Monday, December 05, 2005

Q: We're considering the purchase of a waterfront cabin on Vashon that's owned by a friend of ours.

It will be a vacation place for us since we live in Portland. We had the place appraised and have agreed on a price. The main problem is that we don't know what issues there might be with the property. While visiting the cabin a neighbor told us that the shared water system was in poor shape and that the house might not even have a septic drainfield. We don't know anything about these things. Can you advise?

A: I visited the property at your request and recommend that you have a licensed home inspector do a complete inspection. There appears to be significant deferred maintenance and rot. I'd also recommend that you have a geotechnical engineer take a look since this is in an active landslide area.

It appears that there's almost no flat land at this location so it's possible that there's no place for a drainfield. You should hire a septic engineer to determine if a drainfield can be installed. You might start with a local septic pumping company who may have some history with the system. The current owner should be able to provide that information.

The water system is a spring coming out of a nearby hillside. You should review the title to the property to determine if there is a legal easement to give you the right to use it. Although that kind of water system is probably not legal for new construction, they were common when this cabin was built. You should have it assessed by someone who designs and installs water systems. At the very least it might need a purification system if you want to drink the water.

It's good that you are considering this as just a vacation place since it's unlikely that you could enlarge it or change it significantly. The main reasons are the septic system, water system, limited size of the property, it's closeness to the water and the extreme slope. Check with King County.

Wednesday, November 16, 2005

Q: I just want to get this off of my chest.

I'm so angry with my husband. We just sold our house. You represented the buyers and we don't have any complaints on how everything went. The buyers are really nice and I'm happy that they like the house. What I'm mad about is that I told my husband a dozen times that we needed to fix a tiny leak under our bathroom sink. He just kept putting it off. Well, as you found out during the inspection, that leak was causing water to run into the floor. I can't believe how much trouble it caused. We had to have the floor replaced, new floor covering put down, all of the insulation under the house had to be removed and replaced and there were even carpenter ants and rats. We had to have the ants sprayed and rats removed. This cost us a lot of money we could have used for other things.

A: You didn't really ask a question but your issue is important to share with others so I want to respond. Most people have no idea what a little water can do. I've seen situations like yours many times. A small amount of water runs down the back of a cabinet or wall and pools there. Slowly it seeps down through the floor. Over time the floor begins to rot and the water drops into the insulation under the floor. There it attracts rodents and wood destroying organisms like carpenter ants. Before too long you have a major infestation and the costs to repair can add up. You also have the added issue of mold and mildew which creates a very unhealthy environment. All of that from a tiny drip of water!

The lesson here is to never ignore a water leak, no matter how small. By replacing an inexpensive washer you could have saved a major expense. It doesn't take much water to cause a great deal of damage so get leaks fixed as soon as you notice them.

Wednesday, November 02, 2005

Q: I have a friend who is trying to talk me into going in with him on an investment property here on Vashon.

We are looking at buying a rental house or some commercial property. The trouble is that none of these have a good CAP rate, or monthly return on the money. Rents are too low. Why should I stick my neck out?

A: I just returned from an annual conference that discussed this very issue. I heard presentations by leading real estate attorneys and commercial brokers who work for large regional companies, speaking about buying investment property. According to these experts; commercial, industrial and multi-family housing is selling faster than ever before. Rents are low right now but they will catch up. Most of their investors are going in with 40% to 60% down payments so that they have a positive cash flow while sitting on property that is expected to go up in value enormously in the next five years.

On Vashon Island many of the investors I've worked with are holding properties that have gone up between 60% to 150% in less than five years. That's hard to beat in any other form of investing. In addition, there are very attractive tax benefits to not only owning investment property, but having a negative cash flow to offset other income.

You can also trade property, tax free, using the 1031 exchange provisions of the IRS code. That way you can build up the value of your real estate portfolio by rolling over the profits on one or two properties into an even better property.

There's a lot of activity in our business and commercial sector right now. It's a good time to pick up well priced commercial and business property that will become even more valuable in the future. We have a very limited supply of commercially zoned property. As we continue to gentrify, that limited business property will only go up.

Tuesday, October 25, 2005

Q: I'm considering purchasing a house here and the agent told me that the current owners have done a complete remodel.

