builder’s Warranty
Many property owners believe that Washington State requires a one-year builder’s warranty on new construction, this is not correct. However, most builders will stand behind their product in order to maintain a good relationship with their client and future referrals.

Conclusion
Other than dealing with the shoreline regulations addressing tree removal, setbacks and a higher likelihood of having an archaeologic area, there is no difference in the process as compared to building on an interior lot.

Once the existing home inventory on San Juan is absorbed, buyers will determine that building a custom home may be their best option. Their ending product will be exactly what they want and we currently have ample inventory of land for sale at great prices. Waterfront lot sales have been slow over the last few years due to the lack of recovery from the recession and regulation changes; now is a good time to purchase a waterfront lot.

Recommended Professionals:

Casey Baisch 317-5559 Tree removal, Arborist
Jack Cory 378-4900 RPA, Permit Processing, Septic Design, Home Design
John Geniuch 317-6741 RPA, Tree Removal Plans, Permit Processing, Arborist
Francine Shaw 378-6278 RPA
Bob Quarry bobq@thepermitcenter.com RPA, Permit Processing

If you need a reference for archaeology, construction lenders or general contractors, please be sure to contact me.

Merri Ann Simonson
Coldwell Banker San Juan Islands Inc
360-317-8668
simonson@sanjuanislands.com




ALMOST EVERYTHING YOU WANT TO KNOW ABOUT SEPTIC SYSTEMS

12/29/16


IG-Merri_Ann_Simonson-3 (21k image)By Merri Ann Simonson
Coldwell Banker San Juan Islands

As a Real Estate Agent, we are constantly learning and then sharing our knowledge with our clients. We must even expand our knowledge into some related industries that are not comfortable to discuss with a client, such as septic systems and their functions. The real estate industry isn’t just cars and contracts; it includes other really interesting stuff as well.

SEPTIC DESIGN AND INSTALLATION. The process starts off with unimproved land. A property owner or buyer must find out where on their site they should install the system and what type of system will be required by State regulations. There are various types of system options to select from. The latest technology includes systems that are considered mini sewage processing plants. Those manufactures claim that the effluent is nearly potable by the time it is pumped to the drain field. I am not convinced to that level but my opinion is based on the “ick factor” not science.

The system selection process includes hiring a licensed on-site designer who will complete a site and soil analysis and submit a design to the County for their approval and permit. The permits have a validity period of four years and the cost is around $1,250. The two most commonly used designers are Jack Cory 360-378-4900 and Rick Petro 360-376-2762. A full list of approved designers is available via the link shown below.

fortress.wa.gov/dol/dolprod/bpdLicenseQuery/lqsSearchResults.aspx

If the parcel is under a Purchase Agreement, the design and permit process is typically done by the buyer as part of the Feasibility Contingency, which is processed prior to closing.

Another aspect of the Feasibility Study is to confirm that any portion of the property is not located in an archeological sensitive area such as Indian Midden or near a cemetery. If the property does contain sensitive materials, you need to know where they are located. To confirm this information you need to contact Nadine Cook at San Juan County at 360-370-7585. Being located in an archeological sensitive area will add thousands to the cost of installing a septic system as reports must be filed and an archeologist must be present during installation.

All new systems are required to have a reserve drain field area in the event the first drain field fails. This can be difficult on smaller lots that have other restrictions such as being on the shoreline. Further, some lots are unbuildable due to inability to install a septic system; they become buffer or recreation lots. Their value is typically 50% of market.

The system is installed by an excavation firm licensed for installation. The service provider should be screened based on the type of system to be installed. Asking your designer for a reference is a good plan. The cost to install a new system will vary based on the type, size, and conditions of the site; the range is $10,000-$40,000, with the typical being $22,000-$25,000. It is prudent to photograph the site during the installation process so that you have documentation on the component locations; this makes servicing in the future easier. A list of installers is available via the link below:

www.sanjuanco.com/Health/docs/EHSWaste/Certified_Installers.rtf.pdf

The size of your system is required to be designed and installed as per your home building plans; i.e., the number of bedrooms in the plans should match the size of your system. Years back, some property owners felt that the systems were over engineered; hence the practice of building a 3 bedroom home with a 2 bedroom septic system presented itself. The result of this faulty logic is notable when a property owner decides to sell and markets the home. Real Estate Agents are only able to advertise the maximum number of bedrooms per the septic permit, not the floor plan. These rules impose creative marketing remarks such as “home offers 2 bedrooms and a den with a closet”. This lack of detail impairs the marketing of the home. Of course, if you have a 7 bedroom system and a 3 bedroom house, the marketing remarks remain at 3 bedrooms.

If you want to check the size of your system, you can find a copy of your permit at the County site that is shown via the link below. If your system is older, and the permit fails to disclose the number of bedrooms in the text, you can usually rely on the permit number. The last numeric digit of the permit number represents the size the system was installed for, i.e., Permit Number 2004-052-R3 is a 3 bedroom system.

www.sanjuanco.com/health/septicinspections/septicpermits/.

INSPECTIONS. The County is mandated by the State to enforce the monitoring and regular inspections of septic systems. The frequency of the inspection is based on the type of system you have and varies from annually to every 3 years. The County does this by mailing out post cards that suggest it may be time for your septic to be inspected and pumped if necessary. Most property owners promptly file the post card in the “to do” pile which often doesn’t get “to done”.

