Before Buying that Beach Castle, Do Some Digging

The Washington Post / Harvey Jacobs

My father, channeling both Mark Twain and Will Rogers, used to tell me, "Buy beachfront property -- they're not making any more of it." For generations, that was pretty darn good advice.

Over the past 25 years, we saw modest oceanfront homes in places like Bethany Beach, Del., or Duck, N.C., once costing a few hundred thousand dollars, soar in value to many millions of dollars. Annual appreciation of 20 or 30 percent was common. Prices doubled every three or four years.

Traditional one-story, three- or four-bedroom beach cottages were leveled to make room for palatial eight-, 10- or even 12-bedroom mega-mansions that more accurately reflected the best and highest use for the now immensely valuable oceanfront sand upon which they were built.

Then the great real estate bubble burst and property of every variety and location suffered terrible declines in value. Beach property, often held by the most affluent, took far longer to feel the effects of the bust. But those effects are now certainly being felt. Property values all along the Delmarva Peninsula have declined by as much as 40 to 50 percent from their peak. The amount of time it takes to market, sell and settle a beach condo has also increased to nearly a year, according to Veronica Bishop, spokeswoman for the Coastal Association of Realtors, which tracks the Ocean City marketplace.

But in every catastrophe there is opportunity. For investors, second-home buyers or retirees who have been sitting on the sidelines for years, 2010 may be the time to dive into the beach market. Prices are now almost back to 2001 levels, and buyers previously priced out of this market may now be able to afford their dream home. In addition, the sheer inventory of available homes is quite favorable to a beach buyer.

But before taking the plunge, home buyers must heighten their level of due diligence. It is no longer acceptable to simply make a cursory home inspection and perhaps a pest inspection and then hope for the best. Today's savvy buyer must also inspect the financial and legal integrity of their town and especially of their condo or homeowners association.

While this may sound a bit extreme, small towns and community associations are experiencing severe budget shortfalls. Cuts in services must be made -- and they could affect that location's desirability. For example, if a town had decided to close off portions of the beach to save on cleaning costs, or if it could no longer afford to hire lifeguards, a beach-home buyer would certainly want to know about it. Such quality-of-life decisions are made in public forums. Official minutes of meetings and printed budgets are all publicly available, often on the town's Web site. A beach-home buyer should obtain and review these records before making the investment in a home.

A buyer also should consider inserting a clause in the purchase offer making it contingent upon the buyer's receipt of and reasonable satisfaction with these public documents. Should this review reveal unacceptable financial or legal circumstances, the buyer should have the option to cancel the purchase offer and have his earnest money returned. Then neither party should have any further liability under that contract. Condominiums and common area associations are already legally required to make most of these disclosures.

Although beach-home prices may seem like a bargain now, the total cost of ownership and deferred maintenance must be factored into the overall buying decision. Total cost of ownership includes real property taxes, water and sewer charges, and insurance premiums, including for liability, casualty, hurricane and, if available, flood insurance.

In recent years, insurance premiums have become a much larger percentage of the total cost of ownership. For community associations, total cost of ownership also includes homeowner's, condo or recreations fees and may include special assessments for maintenance, repair or replacement of common areas. Reserve accounts should be established to ensure that common area associations have sufficient funds on hand when major items such as roofs, elevators, parking lots, pools, tennis courts, decks or swimming pools require replacement, or the beach needs replenishment. Prudent planning and management of reserve accounts can avoid the need for unwelcome special assessments.

Under normal economic circumstances, these costs are apportioned among all the homeowners in the town, or among all the members of the condo or homeowners association. So long as all of the residents pay their taxes and fees, these towns or community associations have the wherewithal to maintain, repair and replace the amenities that make the beach such a wonderful place to relax.

However, in these dire economic times, more homeowners are walking away -- or being forced away -- from their financial obligations. As a result, beach towns and common area associations are feeling the pinch.

Because beach properties are subjected to harsh natural elements, items such as paint, caulk, weatherproofing, windows, doors, awnings, storm shutters, decking, siding and roofing, as well as exposed hardware such as hinges and locks, require almost constant maintenance. Owners must also be vigilant for signs of less-visible problems such as termites, mold or shifting sands and, if necessary, treat the problem immediately. All of these repairs cost money. With the number of foreclosures and other distress sales occurring, the money for this maintenance is often not available and this essential maintenance is simply not being done.