It looks really nice. What I'm worried about is that a friend of mine checked on the King County website and discovered that there were no permits for anything these people did. I also discovered that they just bought it less than a year ago for a third of what they are expecting me to pay. That sounds almost illegal. What can happen?

A: It isn't illegal to buy a "fixer", then do a quick remodel and sell it for a profit. That's been going on for a very long time and some people even do it for a living. They profit by purchasing less desirable houses and rehabilitate them. The fact that they often make a great deal of profit in a short time may feel like they're taking advantage of the future buyer, from an ethical point of view, but the fact is that they are following a very old American tradition to accumulating wealth.

Now as to the issue of permits, that can be a sticky situation. King County requires building permits for anything that changes the structure or systems of the house, or for additions to the house, even decks and porches. They also may require that the septic system be up-dated, repaired or replaced if the home is being enlarged. That could be pricey.

The County may, if they discover the situation or have a complaint, require retroactive permits. These are usually charged at twice the original fee plus penalties. Currently the County is charging less for these "already built" permits to encourage people to get them.

If you make an offer contingent on an inspection, which is the prudent thing to do, and you're able to verify the information your friend discovered, you might request that the seller obtain these retroactive permits so that you won't be liable for them later. You should also request a "Seller's Disclosure" form to see if they say that permits were obtained.

Wednesday, October 12, 2005

Q: I'm ready to call an attorney but I thought I'd ask you about this first.

I just bought a piece of land. It wasn't until after closing, when I went in for my building permit, that I found out the bad news. The private roadway that leads to the property is not where it's supposed to be! To get a building permit I have to bring it up to what they call "County Standards" which will cost about $20,000 and I have to move the road. Now the owners of the other homes on that road are upset because the new road will cut through what they thought was their land and the bids to do the work are all over $50,000! The seller didn't disclose this to me. I want to sue the seller.

A: The most important issue here is whether the seller knew about the road before selling to you. If so, and he failed to disclose it, you may have a case. That's for an attorney to find out. However, there is another issue that requires you to take some responsibility. In the standard purchase and sales agreement used for undeveloped land, there is a feasibility period for the buyer. If you go back and read the agreement you'll notice that among the things that the form recommends you do research on are: title issues, surveys, geotechnical studies, neighborhood review, potential county fees, cost of development, wetlands and sensitive areas, roads, utility charges and other items.

It is your responsiblity to do your own "due diligence" to find out the costs associated with development and to discover whether the property will fit your needs and your budget.

Unless you can prove that the seller knew that the road was not in its proper location and chose not to tell you about it, you may not have a case. From the reaction of the neighbors, I would guess that no one knew about the road. It's common here to find that roads were built without surveys and ended up in the easiest spot to develop.

Friday, October 07, 2005

Q: We want to retire on Vashon in three years and at the rate prices are going up we're worried that we'll be priced out of the market.

Is it crazy to buy now and rent the house out for three years?

A: No, not crazy at all. I've had many clients over the last few years do exactly that. Most of these folks have watched the value of their property go up significantly and express gratitude that they bought sooner than later. It's very possible that our prices will continue to climb. We hope for some cooling in the market but even if we go back to what is considered "normal" for us on Vashon Island we are still looking at an increase of about 10% per year.

As you begin looking for a home to buy, be sure that you look ahead at needs you may have in the future. As cute as two story cottages and farmhouses are, those stairs can be a problem as you grow older. Be sure there is at least one bedroom and bathroom on the main floor of the home and that there are just a few stairs to get to that main floor.

It's also important that you think about location in relation to your future life. Being off in the woods and isolated can be wonderful but as we age most of us begin to see the value of having neighbors nearby and being a little bit closer to town and local services.

You should also have an understanding of the rental market here so that you know how easy or difficult it might be to rent out the home you select. Renters are rarely looking at the same issues as buyers. They focus on things like the cost to heat the house or on the closeness to schools, rather than the view or style of the house. You also want a home that's in good shape so that there won't be endless amounts of repair and maintenance to worry about during the time you are renting it out.

Thursday, August 25, 2005

Q: Is it really true that we have to disclose if there's a farm nearby if we want to sell our house?

Our listing agent just went over all of that on the seller's disclosure form and we don't know what to put down. The neighbors grow vegetables and sell eggs, is that a farm?

