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Island Guardian


REAL ESTATE MARKET AND YOUR TAX ASSESSMENT

10/19/18


IG-Merri_Ann_Simonson-3 (21k image)Written by Merri Ann Simonson
Coldwell Banker San Juan Islands
simonson@sanjuanislands.com
360-317-8668






All of us Island property owners received our tax assessment notices from the County recently. As real estate agents we have been fielding many questions about the statements and new assessments. As you may recall, the State has mandated that our Assessor’s office convert to an annual assessment update cycle versus the cyclical system we were on for years. The current values are for a one year period only and will be adjusted the next year. The current process is much more stable and refined and is a more accurate system than we have had in the past.

As agents, we have often seen properties sell above their tax assessments the majority of the last 20 years with the exception of 2008-2012. Most of the variance was due to the 3 year lag time that accompanied the previous cyclical schedule our assessor used.

For example, during the recession, properties were selling at or below the assessor's values. However, back in 2006, many of the same type properties sold in an average range of 125%-150% over their tax assessments. These average percentages varied based on the type of property but generally that was the trend. Since 2014, due to market recovery, most homes are again selling above their tax assessment. Due to annual re-valuations and the assessor’s appraisal method, we may not have as extreme variances in the future.

Reviewing the tax assessment as compared to the actual sales price for high-end homes is not reliable as they are very difficult to appraise due to custom features. The assessor relies on indications of value from market sales, and when there are not enough sales to determine the value of custom features, it is difficult to find an accurate standard of value for assessment purposes.

I do have to admit, as an agent, that issuing an opinion of value for a home in excess of $2.5M can be challenging; the owner typically builds a very custom home with elaborate description of materials. Even licensed appraisers find it a challenge and some contact agents for more details. Again, there are fewer sales of similar homes in that end of our market so there are not as many comparable properties to review.

As always, it is much easier to be accurate when you have ample data to use.

The Purpose of the Assessments:

Many property owners are chatting about their new assessments. Most of the confusion around the issuance of new tax assessments stems from the purpose and process of the tax assessment. The assessor is required to value properties for tax purposes at true and fair market value. The valuation assigned by a REALTOR for the purpose of marketing or the value assigned by an appraiser for the purpose of lending, estate planning or probate purposes, will most likely be a different amount. The process to the valuation is different for each therefore, the results will vary. Generally, the differences in the process are described below:

Appraiser and Agents:

Both appraisers and agents conduct an interior inspection then identifies at least 3 or more truly comparable sales that are recently closed that they either physically inspect or at minimum view via photographs in the Northwest Multiple Listing Service. Ideally closed sales should be less than 90 days old. They spend much more time on the property determining the desirability based on the features and amenities. They also rely upon a cost approach but a depreciation figure is deducted based on the age of the home and its condition. They will analyze the income approach if applicable. They base the value of docks at market.

Due to the size of our market, finding truly comparable property sales in our County has always been the challenge. A real estate agent even differs from an appraiser as we can actually use “Pending” transactions as comparable sales. We also greatly consider the current level of similar inventory and absorption rate in the category to assist in pricing a property for the current market for our clients. Pricing against inventory versus closed sales is common in a positive trending market with low inventory.

Assessor’s Office:

The assessor’s office performs appraisals for purposes of ad valorem taxation. This is part of the process for how we provide funding to all local government services, including schools, libraries, ports, fire districts, the hospital district, emergency medical services, cemeteries, state schools, parks, roads, sheriff and government.

Appraisers that work in the assessor’s office generally use information gathered from site visits without the benefit of an interior inspection. The characteristics of the home and land are considered and compared on a “mass appraisal” basis to all other properties countywide, with statistical analysis of properties grouped by similar market influences and characteristics. The “mass appraisal” method provides more equal distribution of property taxes among property owners within the jurisdiction through standardization and improved consistency in the work of appraisers.

It is impossible with the size of our County, and the size of our assessor’s staff to physically inspect every property on an annual basis. The properties are valued every year and the assessor’s appraiser physically inspect one-sixth of the county properties each year. There will always be a lag for adjustments just to the statement dates. The recently received assessment adjustment was based on closed sales in 2017 and only a portion of 2018. After reviewing and validating those sales, they use approved appraisal practices to determine the percentage of increase or decrease in value in neighborhoods of similar properties.

As the assessor’s office performs this process on an annual basis, the historic variances will not be as extreme. If properties are actually selling above or below assessed values due to market conditions, those sales will be the basis for a statistical update the following year.

The assessor’s office is required to assess at market value but with the constraints of limited access cited above, the task is quite different as compared to an agent or appraiser. The assessor is not allowed to be a member of the Northwest Multiple Listing Service and use their database but they do use the various brokerage firm’s real estate websites to view details and interior photographs which is allowed by the Uniform Standards of Professional Appraisal Practices.

The variance between the tax assessment and the values produced by appraisers and agents is expected, as the process defines it.

Private Appraisers outside of the assessor’s office do not rely upon the tax assessed value as an approach to their valuation at all. The uniform reports don’t even request the appraiser to provide the assessment information. The appraisers never compare value conclusions with the assessor’s office therefore they are not influenced by the assessments. Their assignment is to provide market value to the lender or client, not the tax assessed value.

It is also important to note that appraisers can and do provide opinions of value as of any given date; the assessor’s office is required to value property as of January 1 of each year so the aging of the assessor’s information will always be an issue, especially in an active market.

Agents are not licensed appraisers and there is no regulation surrounding how they calculate a property’s value; there is no uniform calculation. Some agents use the assessed values as a benchmark only. Some agents don’t rely on the tax assessed value at all and don’t let it influence their recommendation for pricing because they know the assessor doesn’t necessarily have access to the interior of the improvements. Regardless of what an agent recommends, the ultimate pricing decision is made by the seller.

REALTORs must, however, comply with Article 1- Duties to Clients and Customers of the REALTOR Code of Ethics which obligates REALTORs to provide an honest opinion of market value.

Agents are not licensed to provide opinions of value for any other purposes than buying or selling real estate. If you need estate planning, value opinion for tax value appeal or for a legal proceeding such as a divorce, only a licensed appraiser may be of assistance.

Buyers of course, are looking for the best price possible and will use the tax assessments when it favors them. As agents, we are able to explain to the buyers the differences in the process and how the value amount may vary.

Websites such as Zillow, Redfin and Trulia rely upon the various County Assessor’s information and valuations to process their own calculation. Their values may be reliable in Metropolitan areas where subdivisions of very similar homes are bought and sold on a regular basis, but the website’s calculation of value performs poorly in small, low volume, custom construction markets such as San Juan County. Again, as agents, we are able to explain to buyers that the website calculators are not reliable in our County.

Bottom line, we should all be pleased that our assessor’s office appraises as fairly as possible and uses the methods advised by the Department of Revenue and defined by statute. The tax assessment appeal process is straight forward which allows property owners to present their petitions themselves. Further we historically have had the lowest levy rate in the state.

If your value assessment is adjusted downward your tax statement may not have a correlated downward adjustment. Each tax district submits a budget for its expenses as constrained by state law. The total of the amount requested is divided by the total assessed value of each district. This results in a levy rate for each district. Your taxes are a composite of the levy rates for each district in which your property resides multiplied by your current assessed value, divided by 1,000.

If all properties increased or decreased by approximately the same percentage, you would likely see very little change in your tax statement regardless of the increase or decrease in your value. This complies with Washington State laws that were formed for the sole purpose of insuring that local government can rely upon a predictable amount of revenue each year so they could process a balanced budget. If the tax revenue had large fluctuations the result would be chaos for the local government services.

Another factor to keep in mind when considering your tax bill is the number of acres and percentage of total acres in San Juan County that are either exempt or pay a reduced amount due to being in a special use program. The taxes that would have been paid by these properties are shifted to the taxpayers based on public policy decisions by the State and County legislature.

If you are upset about your assessed value increasing, ask yourself ”would you sell it at that value?”

As in the case of all my really long, boring articles, this article is for informational purposes and is not intended to be inclusive of all components of the assessing and appraising process.