When a property owner lists their home for sale, they are advised by their Coldwell Banker San Juan Islands agent that pursuant to SJC ordinance 8.16.160, a septic inspection is required and a pump may be necessary. A seller must evidence the compliance of their system to a buyer as part of the purchase contract. The evidence consists of a copy of the report completed by the inspector and a copy of the receipt for upgrades, repairs and pumping, if applicable. The purchase contract requires that the evidence must be less than 12 months old, however; if a lender is involved, the evidence may need to be less than 90 days.

An inspection is also necessary should a property owner apply for a remodeling permit. The cost of an inspection is in the range of $95-$300 and will vary subject to the type of system that is being inspected.

Further, if you are listing your property for sale and your system is older, the inspection results may require you to upgrade the maintenance components to become compliant. Required updates may include: access risers on tank and pump chamber, access risers on distribution box, observation ports, and clean-outs on laterals, audible alarms and effluent filters. Cost to upgrade your system is in the range of $300-$2,000, subject to the amount of work.

Cost to pump your tank is in the range of $750-$1200, subject to size of tank. As you may be aware, the content of your tank is disposed of off island which has a direct impact on the cost to pump. The inspectors do not recommend a pump out until the accumulated solids reach a determined threshold, which may range from 25% to 40% of the working depth of the tank, in most tanks that equates to 16 inches. Ultimately, unless a third party is involved, such as a lender, the decision to pump out is at the homeowner’s discretion. When the levels reach the threshold, a pump out is highly recommended as part of proper operation and maintenance.

Generally, most systems installed after year 2000 have the required maintenance components. The two most commonly used inspectors/pumpers are Ted Leiker 622-6338 and Craig Starr 378-8060. Both of these service providers can also install the maintenance components if needed. If the upgrades require a backhoe, then additional excavation contractors are hired. The complete list of licensed wastewater inspectors is available via the link below.

www.sanjuanco.com/Health/docs/EHSWaste/Certified_Pumper_-_Inspectors.pdf

INFORMATION SOURCE. The County now has a great website for searching septic inspections and permits by tax parcel number. The site is very convenient for agents to use when representing clients as all historic inspections and permits are filed on the site and therefore accessible throughout the day.

www.sanjuanco.com/health/septicinspections/septicpermits/.

DO-IT-YOURSELF INSPECTIONS. If you want to thoroughly understand how your system functions, you too can become a septic inspector for your own system. Do-it-yourself inspections are not allowed on the fully self-contained units such as the Advantech systems. Those must be inspected by one of the licensed designers on an annual basis due to the high level of technology. However, the Whitewater system may be self-inspected, if the property owner has taken the County class and been approved by the local Whitewater representative.

It is recommended that you do not conduct a self-inspection if you are processing it for the purpose of a sale on your property. That final inspection should be left up to the professionals due to the liability associated with do-it-yourself inspections and purchase contracts. Further, the County will not accept homeowner inspections for those inspections done as part of a real estate transaction.

If you desire to conduct your own inspections, classes are taught regularly at the County. You can contact the Health Department at 378-4474 to reserve your place in the class.

SYSTEM FAILURE. If your system fails, you will typically be granted a repair permit. Failed septic systems cause great damage to our environment so the repair permit process is regularly expedited. Systems fail for a variety of reasons; a few of the most common include surface damage, roots, lack of maintenance, and the worst is toilet paper and grease.

We can’t consider all aspects of a septic system without a riveting discussion about toilet paper. I know that TV ads claim that “Brand X” is great for your bum but it is a major problem for your septic system. Any of the soft cushy brands may fill up your tank. The thin types that break down easier may cause problems for your drain field. One expert was quoted to say “you should select a brand like Goldie Locks, not too thick and not too thin”. One should note that it is less expensive to pump out a tank than it is to repair a drain field.

Other preventive measures include using your garbage disposal sparingly, (if at all) use environmental safe bleach and cleaning products, don’t flush or rinse your paint equipment into the system; even water based paints are a problem. Don’t let a leaky toilet or faucet saturate your system. Protect your drain field from groundwater with a curtain drain that diverts the water. Don’t plant deep rooted shrubs or trees on or near the drain field or tank. Just like a boat, don’t flush anything not eaten first. Don’t pump unless needed.

The goal is to not kill off nature’s bacteria. There are numerous additives marketed for septic systems which according to some experts are a waste of money.

All newer systems that have a pump also have an alarm that lets you know immediately if your system is unhappy 24-7.

REMODEL. If you desire to enlarge the size of your system, it is a fairly easy project as long as the soil conditions support the expansion. Further, if your system is non-conforming due to location or age, it will be possible to repair should the need arise, but you may not be able to grow the size as that will increase the non-conformity, unless a different location on the site is available that will meet current code requirements.

I know that reading an article about septic systems and their functions isn’t the best entertainment but it is important that property owners and buyers understand the importance of the systems. Unless you live in town or at the Roche Harbor Resort; you are served by an on-site sewage system.




Rental Investment Options For San Juan Island

12/5/16


If you are contemplating buying a rental investment on island, one of the Roche Harbor Resort homes or parcels should be on the list for consideration.

I believe that the properties in the resort and nearby fared better through the recession. In 2005 I purchased a two bedroom rental house in the resort and have been very pleased with my investment. On San Juan Island our prices peaked in 2007 and reached the floor in 2013.

During that period our median home price decreased 30%. We have recovered since then and in some pricing categories of our market, we may soon be able to measure appreciation. As a REALTOR, I have noted that homes and parcels in and near the resort sell at a higher percentage over their tax assessment than other homes on the island. As an example, I paid $534,000 for the two bedroom rental home in 2005. If I add two additional years of average appreciation of 6% for 2006 and 2007, then calculate the 30% discount to market value due to the recession years, my house should be worth around $425,000 today, which is not the case. I recently had my home appraised and the value issued was $675,000. I can personally say that Roche Harbor properties hold their value in tough years.