Now is the time to buy at the beach, but only after performing additional due diligence. That should include structural, pest and even environmental or geological inspections; review of budgets, financial statements (focusing on delinquent accounts), reserve accounts and even bond ratings by a certified public accountant; and a legal audit of meeting minutes and any litigation involving the town or common area association. Go out of your way to hire a reputable home inspector.

While there is never any guarantee that one's beach investment will be a winner, undertaking this heightened level of scrutiny will increase the beach-home buyer's chances of making a prudent investment that can be enjoyed for years to come.

Harvey S. Jacobs is a real estate lawyer in the Rockville office of Joseph, Greenwald & Laake. He is an active real estate investor, developer, landlord, settlement attorney and lender. This column is not legal advice and should not be acted upon until legal counsel has been consulted.

Small Improvements That Sell

MSN

With very little effort, you can transform an average house into an above-average property that is sure to get second looks from buyers. Follow these guidelines to make sure your property stands out above the rest:

Paint inside and out
Fresh paint is the most cost-effective and profitable improvement you can make, even if your home doesn't need a new coat. Paint the interior walls a neutral color and the ceilings white to make rooms look bigger.

New lights
Replace outdated fixtures. This inexpensive improvement can update old decor that might have discouraged buyers.

New flooring
Install new carpet, linoleum, or tile, and refurbish hardwood floors if needed. Choose a neutral color for new carpeting. New flooring will increase the market value of your home, while shabby floors can kill a sale.

Planted landscape
Attractive front and back yards boost the value of any property. Mow the lawn, trim shrubs, and plant new bedding flowers. Clean up perennial beds. Plant some trees if the yard is barren, especially in the front parkway. Sweep the patio or deck and decorate with potted plants and flowers.

Inspection

At a cost of $200-$300, it could be worth it to hire your own home inspector to give your entire home a thourough going-over before any potential buyers do. This is especially true if you have let any routine maintenance fall by the wayside for a number of years.

Completed repairs
Before listing your home for sale, make all minor repairs and catch up on maintenance. If you've deferred maintenance, get a professional home inspection. If the inspection reveals problems, make the repairs before listing the home. If you don't, the buyer will probably discount the offer price for more than the cost of repairs or replacement.

A clean garage
If you use your garage for storage, clean it out and rent a storage space. Paint the interior white. If your garage is unfinished, install wallboard or build storage shelves on the back wall. A clean garage will help solidify a buyer's impression of a home in move-in condition.

As you can see, there are many small improvements you can do yourself on a limited budget without venturing into an entire home remodeling project.

Home Inspections Save Money

Daily Herald-Tribune

The curb appeal and the excitement of owning his first home led Dave Galway to buy a former army barrack house in the Swanavon neighbourhood. He said he didn't look at the home too closely, inspecting it himself as he had experience in the construction industry. The surprises he encountered led him to become a home inspector.

"When we finally got into the house, the first winter we almost froze because the furnace was so old and so inefficient and the gas prices were killing us," he said. "When we tear out the cupboards underneath the sink, the wall was rotten in behind. The floor had seem to be rotten so we lifted the floor. All the floor framing joists … were rotten so we had to open up the whole kitchen … and repair that."

Not to mention the shingles he had to replace, the water in the basement and discovering that the foundation was a combination of bricks and wooden posts.

"That house really inspired me to start in the home inspection industry because I knew construction. I thought I knew quite a bit about a house but after that, I realized I didn't know much about a house," he said.

The inspection usually entails a visual examination of a property, first from the exterior. Galway said he walks around the building checking the yard's slope to ensure the water drains away from the building. He then checks the portion of the foundation wall above ground for shifting and cracking. He said he also goes up on the roof, seeking signs of shingles and flashing deterioration.

"We go through the house and we check for major deficiencies – things that are not right, things that if maintenance is not done, it could become a problem in the future," he said.

Going inside, Galway said he checks and determines the age of the furnace and heating system to ensure it heats the building properly and all registers are working. He said anything older than 20 years is past its prime. He said he turns on all the tubs, toilets and sinks to check the main sewer line going out through the street. He added he also looks for items like missing handrails and electrical safety issues such as wiring for kitchen appliances.

"Our Number 1 concern is safety for the buyer, our client. Are they going to be safe in the house that we have just inspected," he said.

Galway said he takes about three hours to do average home inspection at a cost of $400. He added he usually does two a day but this summer has been the worst he's seen because of the economy. Homebuyers account for most of his clients but sometimes investors, looking at hotels, motels and apartment buildings, request such an inspection.

Galway, who now works for Critical Path in Grade Prairie, said he has 35 years experience in construction, including 15 years working as a home inspector. But the tribulations with his first home led him to take a two-year course in the United States.