SAN JUAN ISLAND REAL ESTATE MARKET SUMMARY

10/12/18


IG-Merri_Ann_Simonson-3 (21k image)Written by Merri Ann Simonson
Coldwell Banker San Juan Islands
simonson@sanjuanislands.com
360-317-8668






The third quarter results for San Juan Island and the County were consistent with the first and second quarter results. Per the NWMLS, the dollar volume year-to-date on San Juan Island was $99,156,746 with a total of 181 transactions. This reflects a 12.5% decrease in the dollar volume and a 21.5% decrease in the number of transactions. For San Juan County, the total dollar volume was $218,491,175 with a total of 392 transactions. The County had a slight gain of 1/2% in dollar volume and a decrease of 11.6% in number of transactions. I assume we will end up 2018 very similar to 2017 if we continue with the same level of activity we have been processing this last 60 days. Further, the inventory levels may have an impact on our volume in some of the pricing categories.

TransactionRecapReport

Historically we have had similar percentages of ups and downs since the recession so I would still consider this a steady market which is comforting. Lawrence Yun, the National Association of Realtors Chief Economist, has indicated that nationally, the job creation has a positive impact but the interest rate increases are negative. Based on this, he forecasts nationally a 2% decrease in volume for 2018 but a 2% increase in 2019.

Our island doesn’t have a direct impact from job creation but there will be an impact from interest rate increases. As the high-end buyers in our market are less likely to be dependent upon institutional lenders, the rate increases will impact the buyers for our lowest priced homes the most.

The high-end buyer recognizes us a steady market and that confidence is reflected in the number of sales and associated volume. Year-to-date on San Juan, we have closed 23 sales in excess of $1M each as compared to the 21 last year for the same period. The County is enjoying an increase level of activity in the high-end segment. Year-to-date, the County has had 43 sales in the category as compared to the 33 in 2017 for the same period. The activity level in the County reflects an increase of 30%. As mentioned above, San Juan had 23 and Orcas had 11 high-end sales year-to-date.

High-end sales provide upward movement in our median home price. This is not a calculation of appreciation but it is a trend.  

The most contributing factors in the consistency of our market were the median home prices, days on market and percentage of seller negotiating. For the preceding 12 month period ending 9-30-2018, our median home price for listed homes on San Juan Island was $525,000 as compared to $450,000 for the 12 month period ending 9-30-2017. The average home prices for the same periods were $704,776 and $680,583 for 2018 and 2017, respectively.

Year-to-date, the average days on market for listed homes, condominiums and manufactured homes was 145 for San Juan Island as compared to 195 days and 290 for the same period in 2017 and 2016, respectively.

DaysOnMarket2018 (33k image)

The sellers of all price categories of homes, condominiums and manufactured homes negotiated on average 4.6% off their list price at closing. The sellers of homes that closed in excess of $1m each, negotiated on average 5.4%. The highest negotiation occurred in the range of $801,000 to $1M. This has always been a tough pricing category; too high for most islanders and this category doesn’t offer as many waterfront homes which is the typical choice of a newcomer.

PercentSellVsList2018 (36k image)

Year-to-date, the days on market for land remains high at 395 along with a 5.8% average negotiation. It is an improvement over the same period in 2017 when the average days on market was 551 and the average negotiation was 7.1%.

Shorter days on market, tighter level of seller negotiation and increasing median prices all point to a steady real estate market.

As of October 1, 2018, we have a total of 221 property listings on San Juan in the NWMLS, with 43 of those properties in escrow. This is compared to 250 listing with 48 in escrow same time last year. This reflects a 12% decrease year over year. These totals include all types of property. When you are preparing to show property, the inventory feels much lower, we are typically only showing 3-4 properties to the client now as compared to 6-8 in the past. This decrease may have also changed due to internet pre-screening. Clients have reduced their choices as they have eliminated many properties prior to their arrival. Hence, the importance of decent photographs on the websites!!!

We have had several multiple offers as of recent, but it is not the norm. Most multiple offers stem from a new origination but at times are a result of the property “growing” into its pricing and becoming more desirable as compared to the competition.

All of the trends are in the right direction; our real estate market is healthy.




ALMOST EVERYTHING YOU WANT TO KNOW ABOUT SEPTIC SYSTEMS

9/25/18


IG-Merri_Ann_Simonson-3 (21k image)Written by Merri Ann Simonson
Coldwell Banker San Juan Islands
simonson@sanjuanislands.com
360-317-8668






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-$1,500 but add $500 if a backhoe is needed for the holes. A full list of approved designers is available via the link shown below.
https://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 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 San Juan County at 360-370-7585 and fill out their Critical Area and Archaeological Review form, they will email you a response in a very timely manner. 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 $20,000-$45,000, with the typical being $22,000-$30,000. 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 County website.

The size of your system should be based on your future 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 but you are able to brag about the larger system.

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.

http://www.sanjuanco.com/432/Septic-System-Permit-and-Inspection-Sear

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 $600-$3,000, subject to the amount of work.

Cost to pump your tank is in the range of $1000-$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 County website.

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.
http://www.sanjuanco.com/432/Septic-System-Permit-and-Inspection-Sear

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.




New Vacation Rental Permit Requirements

8/18/18


IG-Merri_Ann_Simonson-3 (21k image)Written by Merri Ann Simonson
Coldwell Banker San Juan Islands
simonson@sanjuanislands.com
360-317-8668






I have reviewed the County’s new Vacation Rental Permit requirements and I found them most reasonable, I think they did a good job.

As a REALTOR, working in the field, I only noted two areas that may be difficult for some property owners to adapt to.

1. Management plan on file at the County and with neighbors within 300 feet. The management plan must contain contact information of owners and a local representative if the owner lives off island. This person shall respond to emergencies and complaints, hence the neighbors within 300 feet having a copy of the plan. In most cases, the professional property managers will be this contact person and will develop the management plan and code of conduct for the property. If someone is a self-managed VRBO they will need to create these items and submit them to the county.

This part of the regulation may reduce the number of self-managed homes, unless one lives on island, as it will be difficult to find a relative or acquaintance willing to be on call 24 hours a day and be able to explain to a frantic guest how to turn off the septic high water alarm at 2:00 am. This part of the regulations highly suggests that a professional property manager be hired by the property owner which in our market will run around 30-35%. Using a professional is a good thing; however, some property owners may not welcome the expense to their vacation rental business.

2. I am also wondering how the buyer of a vacation rental home will be advised that they must submit their certification of compliance and updated management plan within 90 days of their purchase. I am not sure if the county will be monitoring the excise tax desk and sending out letters or whether it is up to the REALTOR, if one is used, to disclose this requirement to someone new to the island. Hopefully the fines for a violation of this portion of the regulation will be lenient in case their REALTOR overlooks the disclosure.

It may be that the Brokerage offices amend the San Juan County General Addendum to add this disclosure to aid the County.

As I mentioned above, the rest of the changes are prudent, reasonable and protect the consumer and island communities. I offer a reader’s digest version of the changes below:


  • One vacation rental is allowed on a property, either in the principal residence or an accessory dwelling unit. Detached accessory dwelling units constructed after June 29, 2007 are not allowed to be vacation rentals.

  • Occupancy is changed from three persons per bedroom to two, plus three guests. Guest is defined as person over the age of 2. The number of bedrooms is dictated from the septic permit, not what is actually built on site or what appears to be a den with closet.

  • The definition of ”unreasonable disturbance to area residents” includes trespassing, noise, speeding and off-site parking issues.

  • Solid waste must be removed every two weeks and that it is to be stored securely while on site. Visitors to the island do not recognize the damage and mess that a raccoon can cause.

  • Educate the guests about water conservation, outdoor burning and burn bans. The details must be in the owner’s rules of conduct and posted.

  • On-site parking adequate for 1 vehicle per bedroom.

  • No food service. That is allowed only if the owner has a B&B permit.

  • Allows for a small sign to aid in location identification. Address must be clearly visible.

  • B&O tax and licenses are required. The property management plan must include the UBI numbers. If the County determines that a property owner is operating an illegal rental, their option includes turning this person into the State of Washington along with local fines.

