Buying Property in the San Juans – Procedures to Purchase
By Merri Ann Simonson
Select an Agent to Represent You
As you may be aware, all of the brokerage firms on San Juan Island are members of the Northwest Multiple Listing Service; therefore, any of the agents can assist you with any of the properties listed with Coldwell Banker San Juan Islands 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 for the buyer.
Seller’s representation is when the agent has a listing with the seller and is attempting to obtain the highest possible sales price for the seller.
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 and negotiates the best possible outcome for both.
Determine Your Source of Funds
Cash at Closing
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. You also need to determine your closing cost for the purchase as that fits into the equation as well. We have numerous lenders that are active with financing in the islands if you are interested.
Closing Costs for a Purchase Transaction
Normal buyer’s closing costs on a cash transaction include 1% Conservation Area Real Estate Excise Tax or commonly known as the Land Bank Tax. Further, approximately .5% for the Affordable Housing Excise Tax, half of the escrow fee, prorations of real estate taxes, utilities and HOA dues, recording fees, notary charges and your hazard insurance for the home. If you are using a lender, you will receive a Good Faith Estimate from them after you make loan application. Their fees are abundant and too numerous to list in this article.
These closing costs add up and are notable so be sure to be prepared.
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 view?
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?
Internet connectivity? Working from home?
Desire a Vacation Rental Permit?
Desire a manufactured or tiny home?
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.
Educate yourself on the Market and Inventory
As a buyer, you should 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 meets most of your needs.
One way to monitor our market is to review my Quarterly Real Estate Market Updates. In addition to this market report, I offer monthly articles that contain information about local Wells, Septic Systems and Vacation Rental Permits, to name a few. You can also sign up for this service on my website located at -www.sanjuanislandslifestyle.com or www.sanjuanrealproperty.com. If you prefer video, I have a series of videos about life in the islands. My channel is located at https://www.youtube.com/user/1378cecil/videos?view_as=subscriber
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 program 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:
Archaeological 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, I will 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.
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.
It is very important to have the corner stakes marked by a surveyor and know the boundary lines of a property. The surveyors work may disclose encroachments, errors in past surveys and other issues that will need to be resolved prior to closing.
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.
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. A feasibility study can provide an all-encompassing report that addresses 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; For example, 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 homeowner’s 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 islanders use Century Link or our local firm, Rock Island for their DSL internet connection. Rock Island is currently installing Fiber in all 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.
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 built 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 on their website which is located at -(http://www.sanjuanco.com/837/Permits-Forms-Information
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 does not 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.
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 $2,500 or $3,000 if an excavator is needed.
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 $300 for the inspection, $800-$1,000 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 ordinances implemented numerous setbacks that are restrictive “buffer areas” from wetlands, shorelines, sensitive areas 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 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 the size of home and number of outbuildings.
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. If you are not using a lender, you can sign via docu-sign or another similar program. If a lender is involved, escrow will use a remote notary service to bring you the lender’s loan documents and the balance of the closing documents and they fed x back to the escrow firm on island. 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.
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.
This article is for informational purposes and not meant to encompass the entire process. Hopefully, the article does not make the purchase process sound intimidating but if you select me as your agent, then I will guide you through all the steps and issues.