A: It's true that a seller must disclose whether or not there is a farm within a mile of their property. The legislature, in a rush to get this added to the disclosure form, didn't bother to define "farm" and didn't even define "mile". Did they mean "as the crow flies" or on roadways or what? My recommendation is to answer "yes" to this question if you live anywhere in unincorporated King County.

Like so many rules and regulations this is a result of lawsuits. We are, as a society, and perhaps even as a species, totally reactionary. We never seem to progress with forethought and planning, but only by reacting. There have been several lawsuits in this state involving the neighbors of farms that create noise and a bad odor. The neighbors wanted the farms to be closed down, moved or the noise and odors totally controlled.

In order to prevent further lawsuits the legislature added the item concerning farms to the seller's disclosure form. Their thought, I assume, is that a judge could say that the new buyers were fully apprised of the nearby farm and therefore knew what they were getting into. However, without defining "farms" they have opened up a can of worms. Is a lavender farm, organic vegetable farm, nursery or Christmas tree farm what they had in mind? Probably not. We know they probably meant those farms with livestock that could result in noise, dust and bad smells, but they didn't say so.

It's my opinion that we are all within a mile of some sort of farm so I would recommend that all sellers' choose "yes" when asked that question. It's hard not to be facetious but I doubt if that will slow the lawsuits down. What do you think?

Monday, August 15, 2005

Q: We're getting ready to sell our home and need some advise on what we should do to get the best price possible.

We read some of those magazines that talk about "staging" a house and it seems like more trouble than it's worth. We'd have to practically move out to do all that they say should be done. We can't afford to do that. We don't really want to ask help from any of the other real estate people on the Island because we plan on listing with my wife's sister who lives in Bellevue. We know a few of the real estate agents here and are hoping there are no hard feelings. Since your company doesn't list property but only sells we thought maybe you would be willing to advise us.

A: Don't worry about hurting anyone's feelings. Most professionals in the real estate business know that there are many things that come into play when someone selects a listing agent. I would recommend however, that you consider teaming with a local agent or working out a referral between your sister and a good listing agent on Vashon, so that you have representation from a local agent who knows our market.

As for "staging" your home I would say that in our fast paced market with such a low inventory you should do well without staging. The easy things you can and should do to bring a good offer quickly, include packing up most of your personal items like photographs, knick knacks and piles of clutter. Then clean everything inside and out until it sparkles. Tidy the yard and add some nice planters to the entry if you don't have flowering plants right now. Have the windows cleaned! Dirty windows darken a house and make it look unkempt. Have carpets cleaned, especially if you have pets. Spending a little time and money up front can add thousands of dollars of value to your home. I would also suggest fresh paint. Painting rooms, especially with a light, bright color, can make the place shine. Good luck.

Thursday, August 04, 2005

Q: We are thinking of buying and expanding a business on Vashon but we're wondering why things seem so un-planned here.

We're used to a central design theme with businesses conforming to signage rules and required color scheme with regulations set down by a town planning commission. Things seem so haphazard here that we're concerned that it may not be a good business climate for us.

A: Like many small towns that consider themselves rural, Vashon Island has consistently resisted becoming a "theme" town. There are several such towns in Washington and many more beginning to succumb to the lure of regulated signage, color scheme planning and conforming hours of operation. Although some effort is underway to "spruce up" our town there remains a resistance to becoming just another La Conner, Langley or Leavenworth.

I had a business in a "theme" town many years ago and recall that it took me weeks to get the planning commission to approve my sign. It was restricted by design, color, size, lettering and method of attachment to my building. After going through the process I was far less enthusiastic about being a member of that business community.

Most people who have a small business are very independent minded. That's why they take all of the risks involved in owning their own store or service business instead of working for someone else. It's hard to imagine Vashon's businesses agreeing on a color scheme, sign ordinance or regulation of hours.

Keeping the town clean and adding flower baskets for color is about as far as I believe our community is ready to go at this time. The future may be very different, but I think most people who live here prefer the "hodge-podge" look of our town rather than the planned, manicured appearance common to most other places.

I would recommend that you do a needs assessment and find out if the community needs the service or product you intend to offer. That would be a far better test of potential profitability than the color scheme of our buildings.