  • Management Plan on file with the County and neighbors within 300 feet. Local representative on call 24 hours a day.

  • Property boundaries must be marked and a map provided if there is access to the shoreline. Guests must be provided a copy plus the boundary maps are posted on site. The address must be visible from the street and contained in the rules of Conduct. Visitors are told not to trespass.

  • Vacation Rental Permit number and UBI numbers be included in all ads. This regulation change will aid in determining if the rental is legal by our compliance officers.

  • New owners of Vacation Rental permitted properties must submit their certification of compliance with permit conditions within 90 days of a sale or transfer of the property.

  • Permit holders must annually certify compliance with their permit conditions and fire and life safety requirements including CO and smoke alarms and post the certification on site for all guests to read. Fire extinguishers must be located in all the proper areas and serviced annually.

  • New permits will expire in 2 years unless a certification of compliance is submitted each year. This provision would not apply to permits vested or approved prior to the effective date of the ordinance.

  • The monetary penalty for operating or advertising an unpermitted vacation rental is $2,300 on the date the notice of violation is issued and $100.00 each consecutive day of operation thereafter. Ouch, these fines should insure compliance.


Bottom line: Owners must be licensed, pay their taxes and be permitted by San Juan County. They must have a management plan, local representation, rules of conduct including water conservation and certify annually that they are in compliance with permit conditions and safety issues. The compliance is effective December 31, 2018. It all makes total sense, as the property owner is running a business that serves the public.

Standard town water regulations still apply, if you are hooked up to town water, no vacation rental would be allowed unless the zoning is commercial. This is applicable to town limits as well as subdivisions nearby.

Several plats have voted in a change to their CC&Rs which prohibit vacation rentals so it is important to make sure there are no plat restrictions prior to applying with the county for your vacation rental permit.

The application fee is either $1000 for a provisional use permit or $2300 for a conditional use permit depending on what the land use code requires for the land use designation for the County. If you hire a professional land use consultant, that is usually another $700-$1000.

The county has a great checklist for the annual certification and an outline of compliance details.

I believe the country moved swiftly to address the concerns over vacation rentals. These changes are far better than a moratorium that could have been placed while they ponder the issues for a few years as some other counties chose to do.

As in all of my articles, this article is for informational purposes only and isn’t intended to reflect all of the components of the code. If you have questions about the code you should contact San Juan County at 360-378-2116 or email dcd@sanjuanco.com.




SAN JUAN ISLAND REAL ESTATE MARKET SUMMARY - SUMMER 2018

7/18/18


IG-Merri_Ann_Simonson-3 (21k image)Written by Merri Ann Simonson
Coldwell Banker San Juan Islands
simonson@sanjuanislands.com
360-317-8668






The second quarter results which complete the first half of the year for San Juan Island were similar to the first quarter. Per the NWMLS, the dollar volume on San Juan Island was $56,399,689 with a total of 108 transactions. The numbers reflects a 18% decrease in transaction number and a 22% decrease in dollar volume as compared to the same period in 2017. For San Juan County, the total dollar volume was $143,972,044 with a total of 245 transactions. The County’s gain was 5% in transaction number and 11.5% in dollar volume.

6_30_18_recap_report (42k image)

The County’s increase in volume was mostly supported by Orcas Island; they are on a roll. Their volume was $54,363,368 with 76 transactions and their average sales price was $715,307 for the 6 month period. Their numbers reflect a 43% increase in dollar volume but a 6.2% decrease in transaction numbers. This explains their average sales price increase of 52%, which isn’t an appreciation calculation, but an increase from the same period last year.

This type of volume may take it’s toll on their inventory levels which in turn will place upward pressure on their pricing over time, if not already. Why is Orcas doing better than San Juan? They did have a very large transaction attributed to Oprah but that was at the end of the quarter. Even without that sale, Orcas was still at an increased level over 2017.

The numbers contained in this report are derived from a search in the NWMLS which doesn't include all of the closings for the County. Excluded volume is attributed to direct sales that are not in the NWMLS.

6_30_18_inventory_recap (48k image)\

On San Juan our inventory is also taking pressure and reflects a decrease from last year same time.

The previous low was in December 2005 when we were working with only 157 listings for all types of property on San Juan. Our current level is 225 with 40 under contract or a net of 185 property listings.

It is still more cost effective to buy an existing home and remodel, subject to your description of materials, than to build new construction although this is changing. The reduced housing inventory is resulting in upward pressure on our prices and buyers deciding to build exactly what they want versus buying one of the existing homes. As the inventory continues to deplete, custom construction will become more popular and our builders will become more active than they are now, which will be interesting. I know one contractor that stated his costs have increased over 30% in the last 6 months due to labor and materials. I have been quoted $300-$350 per square foot for a home with some hardwoods, granite and a nice appliance package. Land sales have increased on San Juan Island over the last few years; we had 50 sales in 2016; 85 in 2017; and 40 to-date in 2018.

In our market many sellers still need to negotiate unless they priced at market from the start, which is difficult to do. There is no “art or science” to reviewing the closed custom home or land sales, none of the properties are similar to one another. I have been doing this for 24 years and if I could actually pick the number a property would close at, I would be famous and could work in Las Vegas! I am not famous; I as well as the other agents in my office, provide our clients with research and the most relevant information when recommending a market price for property.

6_30_18_recap_seller_neog (33k image)

Ultimately, the pricing decision is the sellers and in a forward trending market, most sellers price against inventory versus sold comparable properties. The good news is sellers in our market on average are still negotiating, not like Seattle or Bellevue where everything is a bid war.

The percentage that sellers are negotiating off land sales has also been decreasing as our market trends in the positive direction.

Sales in excess of more than $1M have played a role in our San Juan market and on Orcas. Year-to-date in the County, we have had 30 properties close as compared to the 18 for the same period in 2017. San Juan had 12, Brown Island had 1, Orcas had 9, Crane had 2, Lopez had 5 and Johns had 1. This is a 66% increase over the same period last year. Currently 13 high-end sales are pending in the NWMLS for the County which is a good trend. I personally have had more high-end sales this year than last.

We have also had more multiple offers this year than last which of course is attributed to a lower level of inventory. We are not experiencing the type of market that is currently active in the local Metropolitan areas and may never have to. As you know, Amazon didn’t consider us for their next headquarter location. We remain primarily a second home market.

All of the trends are in the right direction for the County; low inventory levels and very busy agents; our real estate market is healthy. As part of a healthy market, buyers are able to process their due diligence and determine if the property is suitable, which is good practice for all parties. Due to inventory levels, some property owners are selling in a timely manner and working with motivated buyers which results in receiving a decent price.

San Juan Island lags the county which is a puzzle to me although I am very busy and feel confident that San Juan will rally and the year-end results will be very close to last year. I am running a very high number of escrows personally and so are the other brokers in my office and other offices. The slow start we had is timing out.

We are receiving good press; positive articles about our community, our environmental stewardship and even our life expectancy. If you have any questions about San Juan real estate, please be sure to contact me.




Buying Property in the San Juans

7/18/18


IG-Merri_Ann_Simonson-3 (21k image)Written by Merri Ann Simonson
Coldwell Banker San Juan Islands
simonson@sanjuanislands.com
360-317-8668





1. 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.

It is important for you to understand the Law of Real Estate Agency. The State law allows for three types of agency representation:


  • Buyer’s representation is when the agent is representing the buyer and intends to obtain property at the lowest possible sales price.

  • Seller’s representation is when the agent has a listing with the seller and is attempting to obtain the highest possible sales price.

  • 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.



2. 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.

3. 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 I am working with a waterfront purchaser, I 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 me to property in different locations on the island. However, it may be that until a buyer has an opportunity to view the various types of properties, they may not be able to narrow down or develop their priorities.

4. 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 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 me 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 review my Quarterly Real Estate Market Updates. You can also sign up for the service on my website located at www.sanjuanrealproperty.com.

5. 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 me or communicated your preferences, I 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 ten year process - which is totally subject to your time frame.