"I've seen a need because I bought my house as a first-time homebuyer. Even though I was a carpenter-contractor, I didn't really know what to look for and then when we got in there, it was oh my God, all these problems," he said. "So that really inspired me to start a business. Just what I had to deal with in my old home was from the 1950s and the problems that I encountered trying to fix it and renovate it. It turns into a never do this again sort of thing."

The older the home, the more owners, the more additions and home remodeling it had usually means more problems, he said.

The main issue he sees in the resale home market is water around foundations or gutters knocked off, followed by heat issues.

"The back slope grading and drainage away from the foundation is one of the things I see quite often," he said. "The next one would be older furnaces that are over 20-years-old and electrical problems, a lot of electrical problems where maybe the homeowner has wired the basement."

Home Inspection -- Not A DIY Project

from Deseret News

Question: When purchasing a home, what are some of the most common problems you find? I really would like to have the home I'm buying inspected, but money is the biggest problem right now, and we can't afford to pay an inspector. If we do the inspection ourselves, what should we be looking for?

Answer: As a Certified Master Inspector and a member of the American Society of Home Inspectors, my answer is that you cannot afford to simply pass on the home inspection. If you decide to do it yourself, you may not find major defects that would be obvious to an experienced home inspector. Depending on where you live, a home inspection should cost around $300, but the savings reaped from the inspection report is often in the thousands of dollars.

I personally have performed over 10,000 home inspections and know of inspectors who have inspected more than double that number. All those I've talked to agree that the home inspection is the purchaser's last chance to ask the seller to correct the major defects listed in the report. After taking possession of the home, the seller is out of the picture, even if you later discover you need a new furnace ($2,000 plus) or an upgrade of the electrical system ($1,200 plus). Over the years, I can recall only two occasions where the inspection report listed defects with the repairs costing less than $100.

Invest the $300. Sounds like a good investment to me. You might also consider that a DIY inspection may not be accepted by the seller as an accurate description of what needs to be done. Hiring a professional home inspector, who can explain what the defects are and how they should be repaired, leaves little room for disagreement. You should also consider that a professional home inspector is unbiased and is disconnected from the emotional issues associated with purchasing the home. The home inspector gets paid for his services whether or not you follow through with the purchase and repairs of the home. If you are determined to do the inspection yourself, here are several things to look for:

1. Grading and drainage. Make sure the home's foundation sits high and dry. The yard and rain gutters should drain away from the foundation for a least 10 feet.

2. Any and all electrical wiring should be either out of reach (6 feet 6 inches above the floor) or the wiring should be in a protective conduit.

3. Metal flue pipes must have a 1-inch clearance to combustibles. There should be a clearance where the pipe passes through the drywall ceiling or through the wood-roof sheathing. The flue pipes must also have a continuous rise from the appliance to the main chimney connection. Rusted or damaged flues need to be replaced.

4. Loose toilet bowls and stopped up sink drains. Operate all plumbing fixtures for 10 to 20 minutes to make sure all drain lines are working, and at the same time check for leaks under the fixture's cabinets and in the basement or crawl space.

5. Purchase an outlet circuit tester and check each and every outlet you can reach. You will be checking for "open grounds and reversed polarity" at the outlets. Test and reset every GFCI (ground fault circuit interrupter) in the home.

6. Operate all home and kitchen appliances (furnace, dishwasher, range, etc. Do not operate an air conditioner when the outside temperature is below 60 F).

7. Operate the garage-door opener and check the auto reverse features and the photo cells to make sure the door automatically opens if there is an obstruction in its path.

8. Natural gas and LP gas pipes require a sediment trap, also known as a dirt trap or a drip leg, on each gas pipe just before the pipe connects to the gas appliance's main gas valve. Replace any and all copper gas pipe.

9.Stairways and handrails. Make sure all stair risers are the same height (seven to eight inches) and that stair treads are at least 9 to 10 inches deep. Where there are three or more steps, a handrail is required for safety. Longer handrails and guardrails also require baluster posts set at a minimum of four to six inches apart to keep children from slipping through the railings.

10. Tempered safety glass. Windows over bathtubs, shower enclosures, patio and French doors and larger windows that are easily accessible should be tempered or protected against accidental human impact. The glass should be marked "tempered" in one corner of each piece of glass.

While these are just a portion of the components of the home, a professional home inspector will check many more details too numerous to list and has a trained eye to spot problems the DIY'er may not be able to identify.