Tuesday, July 19, 2005

Q. My husband wants to buy a small house that we can rent out.

From everything I've seen I don't think we can get enough in rent to cover the mortgage, taxes and insurance. That doesn't sound like a very good investment to me. Is there a way to guarantee that we wouldn't have a negative cash flow?

A. There are no guarantees when it comes to investing. However, most of the investors I've worked with are happy for a negative cash flow, which gives them a tax write off. The real pay-off is an excellent return on their money when they sell.

Even in a slow year Vashon Island real estate appreciates at about 10%. In the last couple of years, of course, it's been far greater. There are those who are making 10% to 20% profit in less that a year. I don't recommend buying with the idea of "flipping" a home which usually means a quick cosmetic fix-up and re-selling it in under a year. Like musical chairs, someone will be caught holding the bag.

What I do recommend is buying a good, sound house that has features that are desirable and holding on to it for three to five years. Then you have long term gain as well as short-term tax benefits. You can up-grade the house a little at a time to enhance it's resale value.

Rents remain low because of low interest rates. Most people who can afford to buy are purchasing their own homes. That means there are fewer renters out there. But if you keep the rent reasonable and spend the effort to keep up the property, you'll attract good renters.

A client recently decided to re-finance a rental property I sold him in 2000. He told me that he was pleasantly surprised to learn that it was worth twice what he'd paid for it! His comment was "you can't get that kind of performance out of an IRA." I agree. Real estate has always been a good investment and a carefully selected, well-managed property will bring you an excellent return.

Wednesday, July 06, 2005

Q:I'm really disappointed in you.

I sent my daughter and son-in-law to you because they want to start a business here. After talking to you they're really discouraged. They have some good ideas, some savings and they work hard. Shame on you!

A: I'm sorry you're disappointed but it takes more than a little savings and a couple of ideas to be successful in business. Small businesses are a very high risk and most fail. I tried to encourage them to do some more research before plunging in. Many years ago I taught in the business school of a state university. I told my students then, as I tell my clients now, that there are some basic rules to business. The first one is "find a need and fill it." In other words, spend the time and effort to discover what a community needs, not just what you would like to do.

You have to ask yourself questions like; does this town really need another pizza parlor or coffee shop? If the answer is no, then you are setting yourself up for frustration and failure. That's particularly true if, like your daughter, you don't have experience in self-employment or in the business.

Years ago, when I lived in Seattle, I remember being impressed with the recent southeast Asian immigrants who, in two or three years, learned English, began citizenship classes and became successful entrepreneurs. One such family started a Mexican restaurant in my neighborhood because there wasn't one nearby and they did their research and discovered that it would be a welcome addition to the community. They had to learn a new language and a different cuisine, but they were very successful because they did what is called a "needs assessment" and delivered what the community would support.

Self-employment is often brutal. High overhead, cost over-runs, unexpected downturns, regulations, taxes and personnel problems are standard fare. I suggest your daughter and son-in-law start by working for someone else in a business that interests them, do research on the Internet to find out the basics and take some good business classes.

Wednesday, June 15, 2005

Q. We want to build a home on Vashon and have purchased a parcel of land.

We're really upset because all of the development costs have been so much higher than we were told they would be. The septic design cost more because we had to go through a bunch of reviews and have two different kinds of engineers come out. In the end it is a really expensive septic system to install. We were also assured that we could buy a water share but no one told us it was $10,000! An old timer on the Island told us that we could have the land clearing done in exchange for the wood but no one seems to do that anymore or else our wood isn't very good so we had to pay for the clearing. We bought direct from the seller and didn't use an agent. Do we have any recourse against her all of this added expense?

A. I'm not an attorney but in reviewing your purchase and sales agreement I see nothing in it that required the seller to provide you with anything other than clear title to the property. Had you worked with an agent they would have recommended that you make the purchase contingent upon your satisfaction with the septic design and with development costs. The agent could also have helped you research the other costs associated with developing the property so that you would have had a more realistic idea of what you were getting into.

Particularly with land sales, experienced real estate professionals play a pivotal role in helping the buyer get the information needed to go forward with a sale. Building a home isn't easy under the best of circumstances. To go into it naively believing what some "old timer" tells you is foolhardy.

I would recommend that you hire a general contractor or some other appropriate professional to shepherd your plans through King County and help you understand the costs associated with the building process. You should know about all of the costs before you get started.