Purchase and Sale Transaction
Once you have located the property you desire to purchase, I 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. To confirm this information you need to contact the San Juan County building department. They 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, dig test holes 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 $2000-$6000 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-$6,000; setting just replacement stakes can be much less. We have several surveying firms available on the island and I recommend: Andy Holman 360-378-0338, Bob Wilson 360-378-2300, 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; i.e., a Vacation Rental Permit or Conditional Use Permit. I have a list of consultants so contact me if you need one. The reports are in the range of $300-$5,000 subject to complexity.

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. I have a list of surveyors that can process a Flood Elevation Certificate which is required in order to obtain flood insurance and is also the information necessary to process a Letter of Map Amendment (LOMA) - Waiver of flood insurance.

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.

Internet and Cell Phone

Many of the islanders use Century Link or our local firm, Rock Island for their DSL internet connection. Rock Island is currently installing Fiber on all of the major roadways and numerous plats have arranged for their neighborhood installation. We still have a long way to go before fiber connectivity is throughout the islands. Some property owners have found LTE as an option subject to their location to the nearest tower. In some areas with DSL, there isn’t enough strength to stream movies from the Internet but Net Flick delivers. You should confirm that the service to the property you are considering meets your requirements. You can download a free app called Speed Test and run it while on the property you are viewing.

The best cell service providers in the islands are T-Mobile and Verizon. Some remote locations in the islands do not have cell service. T-Mobile has been installing towers in the County so cell service will continue to improve under their account.

Rock Island can be reached at 360-378-5884. I can’t say enough about how great their service and sales departments are, I highly recommend them.

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 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 (http://sanjuanco.com/). You can request a permit package or review the County's building requirements through their website which is located at (http://www.sanjuanco.com/837/Permits-Forms-Information.)

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. There are some exemptions to the law for Estates or Trustees. 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 or $1750 if an excavator is needed.
.
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 all 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, $800-1000 to pump and maintenance components can run $300-$3,000. Generally, systems installed after 2000 are in compliance with maintenance components.

Setbacks and Buffers

You should review the Critical Areas Ordinance and the Shoreline Management Program; both are located on the County website. These ordiances implemented numerous setbacks that are actually restrictive “buffer areas” from wetlands, shorelines, and streams.

Storm Water Management Plans

As part of the permit process, you must create plan for during construction Storm Water Pollution Prevention which meets County requirements. Further, once the home is built, you must have on-going Storm Water Site Plan to address run off from the hard surfaces and the improvements. This process can be character building.

Structural, Pest and Dry 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. The Home inspection fees are in the range $500-$750 subject to number of outbuildings.

Title Report

Shortly after the seller accepts your offer, you will receive a Preliminary Title report. It is imperative that you review that report for accuracy and question anything that is different from what was represented to you. You should review easements and encroachments directly with the Title Officer that examined the title and issued the report. The reports are complex and only the issuing source is reliable to explain them.

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 bacteria and a San Juan Short list is recommended to test organic elements. The quantity should also be confirmed. The cost for a bacteria and organic test will be approximately $350 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 by using their website.

For more information regarding wells and water systems, you can contact one of the two commonly used well service providers: Martel 360-378-2842 or Al Mauldin 360-378-6975. San Juan County Health Department can be reached at 360-378-4474.

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 with possible wetlands, 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 and they are close to your proposed building site, 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-$7,000 subject to terrain and site difficulty..

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 select me as your agent then I will guide you through the rest of the steps and issues.



Written By:

Merri Ann Simonson
Managing Broker — " Sales Manager
Coldwell Banker San Juan Islands Inc.
Simonson@sanjuanislands.com
360-317-8668




SAN JUAN ISLAND REAL ESTATE MARKET SUMMARY - SPRING 2018

6/1/18


IG-Merri_Ann_Simonson-3 (21k image)Written by Merri Ann Simonson
Coldwell Banker San Juan Islands
simonson@sanjuanislands.com
360-317-8668

The first quarter results for San Juan Island were a puzzle to me and required extra analysis. San Juan Island’s dollar volume for the quarter reflected a decrease of 28% as compared to the same quarter in 2017. In 2017 the dollar volume was a 31% increase over 2016 which was a 20% decrease from 2015. Similar to a rollercoaster for San Juan.

The County’s first quarter dollar volume reflected an increase of 3.3% in 2018 as compared to 2017. The transaction numbers for San Juan reflected a decrease of 27% compared to 2017. The County’s transaction number also reflected a decrease, however; it was only 7%.

Volume Recap Chart

The volume analysis clearly reports San Juan’s volume as lack luster and off to a slow start. The first quarter of every year is volatile and for San Juan, this year is no different.

The most obvious contributing factors to the differential of San Juan to the other island’s production are the average sales price and the other island’s increases in volume and transaction numbers. Historically, the islands that provide fewer goods and services are priced lower than the other islands which may be the increase in demand. For example, the lowest priced waterfront home on San Juan is $869,000 and it is $895,000 for Orcas. These prices are much higher than the starting prices on the other islands for a waterfront home.

Transaction Chart

As land sales are typically lower in price, I reviewed the number in the first quarter of 2018 as compared to 2017 for San Juan and Orcas; both periods and islands were very similar in transaction numbers so San Juan’s volume was not materially decreased by the number of land sales versus homes sales.

San Juan did have a decrease in sales in excess of $1M; in the first quarter of 2018 we closed 3 sales for $5.1M as compared to a total of 5 sales for $9.2M in 2017 for the same period. The highest sale during the first quarter of 2018 was on Orcas for $2.9M. San Juan currently has 4 sales pending in the over $1M category for a listed price total of $6.7M. Orcas has 5 sales pending for a total of $16.4M and Lopez, Shaw and the other islands have 3 sales pending for a total of $5.6M. In addition to the high-end pending properties we have a good level of property showings and other pending sales that will contribute to next quarter’s volume.

In metropolitan areas, lack of inventory can be a contributing factor to fewer sales. On San Juan as of April 2, 2018, we have a total of 183 listings for all properties types of which 34 of those are pending. This is compared to March 31, 2017 when we had 256 listings of which 38 were pending and in escrow. This equates to a 28% decrease in our inventory during the year. In April 2017, our inventory had decreased 25% from the 2016 levels on a similar date; the trend continues. Further, of the 183 listings, only 79 are for single family homes and of the 34 pending sales, 18 are for the single family homes.

I haven’t tracked inventory levels on the other islands so I am unable to answer your next question; is the inventory on the other islands higher, is that why they have high sales volume? My bad, but I can’t spend all my time on statistical research for the other islands, I focus on San Juan. I wish we were a large enough County so I could just buy my research, but unfortunately that is not the case.

Typically, during this time of year, new properties are listed and inventory levels increase for the spring/summer; however, this is not the case this year. Hopefully we are just off to a slow start or it is just a weather delay and inventory will build in the summer. However, it could be a sign of more recovery; tight inventory equates to higher prices for our sellers.

As speculation, the slow start on San Juan could be that the national economy recovery level is spurring young agile buyers that are more suitable and attracted to the more affordable non-ferry serviced islands and those islands with fewer goods and services. Although, Orcas’ prices are very similar to ours and they performed very good the first quarter.

I could speculate for hours but that is not factual; Do other islands have more selection for buyers? Did the weather push our closing dates into the next quarter? Did our list prices on San Juan get too high? Or do we just confirm the first quarter is always volatile and move on. One quarter’s results are not a trend, nor a market maker.

Good news is our days-on-market is decreasing. For the first quarter on San Juan, the average days-on-market for homes was 136 as compared to 216 and 310 for the same period in 2017 and 2016, respectively. For land, the days averaged 498 as compared to 662 and 759 in 2017 and 2016, respectively. This includes all price ranges but unfortunately isn’t 100% reliable due to property listing histories which include the resets from changing agents and the always popular, off market periods.  

Another data source we use to analyze market trends is the movement in our median home price but it is only reliable if a 12 month term is reviewed.  The median home price for the County for the preceding 12 month period ending April 1, 2018 was $499,000 as compared to the median home price for the 12 month period ending April 1, 2017 when it was $440,000.  The median home price for San Juan for the preceding 12 month period was $490,000 as compared to $429,950 for the period ending April 1, 2017. Movement in median home price is not an appreciation calculation but merely a trend indicator.