The resort hosted over 105 weddings in 2016 and the majority of the wedding party and their guest stay at the resort in the rental homes, the hotel and other suites that the resort offers. Most of the families prefer to stay in the rental homes as they accommodate a larger group to include grandma and pa, and the rest of the family. The homes offer outdoor entertaining areas and are more cost effective when you consider the nightly rental rate is divided up by the number of couples staying in the house. This year larger homes have been the most popular in the rental pool.

The resort is also growing the shoulder season with various events such as sail boat races, boat club rendezvous, fishing derbies, and offering get-a-way packages at off season rates. They also attract companies looking for a retreat out of the city, family reunions, photography workshops, and bicycle tour groups. In addition they host an Irish music festival in the spring, church retreats, and bird watching groups. Locals and visitors alike enjoy the very popular Stage Left Productions which is at the outdoor theater.

Occupancy has been increasing steadily since 2005; however, will vary annually based on the amount of similar homes that are available for rent at the resort. For average occupancy days see the table below.

RENTAL POOL
In the resort 50% of the existing homes are in the rental pool, the balance of the homes are primary residences or second homes. The rental pool generates a good income for the homes and is similar to the operation of a VRBO with Roche Harbor handling all of the reservations, website, light maintenance and cleaning. Their management structure is similar to a hotel with nightly cleaning if requested. They also stock the kitchen with dinnerware, glasses, and small appliances so that the items that are damaged can quickly be replaced with matching equipment and they provide all linen. The property management team at the resort does a very good job of providing a high level of customer service. They offer the least amount of owner involvement in the management as compared to other property management firms on the island.

The owner may remove the home from the rental pool at any time for owner use with notice and payment of the cleaning fee. Of course, heavy owner use will have an impact on the net operating income.

Below is an outline of the income and expense proforma for each type of home in the rental pool. Roche Harbor charges a 49% management fee as the homes are operated very similar to a hotel. Utilities are similar to any other home on the north end, but if the home is in the rental pool, as in the case of any vacation rental, commercial insurance is required which is more expensive.
At the resort the occupancy of the homes is more consistent than those homes offered via VRBO, owner managed or those with the private management firms on the island. The resort creates occupancy versus only responding to inquiries on their website as well as they have many return clients for the various events.

cbc_NewLetter_2016_RH_chart_1 (167k image)

The homes in the resort enjoy all of the resort benefits including access to the pool, boat launch, and tennis courts and convenience to the marina, restaurants, retail shopping and spa.

ZONING
The resort zoning is designated as a Master Planned Resort with the intended use of nightly occupancy at the marina and in the residential units at the resort as well as a wide range of commercial activities. This zoning insulates an investor from any changes or challenges that the County or State may create in order to regulate the VRBO, Air B&B and/or B&B industries.

FINANCING
If you intend to buy an existing home and use it as a primary residence or second home, conforming financing is available at your favorite institutional lender. If you intend to place the home into the rental pool, then you need to seek out a portfolio lender and may need to secure a loan based on the income produced. A portfolio loan is typically slightly higher in rate and may be fixed for 3-5 years but then may adjust annually. These terms are set by the bank as these loans are not sold into the secondary market to FHLMC or FNMA.

The income property loan will require a debt service ratio of at least l00%, if not more, subject to your overall package. Basically, the property must be able to service all of the expense and debt without requiring owner contributions. The property and the income flow are the collateral for the loan. This equates to a lower loan-to-value ratio than a conforming loan, most likely under 50%.

I used my self-directed IRA to purchase my investment along with a non-recourse loan to the LLC that holds title to the house. I personally partnered with my IRA to purchase the property which allows me to management the LLC and associated bank account versus having to pay a custodian which would have been normally required due to the IRA involvement.

If you are just interested buying a parcel, seller financing is available for short term; under 5 years at 5% with 25% down. This type of loan is a bridge allowing a property owner to contract with their development team and arrange for a construction loan and secure permits. Once the construction loan is ready to proceed, those funds are used to pay off Roche Harbor’s loan.
Just in case you guessed, I am a recovering lender. I worked in the banking industry for 19 years before coming to my senses and becoming a REALTOR on San Juan.

PARCEL SALES
The lot sales in 2016 and 2015 were very strong with most of the higher-end lots selling. Several of the homes sites are now under construction and several have plans to start in the near future. As the high-end homes are built along the ridge, the resort will have more depth and diversification. The listing prices for the lots include water and sewer hookup fees with telephone, power and fiber in the road.

HOME DESIGN
Roche Harbor has a Pattern Book which establishes the image and character of the houses designed within the various neighborhoods of the community. The Pattern Book assures the scale, details and continuity of style throughout the overall Roche Village. The Pattern Book outlines the setbacks and site conditions that control the maximum square footage size of the home; there is no minimum home size.

What you decide for your interior floor plan, as long as it is within the framework of the Pattern Book, is completely up to you. If you intend to submit the home into the rental pool, the Roche Harbor Property Management staff and their REALTOR are available to consult on efficient and effective floor plans.

The Roche Harbor Town architect works with the owner, architect, designer, and contractor in monitoring the design process for compliance with the Pattern Book throughout the design and construction process. To ease this process, the team has several checklists to aid in compliance and communication.