Tuesday, May 24, 2005

Q: I'm a first time home buyer and have a lot of questions.

My buddy and his wife just bought a house and I was amazed at the paperwork. Why does it take all of those addendum's and pages of disclosures and even warnings on every page?

A: Our purchase and sales agreements have grown in length and complexity, especially over the last ten years. Most of this is a result of case law and an effort by the Washington Association of Realtors and others to be guided by consumer protection legislation. It's intended to help you, but does take some education.

Your real estate agent should be willing to explain the entire process to you as well as walk you through the documents prior to making an offer. There are many addenda and you and your agent can chose which ones are appropriate depending on the property and on your situation.

Most sales are contingent on financing. Unless you have cash in the bank to cover the cost of the home, you need to get pre-approved for a loan. I recommend you do this before you even start looking to buy. It's important to know what you're qualified to borrow and have your down payment lined up well ahead of looking for a home.

Next in importance, I believe, is the inspection contingency. Use a reputable, licensed inspector who is very experienced. Keep in mind that you're trying to discover serious defects. Sometimes you can negotiate repairs being done by the seller, which is great. But more important is to find out if there are serious issues that would cause you a great deal of expense.

I also recommend the title addendum. Although the basic purchase and sales agreement says that you have to have marketable title, there are often title issues, especially in a rural area, that are a serious concern.

There are many other forms that might be appropriate to your sale and it would be good to go over those and have your questions answered before you start looking to buy.

Tuesday, April 19, 2005

Q: Your web site is great and has a lot of helpful information, but we don’t find many houses listed there.

We went into your multiple listing link and were really disappointed at the number of places for sale. Is that because you don’t have access to everything on the market? We are specifically looking for a vacation home on the water.

A: Alas, that’s all there is. We always have a small inventory of homes for sale but in the last eight to twelve months we’ve had an unusually small number of homes available. Particularly with waterfront, we’ve had no more than three or four houses for sale at any given time for many, many months.

The lack of supply and the increased demand makes for a very hot sellers market. With the exception of really overpriced properties, homes are moving very quickly. We are seeing multiple offers that can even go into a “bidding war” between competing buyers.

As a purchaser you need to step back a little bit and see things as clearly as possible. It looks like some people are “throwing caution to the wind” and making offers without the contingencies and conditions that can protect them. Of course it’s tempting to do that if you really like a particular home.

As an exclusive buyer’s representative I feel it’s my duty to point out the pitfalls of buying a “pig in a poke.” Tossing out the inspection contingency, financing contingency (unless you are paying cash from other sources) and examination of title contingency can lead to a place you may not want to go. Unless you are financially prepared for unexpected repairs and possibly title issues that are hard to live with, you had better keep those contingencies in your offer.

In order to position yourselves to be competitive in our current market be sure that you have your pre-approval for a loan in hand, are ready to come out and look at a place as soon as possible and be clear enough about your priorities to make a fast decision to buy.

Wednesday, February 23, 2005

Q. My daughter has been looking to buy here and working with you.

She told me that every time she looks at a home with a wood stove in it you recommended that she get rid of it and install a pellet stove or gas stove instead. I’ve had wood stoves and fireplaces all my life and don’t see what the problem could be. What do you have against wood heat?

There are several reasons that I make that recommendation. The most important one has to do with insurance. In the last few years the insurance industry has become more and more conservative. They are turning down homes with problems and often turning down homes that have ever had an insurance claim. One of the things many of them are doing is refusing to insure homes with woodstoves since they can show that the woodstoves pose a fire hazard. Even when they do insure these homes they want to be sure the wood stoves are newer, certified stoves. Some companies are even charging more for such insurance.

Another reason for mentioning other heat sources is that studies have shown that burning wood creates pollution. That pollution is outdoors, from the smoke of the fire and also indoors. Even the newer certified stoves put out enough particulate matter indoors to cause problems for those with asthma and allergies.

Pest inspectors often mention the issue of wood destroying organisms (bugs) being brought into the house on firewood. This can create problems if those bugs decide they like the taste of your floor, walls or furniture.

For those who simply love a wood fire the only choice is a wood stove or fireplace, but for those who just want the warmth and look of fire without the hassle, there are other options. Part of my job, I believe, is to educate people. I try to keep up with as much information as possible that involves real estate so I can pass that on to my clients.