Overall, we are in a good market. Sellers are STILL negotiating off their sales price; an average of 4.4% for homes and 4.3% for land, however, this is during the first quarter only and we have fewer sales to consider. During 2017, the average discount on San Juan for homes was 4.5% and the average for land was 10.8%. Land sales continue to recover and they appear to be almost popular.

Buyers are STILL able to process their due diligence in order to determine if the property is suitable, unlike the metropolitan markets nearby where some buyers must waive their rights in order to attract the seller’s attention. Due diligence is a good thing for both buyers and sellers, the results of the process allow for fewer future disagreements.

As always if you need additional information, please be sure to contact me. To read all of my past market updates and industry related articles or view my San Juan Island Lifestyle videos, please visit my blog at:
 http://sanjuanislandslifestyle.com/blog/




HOME INSPECTIONS AND THEIR ROLE IN THE REAL ESTATE TRANSACTION

6/1/18


IG-Merri_Ann_Simonson-3 (21k image)Written by Merri Ann Simonson
Coldwell Banker San Juan Islands
simonson@sanjuanislands.com
360-317-8668

If you are a buyer or seller, I bet you thought just getting under contract was stressful for all parties but in reality, the home inspection and/or feasibility response and associated negotiations are often the more stressful event. Allowing a buyer to have a home inspection and hopefully a concurrent feasibility study is a very necessary part of the transaction.

Seller’s Disclosure form 17
As required by statue, the seller must provide a disclosure about the property. This is merely a disclosure, not a representation, guarantee or warranty. This disclosure should be given to your home inspector prior to their visit so they can focus on the seller’s comments about defects and repairs made. Your agent should automatically do this but as a buyer you should insure it happens.

Buyer’s Due Diligence
Washington is a buyer due diligent state, so basically, if the boilerplate language is used, the buyer gets a free ride to investigate whether the property is suitable or not. If it is the later, their deposit is refundable unless the contract is written differently.

In some of the near-by metropolitan markets, some buyers elect to waive their rights in order to attract the seller’s attention, but that is not the case on San Juan. In the long term, allowing this process will reduce the exposure to future disagreements about the condition of the home. The buyer needs the opportunity to research the property and condition of the improvements prior to closing. As a seller, if your buyer waives their rights to an inspection, be sure to obtain a copy of the waiver or a hold harmless agreement.

In most transactions, the buyer shall have anywhere from 10-90 days to process their home inspection contingency and feasibility study, with 15 days being the typical for a home purchase. The home inspection contingency addresses the condition of the improvements on the property. The feasibility study addresses the “what if-s” a buyer is considering; May I have a dog run, can I park an RV, what will the kitchen remodel cost, can I obtain a vacation rental permit, etc.
The inspections must be processed by the buyer or a person licensed under chapter 18.280 RCW. Reports are at buyer’s expense, ordered by them and performed by an inspector of their choice. If seller has already obtained a home inspection, the buyer should not rely upon it as there is no recourse against the inspector by a party not named in the report. The buyer can, however, hire that inspector for a new report in their name as it may save time.

The inspectors or contractors may not be invasive with their inspection without seller’s consent and without the agreement that buyer will restore to the pre-inspection condition.

Some buyers and their agents are of the opinion that it is best to just get the property under contract and then plan to be aggressive during the home inspection and feasibility period. Only time will tell with this approach, it can backfire. It is true that the seller may be emotionally attached to the transaction as it is the solution they are looking for, however; they also need to feel that the transaction is fair. It may be their plan to be aggressive as well and perhaps they are not attached to the outcome. These are just some of the uncertainties that surround the process. During the inspection process of a transaction, sometimes not everyone is happy and sometimes all parties are slightly unhappy. It can be a stressful time for all. On the other hand, I have had the process run very smooth; it is a case by case situation. The goal is for everyone to be happy.

Just because you are under contract, it is still a long way until closing with numerous contingencies that must be satisfied along the way. No one should be packing until the contract is non-contingent and preferably not until you have signed your closing documents and the monies are on deposit with escrow. It is for this reason that delayed seller possession is popular.

Inspection Response Procedures
The buyers must respond within their inspection and/or feasibility deadline to the seller with their decision. The options for the buyer include:
1) Approve the inspection and waive the contingency
2) Disapprove the inspection and terminate the agreement with the deposit refunded
3) Give notice of additional inspections per the inspector’s recommendation
4) Ask seller to make repairs or a monetary adjustment to the price or as a credit to their closing costs

The seller then has 3 days, if the default provision is used, to respond, their options include:
1) Agree to Buyer’s request for repairs or monetary adjustment
2) Agree to only some of the Buyer’s request
3) Reject all proposals by Buyer
4) Reject all proposals by buyer and propose alternative modifications or repairs

Then the buyers get a change to decide:
1) Accept Seller’s response
2) Reject seller’s response and terminate the agreement
3) Reject seller’s response but offer an alternative proposal

This cycle doesn’t repeat itself unless extended by both parties so if neither party is willing to negotiate, this is when the transaction can fail to continue on to escrow. Real estate is a give and take process, and in some cases no one is entirely happy with the outcome but each must share in the effort to negotiate a resolution.

This is also the time to ask the seller for any corrections needed to the water or septic systems that were recommended by those inspectors. The boilerplate indicates the seller will make the corrections and updates to the septic but by adding it to the inspection response form, this insures the process is fully understood by all parties.
During this process, the agents are working together with their clients and each other to keep the processing going forward. Basically, we have a seller and buyer that want to conclude the transaction and it is important not to allow egos or emotions to enter into the equation. That is one reason why good agents earn their commission; they are the buffer and filter. They keep the situation under control and emotions in check. Selling and buying a property is a huge investment and mental commitment. The seller may be defensive as they love their home; they may have raised their kids there and are emotionally attached. They are sensitive to criticisms about the home. Buyers are often making one of the largest decisions in their life and want to be sure that it is the right decision. They are dealing with inspectors, lenders, escrow and other service providers and can get overwhelmed by the process.

Once there is mutual agreement for the repairs or monetary adjustment, the home inspection contingency and typically the feasibility study are deemed waived by the buyer. Depending on the decision, the seller will then arrange for repairs and insure that they are processed 3 days prior to closing so that the property may be re-inspected by the home inspector or buyer. Receipts are normally gathered to evidence the completion as well.

At times it is not in the buyer’s best interest to have the seller make the corrections as the buyer has no ability to select the service provider and control the quality. Further most sellers appreciate agreeing to a monetary solution versus making repairs. The seller would prefer to focus on their packing and relocation versus caulking the toilet. The difficulty in granting a monetary adjustment is determining the amount. The agents recommend obtaining 3 bids from different service providers which can be challenging to obtain and time sensitive.

Often it comes down to being forced to obtain a ballpark estimate and that figure is used in the negotiations. Under this situation, the buyer may be forced to “pad” the ballpark to avoid the risk of it being inadequate. As we all know, due to volume and how few service providers we have, it is difficult to arrange for bids and repairs on this island in a timely manner. Most transactions only have about 30 days to accomplish this process.

If a lender is involved, then the work must be processed prior to closing to satisfy their underwriting requirements. If they become aware of the needed repairs via the appraisal report or the contract, they won’t let the buyer/borrower assume the repairs and allow them to be processed in the future. The lender will want their collateral to be in repaired condition.

If the lender conditions their loan closing upon the repairs and the seller doesn’t have funds to make the repairs, then we are in a catch 22. Buyers shouldn’t do the work and invest their funds in the seller’s home prior to closing as the risk is too great. This is another common benchmark where the transaction can fall apart. I have had transactions where the buyers do the work and the lender is happy and we close, but it is a great risk to the buyer.

Escrow holdbacks
Although not common, at times it is possible to have a written agreement where the funds to complete the repairs are held by escrow or an attorney and the work is processed after closing. The written agreement must be very clear and have provisions that address funding shortfalls, delays and failure to complete the work. Again, high risk and many lenders, if one is involved, will refuse to allow for an escrow holdback as they are unable to sell their loan into the secondary market until all of the work is completed. In an increasing rate environment, very few holdbacks are approved as the lender may lose money when they sell the loan.