If you plan to construct a rental house in the resort, you should budget $275-$300 per foot for the cost to construct, although several homes in the resort have exceeded that range. In addition, you need to have a budget for landscaping, furniture and personal property that meets the expectations of a high-end rental client.

DISCLOSURE
As you may be aware, I am also Roche Harbor’s REALTOR but I write this article with my personal experience in owning one of the homes since conception and proudly recommending this type of investment. I feel very confident in the future of the resort, so much that I purchased a lot and plan to build another rental investment in the next few years.

As always, I must disclose that the proforma above is only a summary of the average of the income and expense associated with the rental of a two, three or four bedroom home in the Village. Actual gross income will depend on numerous variables, including size of home, location, season and the economy. Net income is also dependent upon variables such as mortgage amount, interest rate, taxes, maintenance and utility costs. Maintenance for the home and landscaping expenses vary and should be considered as well. This proforma is not intended to be a pledge or promise of net income from placement of a home in the rental pool.

There are numerous parcels listed for sale as well as several resales of existing homes. See the links below for more details.


Merri Ann Simonson
Coldwell Banker San Juan Islands Inc
simonson@sanjuanislands.com
360-317-8668

Link to Roche Harbor Questions and Answers Form.
http://www.sanjuanislands.com/PDF/RocheHarborQA.pdf

Link to Homes and Lots currently listed at the resort:
http://www.matrix.nwmls.com/DE.asp?k=2966929XWCWZ&p=DE-70345492-997




Vacation Rental Versus Long Term Rental

4/14/16


IG-Merri_Ann_Simonson-3 (21k image)By Merri Ann Simonson

Now would be a good time to purchase property held for investment and due to market conditions, a rental home in the San Juans would be the most appropriate. We are not like the metropolitan areas nearby with multiple offers on every property and robust appreciation; we remain in a buyer’s market in most categories of property.

Once you have made the decision of the type of property to purchase, then how you intend to use that property is the next process; vacation rental or long term rental. To assist you with this process, I have compared the different aspects of each below.
Vacation Rental General Description.

Buying a home with an existing permit, customer list, website and income history is the most preferable avenue. The permit for a vacation rental runs with the land. It is annually renewed automatically but can be voided by the County should the home not be used as a vacation rental within the last 12 months.
The cost to obtain a vacation rental permit can be as high as $1400 which includes the consultant that will process the application and the County fees. The process requires the corners of the lot be well marked, which may require a survey if you are not able to locate them. The application requires a current water test, if on a private well and recent septic inspection. The owner must evidence adequate parking and access roads to allow for fire protection and emergency vehicles.

The owner or manager should publish rules of conduct for the individual home as well as a telephone list of emergency and contact numbers.

The County does not have rules or regulations to guide the occupant’s use, however many homeowners have developed their own set of rules, such as being respectful of the neighbors, recycling and water use conservation suggestions. The County does restrict head count based on a maximum of three people per bedroom for occupancy and a total allowed for gatherings. Some homeowners have a pet restriction as well. Providing details of operation is advisable, especially for appliances and systems.

The most desirable properties include waterfront homes, homes with docks, hot tubs, pools and those that offer gaming tables such as a ping pong or a pool table.

Most any property is eligible for a vacation rental permit however there are some exceptions.

• If you are in town and on town water, vacation permits are not allowed unless you are commercially zoned.
• If you are in the County and hooked up to town water, vacation permits are not allowed.
• Many plats contain a provision in their Covenants, Conditions and Restrictions which prohibit vacation rentals.
• If you have a home and guest house on one parcel, one of the structures must be owner occupied or have a long term rental, you may not have individual vacation rentals in both structures.
Long Term Rental General Description

A non-transient rental property is described as a rental occupied by a tenant on at least a month-to-month agreement or a term lease. The typical lease is for 12 months and will terminate with notice at the end of the term or convert to a month-to-month until terminated. Notice of termination is normally given in the range of 20-60 days.

Some plats have Covenants, Conditions and Restrictions that restrict against occupancy by a long term tenant, but very few. The Oaks manufactured home park on San Juan is an example, but they also have an exception for homes on the market.

Income and Expense Review

Most property owners will consider the net income calculation for each type of rental as their decision maker. For the example shown below, I used a three bedroom, two bath home with approximately 2000 sf and a water view. The home is valued near $550,000 and has a well and septic. Per the vacation rental calendar on a similar home, the rent range is from $275 to $325 per night subject to the time of year. I used the calendar schedule of varying nightly rates and 128 days of occupancy which was generally the end of May through September.

Proforma for Vacation Rental Versus Long Term Rental for 12 months


R-cwb_MAS_Chart_Rentals-001 (24k image)



Maintenance and Repairs

The overall property maintenance will be more for a vacation rental as the property grounds must be mowed and tidied up regularly. Repairs will also be higher for a vacation rental as the tenant is less likely to be familiar with the various systems and operation of the home versus a long term tenant so damage may occur, requiring regular maintenance. The property management firm bills out repairs at $50 per hour and cleaning at $35.

The general types of repairs would be similar, although a long term tenant may be more accepting of a broken microwave versus a vacation tenant. It is not possible to include the analysis for maintenance and repairs in this article unless I had the data on a home that was a vacation rental for one year then a long term rental for the next.

Proforma
In the proforma above for this typical home, it is more favorable to rent under a vacation rental situation, but if one takes into consideration the wear and tear associated with luggage, coolers and smuggled in pets, these items may tip the scale.