Wednesday, February 09, 2005

Q. We’re going to sell our house in the spring and are trying to decide which real estate agent to list with.

We interviewed several agents but found it confusing. They all have web sites and they all put the house in the multiple listing service and have newspaper ads. We’re not sure what to base our decision on. Since you don’t list houses we thought we’d ask for your recommendations.

If I were selling my own home, I would want someone who was experienced, had an excellent reputation, did a lot of business on the Island, and had access to good marketing tools. (It’s always smart to ask for references). I would also want to know that they are accurate with their pricing. The wrong price could mean that you leave money on the table at closing, or that your house is so overpriced that it stays on the market for a very long time.

In addition to those things I add a few other requirements based on my years representing buyers. As a broker selling a house, I want to believe that the listing agent is ethical and goes well beyond what the law requires of them. I want someone I can trust to fully disclose material defects in a property.

It’s possible that I, or someone in my office, will sell your home so I would also want to know that your agent is really knowledgeable about representation. I want them to be working as hard for you as I am working for my buyer clients.

Once we’re in a transaction both agents have a lot of work to do. I like to feel that we can have a good working relationship to solve problems as they come up and make the entire experience as pleasant as possible for our clients.

One last thing to remember. You will be working very closely with this person for weeks or even months. You need to feel comfortable with them. You want to be able to totally trust them and know that they’re looking out for your best interests.

Wednesday, January 26, 2005

Q. We’re in the middle of buying a house and have a real problem.

We had an inspection done and there were a few little things the house needed. The seller agreed to fix them so we are at the point where we have to accept the place and buy it. The house is on a bluff and the seller said that there has never been any trouble with landslides. We ran into a fellow who lives next door to this house at a party. When he found out that we were the people buying it he told us that a few years ago there was a big slide and the yard used to be double the size it is now! We really want the house but now we don’t know what to do. Is the seller lying? Should we get and attorney? We are buying direct from the owner so we have no agent to help us.

A. I don’t have to remind you that having an agent representing you might have been a big help here. However, at this point I’d recommend that you tell the seller that you heard about the slide. It’s possible that it happened before he owned it and re really doesn’t know about it. That’s unlikely, but it does happen. It’s also true, I’m afraid, that the neighbor might not be telling the whole truth so you need to check this out. Next, extend the inspection contingency, which you have a right to do if further evaluation is warranted, and hire a good geotechnical engineer to assess the slope. That will help decide if the risks are worth it.

If the owner knew about the slide and didn’t disclose it, he could be guilty of fraud and you would probably have good cause to get out of the sale or possibly other remedies. See a real estate attorney to learn your rights. Slides are common in the Puget Sound and you have to assume that if you’re buying waterfront or property on a slope, a slide has happened or might happen.

Wednesday, January 12, 2005

Q. I’m so frantic I don’t know what to do.

My husband just got a job transfer to another state. I really don’t want to leave Vashon, but we feel that we don’t have a choice. We’ve interviewed several real estate agents and are now totally confused. One says to move out first because the house will show better empty. Another said to leave everything here so it looks lived in. The third person said we needed to spend money on repainting and a bunch of repair work before we try to sell. We just want to sell quickly and get on with the move. Any ideas?

From the comments of the other real estate folks you’ve talked to, my guess is that your house is messy and a little worn. Let’s face it, most of us don’t keep our homes looking like something out of a home design magazine unless we’re lucky enough to afford household help. It sounds like your plans were unexpected, so of course you’re not prepared.

We have an active market even though it’s winter, with buyers looking to buy. You should not have to turn your home into “house beautiful” in order to get a fair price. According to leading real estate experts, and my experience, empty houses generally don’t show well, especially in winter. They can look forlorn and cold. I would not recommend leaving the house bare. I would recommend that you do the following. First, pack up all your personal items. You’re moving anyway so get those collectibles, family photos, knickknacks and “stuff” into boxes. Next, clean the place until it shines. If you can’t do this, hire someone. Have the carpets professionally cleaned.

Most important, keep the place picked up and ready to show at a moment’s notice. List with a person who is realistic about price and ready to support and assist you every step of the way. You might make a few more dollars if you paint, repair, wait for spring, plant flowers, etc. But that’s not as important, it sounds like, as getting on with your life.