Buyers need to be aware that the home inspection is their due diligence report, not the sellers “to do” list. They are buying an existing home and all homes have some level of deferred maintenance or normal wear and tear. I have seen many transactions cancel as the buyers request that the seller repair every item contained in the inspection report. All parties need to work together and act in good faith regarding the home inspection in order to reach resolution and move towards closing.

The inspection report is for the buyer to determine if the condition of the improvements is suitable. The home inspector often recommends additional professionals visit the site and provide additional information to the buyer. Most reports allow for very little recourse against the home inspector. Buyers need to know there is risk in buying real estate and no one is going to guarantee the condition of the home for you unless it is new construction and comes with an implied builder’s warranty.

Home Owners Insurance Warranty
Agencies sell Home Owners Warranties and it is a very common practice in states such as California. It is prevalent on the main land but not so much in the islands, partly as the insurance policies have many exclusions to the insured items and THEIR service providers must be used for the repairs. As you may know, getting a repair person from the mainland to the islands to repair your disposal is very character building. Some clients feel these insurance policies aren’t worth the premiums.

Walk-through
Per the uniform instruments that we use, the seller must continue to maintain the property, except normal wear and tear during the escrow period until closing. The buyer has a right to walk-through the home within 5 days of closing. This walk through is not to create a new seller “to do” list, it is merely to confirm that the home has been maintained and its systems and appliances are functioning. If a system or appliance has failed prior to closing, the seller must replace that item with one of equal value. During this inspection, the buyer can also confirm personal property is being or has been removed and repairs that were contained in the contract have been made.

Bottom line, there are many components to the purchase contracts but the most complicated are the home inspection and feasibility contingency responses and related negotiations. Both buyers and sellers need to read the forms and make sure they fully understand them. The uniform instruments were written by Washington State attorney’s hired by the NWMLS. The inspection and feasibility deadlines must be met or those contingencies will be deemed waived. If you are involved or plan to be involved in a real estate transaction, you should be prepared for the inspection process. Having a clear understanding of the process will make yours more successful.

As always, this article is merely for information purposes and should not be relied upon as advice. You should consult with your attorney if you have any questions about your contract and the inspection process.

To view the sample forms recommended by the NWMLS click on the URL below. Inspection, Inspection Response and Feasibility. http://www.sanjuanislands.com/PDF/addendumsforInspections.pdf




IRS SECTION 1031 - TAX DEFERRED EXCHANGE

6/1/18


IG-Merri_Ann_Simonson-3 (21k image)Written by Merri Ann Simonson
Coldwell Banker San Juan Islands
simonson@sanjuanislands.com
360-317-8668

Another positive sign of real estate market recovery for our County is an increase in buyers and sellers utilizing a 1031 exchange. During the recession when appreciation was non-existent there were no gains for buyers and sellers to defer. Many sellers decided to hold off and wait for more recovery.

As a 1031 exchange is a handy tool for deferring income tax on the sale of real estate, I thought you might desire more details about the program. As typical for any IRS code, the description material tends to be dry so reading this article may function as a sleep aid as well.

What is an IRS Section 1031 Tax Deferred Exchange? Quite simply, it allows you as the owner of investment property (almost all property that is not your personal residence or second home) to sell your property and buy another investment property, deferring the tax on your capital gains. You do not have to find someone to accept your property in trade for the one you buy.

The steps for performing an exchange are not significantly different from those for completing a standard sale. You list the property, hopefully with me, and then market it for sale just like any other property. A Buyer is located and escrow is opened. An Intermediary is brought into the transaction prior to closing. Suitable replacement property is purchased and the exchange is concluded.

When considering the sale of income or investment property, you as a seller must consider the taxation. When selling property you could owe federal and, in some areas, state capital gains tax. This could mean paying 15% to 40% in taxes on the gain. Instead of paying a large amount to the IRS in taxes you can use that money to buy more real estate. Property that qualifies for preferential tax treatment under Internal Revenue code section 1031 (IRS 1031) is treated quite differently. IRS Section 1031 states:

"No gain or loss shall be recognized if property held for productive use in a trade or business or for investment purposes is exchanged solely for property of a like-kind". Investors do not have to exchange for exactly the same type of property as they relinquished. "Like-Kind" does not refer to the nature, character or type of property but just that it also be held for productive use or for investment purposes.

Therefore, if using IRS section 1031, you can exchange raw land for a rental home, an apartment complex, or for a shopping center. The use of the property is the factor in determining the tax treatment. Provided the property is initially acquired and held for either business or investment purposes, it can qualify as a suitable replacement property.

You must trade "equal or up" in equity and value to completely defer taxes. If you dispose of a property at one value and acquire another property at a lesser value, taxes are due on the difference.

No cash can be received from the transaction (boot), whatever cash is received is taxable. In a 1031 exchange, receipt of cash cannot be offset with a larger debt.

You can dispose of property and have 180 days to acquire another property; the pressure of trying to structure simultaneous closings no longer exists. You are not required to find replacement property which can close the same day of the property being sold. The delayed exchange begins when you enter into a purchase contract. After the first closing, the exchange clock starts ticking. From the settlement date you have 45 days to identify replacement property. From the sale settlement date you have 180 days to actually acquire one or more of the identified properties.

These regulations also require the use of a qualified intermediary in deferred exchanges. Use of a professional Intermediary with no other relationship to the exchanger provides you the mandatory "Safe Harbor" to perform a non-taxable sale.

An Intermediary is substituted, into the contract to sell the property. In theory, the Intermediary becomes the seller but the sale is reported on the tax ID number of the Seller. This is perfectly legitimate under the Treasury guidelines written to clarify Internal Revenue Code Section 1031.

The sale will not be delayed; the buyer will purchase the property for the same contracted price. But instead of paying taxes on the sale, you save 100% of the net equity available for purchasing a replacement property.

When a replacement property has been found and an offer accepted, the Intermediary will again be substituted as the Buyer of the new property to complete the exchange. The intermediary will use the proceeds from the sale of the original property to purchase the replacement property. The intermediary holds your sale proceeds during the exchange period and you generally will earn interest on these funds.

Further, the code procedure allows you to acquire investment real estate now, when an excellent investment may be available and to sell your property later, when a better price might be obtained, so long as this all happens within 180 days. This is called a reverse exchange. This procedure greatly expands your ability to take advantage of changes in the marketplace and to improve your investment position.

The IRS allows the deduction of brokerage commissions from exchange proceeds as they reduce the amount of equity the tax payer realized. The IRS requires that only the net equity be transferred to the replacement property.

If you are still reading, below is my standard disclosure:

This material is intended to be informational and is not all inclusive; no effort has been made to summarize all of the requirements and issues that may be applicable to a particular situation. This material should be not used as a substitute for independent financial or legal advice. Please consult with your CPA or tax advisor.




Merri Ann Simonson — Managing Broker
Coldwell Banker San Juan Islands, Inc.
105 Spring Street
Friday Harbor, WA 98250
378-2101 work
317-8668 cell
Simonson@sanjuanislands.com




SHORELINE MASTER PROGRAM - DOES IT REMOVE UNCERTAINTY OR INCREASE IT?

1/15/18


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

written by Merri Ann Simonson. January 1, 2018
Simonson@sanjuanislands.com
360-317-8668



As you may or may not be aware, the County Council has recently adopted updates to the Shoreline Master Program (SMP), with the new regulations effective on October 30, 2017. Although the new regulations apply to all shoreline development, the focus of this article will be on regulations related to residential development in the County.