I also did the analysis on a waterfront home with dock and guest house and the numbers are shockingly different and strongly favor the vacation rental. Of course each type of home will warrant a different rental rate, but the breakeven point appears to be a home valued around $450,000. Further, homes near this price range rarely have docks, pools and recreation areas which are an attraction to the vacation tenant. Income and expense for homes below the breakeven price point should favor the long term tenant scenario and those above should favor the vacation home.

One should note that a waterfront home with dock and guest house is not the typical long term rental property that is being sought by a resident that works on the island as the rent would be in the range of $2,500-$4,000 per month on a lease.

Other differences include the following:

Property Management
Vacation
The management for a vacation rental is very complex. They are running the home similar to a hotel and are on call 24-7. The management fees vary subject to the level of service but the range is 30-35%. They operate a website that showcases the property, most feature it on Vacation Rental by Owner (VRBO), make reservations, collect rent, deposits, and prepare the home for each tenant. They must make immediate repairs as needed and have repair persons and cleaning people on staff or 1099 contractors at their beck and call. The firm is not required to have a Washington State Brokers license or Trust account for the deposits.

Long Term
The long term rental management can be a phased management. You can hire them to run ads, screen and credit check the tenant, write the lease and collect the first month’s rent, damage deposit and last month’s rent, and then end their services. This first phase of the service charge is typically equal to the first month’s rent. If you want full service, then they would also collect the monthly rent and provide any notices and administer final departure services required with the tenant. They monitor the condition of the property during the tenant’s occupancy. Typical fee is equal to the first month’s rent plus 10% monthly thereafter. The firm must hold a broker’s license and have a trust account for funds.

Self-Manage
As a property owner you may self-manage a property and avoid the management fees. However, you must be willing to complete all of the necessary functions. The lure of a lucrative investment is strong but the romance of it ends quickly once you must go out and unplug a toilet in the middle of your own dinner party. I have interviewed many property owners who started off as self-managed and soon changed their approach to hiring the professionals that have regular connections with service providers. VRBO and Air B&B are common websites that owners join to self-manage.

If you self-manage or hire management, a business license is required for the operation, which of course, will require payment of B&O taxes. Proof of payment of B&O tax is what the County may require as evidence of an active rental which is required for the permit renewal.

Options for property management firms are very low on San Juan Island. We have more options for vacation rental management firms as the regulations are less; no brokerage license required or state regulated trust accounts. It is easier to manage vacation rentals from a regulatory standpoint but more difficult in reality. The only long term management firm on San Juan is “Brand X” whose name I won’t use in an article written by a Coldwell Banker agent. Generally, property management is a difficult field to work in; very demanding and very competitive.

In addition to considering working through one of the management firms, we often suggest that our clients looking for long term rentals view the online newspapers looking for direct rentals or use Facebook; San Juan Buy and Sell and San Juan Island Rental/House Share.

It is painful to find a property management firm on this island and as the island offers more vacation rental managers versus long term; this may be the decision factor for some of the property owners.

Value Added
The tax assessor no longer adds to the value of a home if it has a vacation rental permit. The value to buyers can be recognized or discounted. The vacation rental or long term lease will narrow the size of the buyer pool for the property if the buyer had hoped to occupy their new home immediately after closing. Further most lenders require occupancy by the borrower within 60 days of closing if the loan was intended for a primary residence.

More buyers in our market are looking to purchase for second home or primary residence versus a rental property. I attribute this to lack of appreciation in our market for the last 9 years. Many are willing to purchase subject to the rental agreements or reserved vacation rentals but transactions have been lost due to tenant’s rights.

Cancelling vacation rental reservations is not a simple process and most management firms have a 120 day notice provision if the property is on the market for sale. In order to cancel, the vacation rental client may need to be reimbursed for their air-flights and other travel arrangements that they have made. Can you imagine making that phone call to the coordinator of the July family reunion?

Technically, the property management firm has earned their fees for the transaction so those are due as well. Agents will comment in the remarks section of a listing if the property is subject to any form of lease or vacation rental and whether they have a delayed closing date.

Impacts to the Neighborhoods

Impacts to a neighborhood are very difficult to measure. For a vacation home, a tenant may travel on the roads four times a day for the 128 days the home is occupied. During long term occupancy, the tenant may travel on the roads two times a day for 300 days a year, taking the weekends off; minor differences.

For those homes on community water systems or sewer, most communities have a provision for excess use which is billed to the owners or tenants if long term.

There may be a gathering at the vacation home that results in noise beyond what the neighbors would determine is acceptable. The sheriff is always available to respond to this type of disturbance. Based on the number of vacation rentals as compared to all homes, the sheriff is more likely responding to a primary residence disturbance.

Impacts to the Economy
Homes offered into the long term rental pool provide local housing for islanders. Residents living and working here over the long term tend to have pride in community which results in maintenance of the home and may result in a home purchase in the future.

Vacation homes offer economic gain into the community and to the owner. While visiting, tenants enjoy retail therapy, restaurants, kayaking, and whale watching. Some may end up deciding that purchasing a home here is in their future.

B&O tax is generated back from the state into our local government.

Deciding to use your investment as a vacation rental will reduce the number of homes in the long term rental pool and will drive up the rental rates for the remaining long term properties due to demand.

As the market has improved, many owners have decided it is time to sell versus having the home as a long term rental which has added more pressure.

Seasonality

The vacation rental homes are mostly occupied in the summer months and this coincides with when the second home owners return and desire to hire staff or service providers to help with their property maintenance. These service providers may be the very ones seeking housing.