I recently had the pleasure of processing a waterfront transaction where my clients had numerous questions about what they could change on the property to make the home suitable to them. We were able to process a Residential Pre Application (RPA) at the County and obtain the answers to my client’s questions. It was a very positive experience if you don’t take into consideration the added expense. Some of the questions and issues that we had and what I learned are listed below:

Non-Conforming:
If the development (typically a single-family residence and/or associated accessory buildings) on the property are closer to the top of bank or ordinary high water mark than allowed by current regulations, the structure(s) are considered “non-conforming”. Generally the current regulation is 100 feet. Another common condition that creates non-conformity is if the width of the structure(s) occupies more than 50% of the lot width at the seaward face of the structure(s). Setbacks and lot width coverage regulations have enough variation depending on the individual parcel that assessment is needed on a case-by-case basis. There are additional conditions that can relegate structure(s) and/or use(s) to a non-conforming status, but the 2 listed above are the most common.

If the property has structures that are non-conforming, then proposed new development, expansion and/or repairs, the following steps are necessary:

The structure may be moved, replaced, redeveloped, expanded or otherwise modified on the same parcel provided this work is consistent with the provisions listed below:

The application must demonstrate that the proposed action will not:
1. Result in a net loss of shoreline ecological functions;
2. Increase adverse impacts on the shoreline critical areas;
3. Create a new non-conformance or increase the degree of inconsistency with provisions of this SMP; or
4. Results in hazard to people or property.

In order to demonstrate no net loss of shoreline ecological functions, the application must provide an analysis that addresses any:

A. Increase in the quantity of pollutants from the site;
B. Increase in the quantity of surface runoff from the site;
C. Decrease in trees and other vegetation within buffers and tree protection zones;
D. Decrease in the stability of the site and other properties; and
E. Changes to the transport of sediment to and within nearshore areas.

I confirmed that each analysis report prepared to demonstrate compliance would have a validity period of around 5 years unless regulations change. As my clients plan to make the improvements to the property within the next 3 years, the studies and reporting they had done when contemplating their purchase will carry over to their permit application.

In this situation the property was developed starting in the 1970s thru 1980. The 1,974 square foot main home is considered non-confirming due to the proximity to the shoreline. The property was also improved with a small guest home and a single use dock.

If the home had been conforming, then most of the steps listed below would not have been required. As the shoreline rules have become more restrictive over time, a good portion of shoreline houses are non-conforming, so the processes described below would be common for owners wanting to remodel or expand an existing shoreline residence.

As an agent, if a client is considering a property purchase that may be subject to these regulations, I would highly recommend this research be done as part of a feasibility study, prior to closing. The risk is too great to acquire the property and hope for the best.

The Feasibility Contingencies:
As part of the standard real estate transaction the buyers hired a home inspector to determine if the present condition of the home was suitable to them. The cost of the home inspection was $595.

We then processed a Residential Pre Application (RPA) with a local land use consultant and he submitted it to the County within a few days. Since the property was located on San Juan Island, the County was able to schedule their site visit and complete their report in a very timely manner. Properties on other islands require additional travel by staff and would take a little bit longer.

The written RPA report issued by the County is valid until the next Critical Areas Ordinance or Shoreline Master Program update which is estimated for about 5 years from now. Once the RPA was submitted to San Juan County, a site visit was conducted and a written response to the project specific questions we submitted was provided. Additionally the report provided general information about setbacks, critical areas, and other regulations. It is important to note that the RPA is not a permit and does not vest the project: only a permit will do that. The cost of the RPA including the County fees was $2,000.

We confirmed that, subject to the formal permit process, it may be possible to increase the size of the main house to allow for an additional bedroom. The home was 1,974 square feet and had one bedroom and a den. With the new regulations, we no longer have a limit on increasing the size of an existing non-conforming residence. Prior there was a 25% increase limitation formula. Now the size of allowable expansion is based on the compliance with regulations 1-4 and subsections A-E referenced above.

We confirmed that the small, existing guest house may be increased in size by adding additional space above as a second story and/or to the back of the dwelling away from the shoreline. In no event could we increase towards the shoreline or increase the size of that structure more than 1,000 square feet unless we removed the range in the kitchen and changed the use from guest house (ADU) to a bunkhouse or studio. My clients were advised it would never to possible to expand closer to the shoreline in the beginning of their research and the RPA report confirmed this.

We confirmed that a garage with living space above could be constructed on the site on the back of the lot, located beyond the tree protection zones. (110 feet from Ordinary High Water Mark - OHWM.) The garage living space may not have a kitchen.

When considering expansion that involves additional bedrooms, the size of the septic system dictates the maximum number of permitted bedrooms on the site. Subject to soil conditions, some systems may be expanded to accommodate additional future bedrooms.

Next, we hired an archaeologist to inspect the site and issue a report on the property as it was revealed that the property is located within an archeological buffer and had an area containing archaeologically sensitive materials. The firm dug several test pits and confirmed that a portion of the property on the shoreline edge contained sensitive material however; no sensitive materials were located near the proposed expansion sites for the remodel or new construction. The report was sent to the State, County and local Tribes for their review and comments. The local Tribe recommended that the construction crew be trained and provided an Inadvertent Discovery Plan (IDP) that was very workable. This plan is provided by our County at no charge. The cost of the archaeologist investigation and report was $3,000.

We hired a surveyor to locate all of the property boundaries and corners stakes and confirm that no structures encroached on to this property, or from our property on to adjacent properties. The cost of the survey was $2,800. Additional work will be needed to survey the exact location of the existing and proposed buildings to create a plot plan for the actual permit application submission.

A substantial portion of shoreline parcels may be located in or near a flood zone. If that situation occurs, prior to development, the owner’s would need to hire a licensed surveyor to determine the base flood elevation (BFE) for the home and if applicable, process a Letter of Map Amendment (LOMA) so that flood insurance could be waived. The cost of the investigation and preparation/submittal of the LOMA would run around $2,200.

We hired an inspector to inspect the septic system and confirm that the maintenance components were in place and pump the system tank. The cost was $221 for the inspection and $1,000 for the pumping.

We hired the well drilling firm to take samples of the well water and send them to the Mt Vernon laboratories for testing. As the home had been vacant for a while the first bacteria test failed and the system required a flush. The cost for water testing and analysis of the well was around $400.

We hired a Geomorphologist (earth & environmental sciences manager) to process a biological assessment to support the regulatory requirement demonstrating the proposed development results in no net loss of shoreline ecological function. They conducted a study of the property and proposed mitigation recommendations for the proposed construction to insure no net loss. The cost of the study was $3,000.

This site’s protection/mitigation recommendations include a storm water management plan, adding gutters to the building(s), site drainage control, and possible revegetation of native shrubs and trees. As we have a newer Advantex™ septic system, no upgrades were required to insure the quantity of pollutants related to septic waste did not increase. Our land use consultant will be able to prepare the storm water management plan and the typical cost is in the range of $1,200-$1,600. Due to the age of the home, no gutters had been installed originally so the cost of those will be incorporated into the future remodel budget.

The property also contains an older boat dock. No permits were found for the dock, however it was originally constructed sometime in 1960, before the County planning department and SMP existed. The present condition of the dock will require eventual repairs. Normal maintenance and repair of an existing dock is exempt from shoreline substantial development permit requirements and as a result, the dock can be maintained and repaired or replaced, subject to the conditions in the SMP regulations. The County confirmed this in the RPA report; however, we must comply with the design requirement for grating on the walking surfaces. In order to repair the dock, we will apply for the shoreline exemption “permit” and hire a professional to make repairs compliant to current design. The cost of a shoreline exemption will be $1,200 in this case.

The owners may need to hire a marine biologist to complete the biological assessment required to accompany the shoreline exemption application that confirms no increase in adverse impacts on the shoreline critical areas. This should be easily met, as the plan is to only replace the float and not try to increase the size of the dock or alter pilings. In our case, we can combine this study with the one that addresses no net loss to the shoreline ecological functions for the proposed new building construction and additions, so no additional costs. If this were a standalone assessment for the dock repair or replacement, the cost would be around $3,000.

I found the entire experience very positive. I was able to arrange the answers for my clients with island professionals and County employees. One downside of a standard escrow term of 45 to 60 days is that it is not reasonable to obtain the various reports needed to address client concerns during their feasibility contingency period. In this case, and likely common to other properties, we phased in the professional studies and reports as the results of a previous study had an impact on the next. The next professional was hired only after the last one confirmed we were still able to move forward with the original design ideas. If a client had ordered all of the reports immediately, the time frames may have been met, however; if an increase to the structure had not been allowed, the need for the archeologist or biologist would not have been necessary. In most transactions I believe the professionals will be hired in phases. I would recommend that buyers, sellers and their agents allow for at least 90 days to process this type of complicated transaction so that the service providers and County employees are not under as much pressure.