Bottom line:

Very few homes on this island “pencil out” as an investment when you take debt service into consideration. If you own the home free and clear you may enjoy some cash flow. Our rents are not high enough to balance with the price of the homes. The investor needs to rely upon their Schedule E for tax write offs and appreciation to come out ahead on a rental property here. Having said that, a Sand Piper Condominium in Friday Harbor will almost “pencil”, the rent covers the expenses and debt service at 70% Loan to Value.

Long term rentals are in demand in our community. Not a week goes by that a prospective tenant doesn’t contact our office looking for a rental house. In last week’s Journal, 8 of the 9 public notices were for vacation rental permits.

Relief
Allowing detached guest homes on parcels that are less than 5 acres may create inventory in the rental pool. (Currently you may have a guest house on less than five acres only if it is attached to the main house)

Allowing the rental of the guest houses in addition to the main house, this would generally result in the rent being lower as they are smaller homes.

Zoning and the cost of construction including hookup fees all need to be considered. Investors have no interest in building an apartment or other multifamily units as they do not ”pencil” on island. The town fees for water and sewer hookups per unit and the monthly fees are too high for a typical investment proforma, so there is no incentive. At the present time, it is more cost effective to purchase existing than it is to build custom. It has been many years since an apartment was constructed in town by the private sector.

If a hard working resident must work two jobs to afford a rental or camp, we have an issue. Ask any of the general contractors looking for skilled labors, the turnover is too high.


(As an author, I have tried to remain neutral in this article but as a REALTOR I find it difficult. In a perfect world, an owner of a home valued under $450,000 will decide their home doesn’t “pencil” as a vacation rental and should be offered as a long term rental. The owners of high-end homes should continue to offer them as a vacation rental as it is good for our economy. Each investor needs to do the math and make their own decision.

As for my disclosure, as usual, this article is meant for informational purposes and not intended to be all encompassing of the details. My proforma of income and expense comparison is not perfect.

Once again I apologize for being lengthy, I am a wordy gal.
)


Referrals:
Consultant for Vacation Rental Permit
Francine Shaw 360-378-6278
Jack Cory 360-378-4900

Property Management Firms:

San Juan Property Management = Vacation Rentals Only 360-378-2070
www.sanjuanpm.com
Vacation Doorways = Vacation Rentals Only 800-391-8190
www.vacationdoorways.com
Windermere Property Management = Long Term Rentals 360-378-3600

Merri Ann Simonson, is the Managing Broker of Coldwell Banker San Juan Islands Inc., 1-800-451-9054
simonson@sanjuanislands.com









Shoreline Master Program Update

12/4/15


By Merri Ann Simonson

As you may be aware, the Critical Areas Ordinance (CAO) went into effect in March 2014. The Shoreline Master Program (SMP) has been in the update process for the last few years and is currently out for public comment until December 8, 2015. Then it will be sent on to the Department of Ecology for their comments and then back to our County for final revisions.

The Council is holding continued public hearings on December 2, 3 and 4th this week in Friday Harbor. They'll take comments on Lopez December 1st and on Orcas on December 8th.

It is expected that the SMP may be in effect as early as spring of 2016. Many of the proposed regulations as contained in the SMP were established in the CAO or at least precedence set.

It appears that the non-conforming regulation currently in effect under the WAC will be updated in the SMP. The existing formula that regulates how much you can increase the size of an existing non-conforming home on the waterfront or near a wetland is not included in the proposed SMP. In my opinion, the draft SMP language to address a non-conforming home remodel is more discretionary on the part of the Planners during their decision process.

The proposed language is more relaxed as there appears to be no limit on the size that the non-conforming home can be increased. However, you must propose mitigation measures to address any potential negative impacts to the critical areas. This requirement will have to be met by retaining professionals to prepare reports acceptable to the County

A legally non-conforming structure is defined as one that is out of compliance with the current regulations, but was in conformance at the time of its construction. For example, a home that is 35 feet from the shoreline versus the current setback as required by the CAO, is considered a non-conforming structure.
In order to expand an existing non-conforming structure under the current regulation and formula, you will need to obtain a building permit prior to the effective date of the SMP. A Residential Pre Approval is not binding and will not survive a regulation change.

If you are the owner of a non-conforming structure and are contemplating a remodel or expansion, you should review the existing regulation as well as proposed. I have attached links below; one to the current non-conforming regulation and one to the PROPOSED language in the SMP. If you believe that the proposed regulation will be more difficult to comply with than the existing, I would not delay your application for a permit.

CLICK BELOW TO VIEW EXISTING WAC FOR NON-CONFORMING CONSTRUCTION
http://www.sanjuanislands.com/PDF/NonconformingWAC.pdf

CLICK BELOW TO VIEW PROPOSED SMP LANGUAGE
http://www.sanjuanislands.com/PDF/SMPPN.pdf

CLICK BELOW TO VIEW THE COUNTY WEBSITE FOR ENTIRE SMP
http://sanjuanco.com/smp/default.aspx


(Merri Ann Simonson is the Coldwell Banker San Juan Islands Inc Managing Broker/Sales Manager. She can be reached at 360-378-2101 or at Simonson@sanjuanislands.com)




Buying Property In The San Juans

4/27/14


ig_R_ForSaleSoldSign-001 (10k image)By Merri Ann Simonson

Select an Agent to Represent You: As you may be aware, all of the brokerage firms on San Juan Island are members of the Northwest Multiple Listing Service; therefore, any of the agents can assist you with any of the properties listed with Coldwell Banker or other brokerage firms.

One of the first steps in purchasing real estate on San Juan is to select an agent to represent you. Ideally you should select ONE agent that you feel will provide you with the level of customer service that you require. We believe an agent at Coldwell Banker San Juan Islands to be your best choice.

It is important for you to understand the Law of Real Estate Agency. Years back, Department of Licensing determined that most buyers felt that the agent represented them. However, the law at the time required all agents to be subagents of the seller, thereby technically representing the seller. It was for this reason that Congress revised the agency laws to the current ones, which allow for three types of agency representation:

1. Buyer’s representation is when the agent is representing the buyer and intends to obtain property at the lowest possible sales price.
2. Seller’s representation is when the agent has a listing with the seller and is attempting to obtain the highest possible sales price.
3. Dual agency is when the agent shows a buyer one of their own listings and the buyer decides to purchase it. In the case of dual agency, the agent represents the seller as well as the buyer.

You can obtain a copy of the Law of Agency Disclosure here

Determine Your Source of Funds

• Cash at Closing
• Institutional Financing
• Seller Financing
• 1031 Tax Exchange

If you intend to finance your purchase, it is prudent to meet with your lender and determine the maximum loan amount you are qualified for. This amount, coupled with the cash you have allocated, will determine the maximum sales price. We have numerous lenders that are active with financing in the islands if you are interested.

Determine the Type of Property You Desire to Purchase

One of the best ways to do this is to develop a list of your desired property features, and a list that details how you intend to use the property. Then prioritize those lists. For example, when an agent is working with a waterfront purchaser, they obtain the following information:
• Is beach access required or is high bank OK?

• Do you have a boat? Do you plan to buy a boat?
• Bay protection or west side open with current?
• Bay view or expansive wide open?
• Do you want to be near crabbing and clamming?
• Do you want to see the whales, boat traffic and/or sunsets?
• Amount of trees, direction of sun exposure, and amount of privacy?

The responses received may direct the agent to property in different locations on the island. However, it may be that until a buyer has an opportunity to view the various different types of properties, they may not be able to narrow down or develop their priorities.

Once determined, this information should be communicated to your agent in order for them to focus on the type of property that meets your needs, thus saving you time and confusion.

Educate yourself on the Market and Inventory

You need to become acquainted with our market and inventory level in the categories that hold your interest. Even if your purchase plans are sometime in the future, it is beneficial to take the time to view property with your agent because it will save you time in the long run. This process allows you to get acquainted, relate your preferences and develop your knowledge of the market. This will also help your agent to customize all future information sent to you. Buying property is a process of elimination. You will view many properties which you will determine are not suitable; then you will buy the one that is.

One way to monitor our market is to ask your agent to email you the Coldwell Banker San Juan Islands Quarterly Real Estate Market Updates. You can also sign up for the service on our website located at www.sanjuanislands.com.

Monitor the Inventory

You need to stay in touch with the inventory and market trends until the right time or right property becomes available. If you have viewed property with your agent or communicated your preferences, your Coldwell Banker agent will establish an account for you in our IDX and all new listings that meet your criteria will be emailed to you upon their origination. Purchasing property in the Islands can be a one day or five year process - which is totally subject to your time frame.

Purchase and Sale Transaction**



Once you have located the property you desire to purchase, your agent will structure a written offer to purchase containing the terms and conditions you have specified. The seller will either accept your offer as submitted or submit, through their agent, a counteroffer containing terms that are acceptable to them.

Important elements that should be included in the Purchase Agreement under the feasibility study provision are listed below:

Archeological Sensitive Areas

You want to make sure that the property you are purchasing is not located in an archeological sensitive area such as Indian Midden or near a cemetery.

If the property does contain sensitive areas, you need to know where they are located. To confirm this information you need to contact Annie Matsumoto-Grah at San Juan County at 360-370-7585. She will look up the property on their maps and confirm the results. The maps are not of public record so you may not access the information yourself.

If the property is located within an Archeological Sensitive Area, you will need to obtain a report from an Archeologist. The Archeologist will perform a site inspection and delineate the sensitive areas and their setbacks. Should you desire to dig in those designated areas for any reason, such as new construction, a remodel or landscaping, you must hire an Archeologist to standby and sort through the material while excavation is in process in order to protect any items with historic value. The reports are approximately $1500-$3000 and if excavation is needed in the sensitive areas, the monitoring is on an hourly rate. It can add thousands of dollars to the cost of your project.

Corner Stakes

Do you know what you are buying? Corner stakes can be located or re-staked by local surveyors. Full surveys may be required due to lack of original plat stakes. The cost of a full survey will vary, but for a four-corner parcel it is typically in the range of $2,000-$4,000; setting just replacement stakes can be much less. We have several surveying firms available on the island and I recommend: Bob Wilson 360-378-4300 or Bob Anderson 360-378-5072.

Feasibility Consultant

Some purchasers may want to commission a complete Feasibility Study that will respond to not only the existing conditions of a property, but also address the issues, if any, that may have to be satisfied to allow a proposed use of a property. Feasibility Studies can be one-stop reports; addressing conditions of the structures, septic and water questions. Further a report on relevant land use codes that may impact the proposed use of the property can also be processed. First Inspect Inc, 360-378-4900, has provided this service for over 30 years in San Juan County. His reports start around $300.