To expedite the process, a few of the studies could be processed by the seller at their expense prior to marketing the property. I can recommend archaeology, flood insurance determination (BFE) with LOMA if possible, and geological hazard study, as these are standard. The seller must check with a land use consultant or the County prior to ordering any of these reports to make sure they will be required. A seller would be unable to process the study that confirms no net loss to the shoreline ecological functions as it not possible to predict if and what the buyer intends to change to the improvements.

If the lot were unimproved, having the seller arrange for an RPA for a buyer would be beneficial if it was submitted and approved based on maximum capacity. If the buyer elects, they can always reduce the building size.

A client could be spending upwards of $15,000-$20,000 as part of their feasibility study, including standard transaction expenses. If the transaction fails due to any one of the property issues or due to a buyer’s contingency such as financing, the buyer is left with $15,000 in reports that are worthless to them. The costs above total $20,000 but some expenses in this transaction were deferred until after closing.

The process was very informative and the cooperation from the County employees was very helpful. However, I can state that the new regulations have made construction in the shoreline cost more and take longer. It is not a process for those that are easily frustrated. I think the process should be good for all involved; humans and the environment but I make that statement with a slight hesitation, as I have had only one transaction endure this process since the new regulation effective date.

Each waterfront parcel is unique. The conditions found on this site contain some, but not all, of the regulatory hurdles you may encounter. As an example, some areas of the shoreline have been identified as geologically hazardous, thereby requiring a geotechnical investigation. While not every waterfront parcel will have all of these issues, they need to be evaluated to ascertain the extent and nature of regulatory burdens and issues. The purpose of this article was to share the insight gained about the process, including the most common events and expenses.

If you would like the contact information for the land use consultant, the surveyor, the well purveyor, the septic inspector, the home inspector, the general contractors for the remodel, the archaeologist, the marine biologist and/or the geologist/hydrogeologist), be sure to contact me.

So here is my standard disclosure: This article is for informational purposes only and not intended to be all inclusive of everything you should know about remodeling, repairing or expanding a non-conforming waterfront property in San Juan County.




SAN JUAN ISLAND REAL ESTATE MARKET SUMMARY

1/15/18


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

written by Merri Ann Simonson, January 1, 2018
Simonson@sanjuanislands.com
360-317-8668

In reviewing the year-end results for 2017, the sales dollar volume for the real estate market in San Juan County per the Northwest Multiple Listing Service was $299,943,083 which reflects an increase in volume of 19.5% over 2016 when the volume was $251,020,953. The percentage of growth this year was very similar to the increase we enjoyed for the last several years; very stable controlled growth is much more sustainable. The County closed an average of 49.3 transactions per month which is above the last few years.

Total volume on San Juan Island in 2017 was $147,980,853 as compared to $124,582,355 in 2016. The increase is 18.7%, very similar to the increase the County enjoyed. On San Juan Island we closed an average of 24.4 transactions per month. Again above the last few years.

volume2 (613k image)

In addition to healthy volume increases, other positive data for San Juan Island property owners includes decreasing inventory levels. There was a 22% decrease in inventory numbers in January 2018 as compared to January 2017. This decrease percentage was less than last year but still notable.

Inventory2 (599k image)

The smaller percentage decrease in inventory may be attributed to the fact that many of the land owners were holding off for more recovery, and then decided to list in 2017 as land was moving at a good pace. This would have increased the inventory in the land category. Closed Land sales in 2017 for San Juan Island totaled 106 transactions for $20,170,007 in volume. In 2016 the total transaction number was only 52 for $12,733,250 in volume. The increase for the period was 103% in the transaction number and 63% in volume. I personally sold more land in 2017 than I had since prior to the recession.

The popularity of a land purchase is a direct reflection of the decreases in home inventory. When buyers are unable to find an existing home that is suitable, they consider custom construction. Another thought, it is more affordable for a person to secure a “place-saver” on our island via purchasing land versus a home that requires maintenance until they are ready to relocate. Most of the clients I worked with in 2017 aren’t planning on improving their land until several years from now.

One more thought; many of the land sales at Roche Harbor will be future speculative construction or rentals homes held for investment. If there was ever a time with reduced risk for speculative construction, it is now and Roche Harbor is one of the best places.

Further good news regarding land sales includes more recovery in the waterfront lot category. On both San Juan Island and the County the increases in volume and transaction numbers are notable and identical; a 150% increase in transaction numbers and a 300% increase in volume. The increases in the waterfront home category were typical to the overall market activity, however; I noted more non-conforming waterfront cabins were in the mix. This news is comforting as buyers and property owners are now more accepting of the new regulations created by the Critical Areas Ordinance (CAO) in 2014 and the Shoreline Management Program (SMP) in 2017 that had an impact on waterfront lots and homes. As long as the SMP appeal process doesn’t upset the energy, the uncertainty created by the new regulations has diminished.

There are many positive statistics regarding the market trends in our County and I have provided the details below.

Highlights of our market:

• The median home price for a 12 month period ending December 2017 for the County and San Juan Island reflect increases of 9% and 14%, respectively. The median is a typical market price where half of the homes sold for more and half sold for less
Increases in median prices indicate our market is headed in the right direction but it is not a measurement of price appreciation. The actual computation of appreciation or depreciation would include analyzing a number of properties that were sold in 2016 and again in 2017. Due to how small of a market we are, it is difficult to have a reliable number of similar properties that transact in a two year period. Bottom line, we are too small of a market to quote an appreciation figure.

• The Average days on market number (DOM) for homes in the County and on San Juan Island was 201 and 178, respectively. In all categories of our properties and prices, the days on market has decreased since 2016. The range was 101 to 336 for the County and 67 to 341 for San Juan Island. The DOM varies on the price range.

• Waterfront home sales represented 36.3% of our total dollar volume for the County and 36.6% for San Juan Island. These percentages are typical for a healthy market in the Islands and almost identical to last year.

• Sellers negotiated on average 5.2% off the list price at the time of sale for homes in the County and 4.5% for San Juan Island. This is down slightly from year-end 2017. This percentage varies based on the price range.

• Sellers negotiated on average 9.2% off the list price at the time of sale for land in the County and 10.8% on San Juan Island. This is also down slightly from year-end 2017. Again, this percentage varies based on the price range.

• The number of sales in excess of $1,000,000 increased in both the County and on San Juan Island. The increase in number of transactions for the County was 26% and the increase for San Juan Island was 42%.

• Coldwell Banker San Juan Islands Inc. had a good year with an increase of 16% in transaction number. The majority of our agents had volume in excess of what they closed in 2016.

• Inventory is down in most all categories of listings. One should note that I am using year-end figures and many agents set their listing expiration date for 12-31 so the decrease in inventory is also impacted by the expired listings. Year-after-year it is the same situation, although there appeared to be a higher level of expired listings this year. Many sellers remove their property from active marketing during the winter to give the listing a “rest”.

• Absorption has been strong in every category and based on the current inventory levels and number of closed sales in 2017 for San Juan Island, we have 5.66 months of supply for homes under $1M and a 1 year supply for homes listed above $1M. The supply for homes listed under $400,000 is similar at 5.79 months but we drop down to under 4 months for homes listed under $300,000. Six months is considered a balanced market. The calculation for months of inventory is just a point in time and any changes in inventory render the calculation incorrect.


Charts: I have prepared numerous charts that reflect data from 2017 and historic comparable statistics for those that desire more detail. Please use the link below to the charts.

2017 Year End Charts or visit My Blog

Showcase of Listings: The Coldwell Banker San Juan Islands Showcase of Listings deadline this year is April 1, 2018. If you are considering selling your property this year, this is an excellent publication to be included in. The showcase is a handout at our Friday Harbor and Roche Harbor offices as well as on the ferry system. We handout over 15,000.




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