Flood and Homeowners Insurance

If you are purchasing on the waterfront, chances are the Flood Zone Determination report will indicate that flood insurance is required. Not all properties need Flood insurance as the improvements are located above the Base Flood Elevation. For more information, please refer www.sanjuanislands.com/PDF/floodinsurance.pdf

Be sure to arrange for your standard homeowners insurance policy in the beginning of the process, don’t wait until you are only a few days from closing as the process can take 7-10 days.

Permits

Was the home constructed under a permit and does it have a final certificate of occupancy? Was the home built under the “built by Owner” permit application and require a safety inspection prior to closing? You should obtain copies of the permits from the County Permit Center to confirm the permit status.

If the home was build prior to 1976 no permit may exist which was at no fault of the owner. Our Permit Department was not formed until the middle of the 1970s. These homes are considered grandfathered-in and legally non-conforming.

If you are contemplating new construction or a remodel, the current building codes and comprehensive plan can be accessed through the San Juan County web page at (www.co.san-juan.wa.us). You can request a permit package or review the County's building requirements through their website which is located at (www.co.sanjuan.wa.us/permitcenter/default.asp.)

Power

If you are buying unimproved property then you should confirm the distance from power to the proposed building site. OPALCO will provide you with the distance and you can obtain a bid from a local contractor for the installation. Installing through rock can be costly.
Seller’s Property Disclosure - Form 17

Pursuant to State statute, all property owners must provide a seller’s disclosure to the buyer. The disclosure is not part of the contract and doesn’t provide any representations or warranties. Buyers should share it with the Home Inspector so they may focus on any issues that the seller has disclosed. Ultimately, it is up to the buyer to process their due diligence and confirm if the property is suitable and the condition is acceptable. Buyers should not rely on the seller’s disclosures other than for informational purposes.

Septic System

For existing systems, it is prudent to obtain a copy of the "as built" filed with the County. This will indicate the number of bedrooms the system was installed for and its approximate location, which is helpful for future improvements or repairs. If you are purchasing an unimproved parcel, you should obtain a perc test, design and permit approved by the County. The permits have a validity period of four years and the cost is around $1,250. The two most commonly used designers are First Inspect Inc, 360-378-4900 and Orcas Sewage Design 360-376-2762. .

Septic Inspection

Per the Purchase and Sale contracts used on San Juan Island, the seller must comply with San Juan County Codes related to on-site Sewage Disposal systems (OSS). Seller is required to have the system inspected -pumped if needed- and install any required maintenance components required by the code. Typically, all costs for inspection, pump, and installation of maintenance components shall be the responsibility of the seller.

Sellers typically pay $200 for the inspection, $600-800 to pump and maintenance components can run $300-$2,000. Generally, systems installed after 2000 are in compliance with maintenance components. I recommend Craig Starr 360-378-8060 or Ted at San Juan Septic 360-378-7255.

Setbacks and Buffers

You should review the Critical Areas Ordinance located on the County website. This ordinance will take effect in March 31, 2014 and implement numerous setbacks that are actually restrictive “buffer areas” from wetlands, shorelines, and streams.

Structural Pest and Wet Rot Inspections

It is highly recommended that all buyers obtain an inspection of the home prior to closing. The inspector physically examines all of the major components of the improvements and reports on their condition and recommends any repairs.

For additional information regarding inspections and their benefits, you can contact one of our inspectors. The three most commonly used are Jack Cory 360-378-4900, Tim Hance 360-298-1163, or Darrol Scheffer 360-378-4969. Not all "Home Inspectors" are licensed to perform "Structural Pest" inspections. Inspection fees are in the range $400-$600.

Transaction Closing Process

Due to the number of remote purchasers and sellers, the majority of our closings are handled through email or the express mail systems. We have local escrow firms and title insurers. We regularly cooperate with off island escrow firms, lenders, and 1031 facilitators.

Water Source - Private Well or a Community System

Private and two party shared wells should be tested for quantity, bacteria and organic. A San Juan Short list is recommended. The cost for a bacteria and organic test will be approximately $300 including the sampling.

Class A and B systems are community systems in which the quality and quantity are monitored on a regular basis as required by the County. These need not be tested, but their current “standing” should be confirmed through the County.

For more information regarding wells and water systems, you can contact one of the two commonly used well service providers: Denny Martel 360-378-2842 or Al Mauldin 360-378-6975. San Juan County Health Department can be reached at 360-378-4474. The County confirms that community wells are in “good standing” via email.

Wet Lands

You need to determine if the property you are purchasing contains any form of wetlands. Pursuant to the Critical Area Ordinance update, all wetlands have some sort of buffer that must be respected. There is no sure way to confirm the land contains wetlands without a professional wetlands expert.

You can start by viewing the County’s wetland maps and note if the property is located within a designated area, but that is not a formal confirmation and not reliable. If you are suspect, you can request a site inspection from the County or hire a wetland expert. Once you determine that you have wetlands on your property, you need to have the area delineated and the wetlands typed and surveyed so that the required buffers, based on type, can be honored. The fee range for the survey and delineation is $1,000-$10,000 subject to terrain and site difficulty; most site fees run in the range of $2000-$4,000. I recommend Scott Rozenbaum from Rosewood Environmental 360-468-4448 as a wetland expert.


Conclusion

This article is for informational purposes and not meant to encompass the entire process. Hopefully the article doesn’t make the purchase process sound intimidating but if you follow the first item, “select an agent”, then that agent will guide you through the rest of the steps and issues.


(Merri Ann Simonson is the Managing Broker & Sales Manger for Coldwell Banker San Juan Islands Inc. She may be reached at Simonson@sanjuanislands.com and at 360-378-2101)




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