A House By The Park

So it’s been several months now and the Seattle real estate market in the middle of winter appears to be an extremely quiet place. I’ve looked at hundreds of listings which continue to come up every week, drove by about 20 of them, and went inside of only five. Since I am already comfortable in my condo, there is no need to jump on a property unless it is perfect.

Yesterday, however, my agent took me to a property which, strangely, has been on the market for about six months and yet I never remember seeing. It turns out the photos of the property that the realtor uploaded online were so awful that I wrote the place off months ago without even checking out the specs. It’s an old 1950s tear-down on a huge 15,000 square foot lot with a great water view in the exact area I want to be in! After touring the property, I instructed my agent to contact the selling agent and feel out the situation. The price has already dropped about $500,000 since it was originally listed and I’m wondering what price would make it mine.

To my unfortunate surprise, it turns out an offer was accepted today, a full six months after it went on the market. Man, I am so mad I didn’t find this earlier.

Lesson: Don’t let online photos dissuade you from checking out a property in person.

It turns out this place is an estate sale and there are 10 beneficiaries, so I am going to put in a “backup offer” in case the first offer falls through. I’d love to figure out a way to outbid the existing bid and move into first place, but apparently in real estate, it is almost impossible for a seller to get out of a contract unless the buyer is in breach. Any interference by me could be considered what’s called “tort interference”, which you can be sued for.

Fingers crossed, but not hopeful.

So we’re all set to close tomorrow and the real estate agent who was not retained by the seller apparently thinks he is still owed a commission.

Unbelievable.

I presented this agent with a release form to sign (just to be safe) in order to get the 0.5% referral fee that my agent was willing to give him and he won’t sign the release form!

Do I really need him to sign a release form? No, since he has no contract and therefore no claim to any commission, but since I indemnified the seller in order to get the deal done, I want to make 100% sure this is all settled before this agent sees any money at all. If he still has thoughts of raising a stink, he can do so without my money.

What I ended up deciding to do is to close this deal tomorrow, as planned, and have escrow hold this other agent’s 0.5% in escrow until he signs the release. If he doesn’t sign within a couple of weeks, I will just have escrow pay my agent the full commission instead.

I’m not too worried about this situation at this point, but it’s annoying to even have to deal with it. I do like having the power to keep this money in escrow, but honestly, I wish I had the power to withhold all commission related to this deal if I needed to.

This is important: most people don’t realize that the buyer’s agent contract they sign usually specifies that the buyer will be responsible for paying a 3% commission to the buyer’s agent if the seller doesn’t pay it (which they usually do). I do not like this arrangement at all and I will be writing it out of my next contract. I was still going to pay my agent 3%, but I don’t like giving up the right not to under circumstances like an intra-office commission dispute. Another thing people should change about their contracts is the termination clause. My stock contract didn’t allow me to sign on with another agent until three months after I terminated my existing contract. I ended up changing this to 14 days, but I would go even further in retrospect. Probably one week.

When you buy a property with an existing house on it, you have several choices ahead of you. You can:

1. Move right in and accept the house as is.
2. Do a classic “remodel”, putting in new floors, carpeting, bathroom fixtures, and/or kitchen appliances.
3. Tear the whole thing down and start from scratch.
4. Tear 99% of the thing down, start almost from scratch, and call it a remodel.

Options a and b are pretty straightforward and if your house already has a great footprint and layout, you probably don’t need to think about c or d. But what if you need to completely reinvent the property? What is the best way to accomplish a total transformation with as little friction as possible?

In the United States and other countries with similar building conventions, it’s usually option d. All cities are slightly different, but generally if you keep even a single wall up, it officially counts as a “remodel”. I’ve even heard stories of people keeping a tiny portion of an existing wall up, calling an inspector out to bless it, and then knocking the wall down and rebuilding it within 24 hours.

If you get your project blessed as a “remodel” by your city’s planning department, you save yourself a lot of extra permitting, extra costs, extra arguments with the city and/or neighbors, and extra time. You’re also more likely to get special “out of code” allowances from the city if you need them. For instance, the carport in my current structure does not conform to code anymore (it’s too close to the street) and the western-most edge of the house is technically in an environmentally critical zone. If I built from scratch, the chances of getting approval to re-create these out-of-code elements would be small.

It’s been about two months since plans were submitted to the City of Seattle and we’re finally nearing approval. The Department of Planning and Development has really been scrutinizing the hell out of everything, probably because the amount of applications flowing through right now are minimal. The fine folks at Build have dutifully made all of the “clarifications” and modifications the city has requested and we’re entering the home stretch.

As part of the extra scrutiny, we had to do a little more geotech reporting at a cost of $350 and structural engineering at a cost of $2,642.50.

More troubling, however, is a contract the city wants me to sign not only absolving them of any liability related to damage that may occur to my property (because it is near an “environmentally sensitive” zone) but actually indemnifying them against claims made by others for issuing me a permit.

Initially, even the first clause scared me but I’ve been advised that they are still culpable for negligence. So for instance, if they run a sewer line such that it dumps 10,000 gallons of water right onto my property causing the entire cliff to collapse, I can still seek damages. We may need to clarify language around this though.

The second clause is more concerning though. It essentially says that even if a neighbor sues the city for issuing me a permit, I must pay to defend the city and also pay any judgements or penalties against the city, if there are any. That seems extremely onerous to me, especially since I have no control over what sorts of crazies might want to sue the city. At least when I indemnified the family who sold me the house, it was for a very specific situation that I knew had a 99.9% chance of not mattering… not to mention, I quickly nullified my liability by having the only potential litigious party sign a litigation waiver.

Because of this latest issue, I’ve decided to seek the advice of a real estate attorney, recommended to me by a friend. It’s probably a good time to get to know a good real estate attorney anyway, since there will be plenty of contracts to execute moving forward. Hopefully, I’ll have an update on the situation soon.

Almost 5 months after applying for building and demolition permits, the City of Seattle finally granted me my documents last week. With barely any permit applications going through the City these days, one would think things would have gone quicker, but in reality, I feel like the lack of permit flow caused more city scrutiny in the end. The main issue that dragged things out was something I wrote about a little while ago: indemnification.

In short, since part of my property is in an “environmentally sensitive area” (i.e. near a cliff) the City insisted that I sign a covenant running with the land that did many things I felt were overreaching and unnecessary. I understand why the City’s standard procedure is to ask for this (and most people accept it as is) but it contained two particular things that my attorney, Patrick Moran, was thankfully able to negotiate out:

• A clause stating that if anyone sued the City for anything relating to the issuance of my permits, I had to indemnify them and pay for all legal fees, judgements, etc.
• A clause stating that this covenant ran with the land and if I ever sold the property, the new owners would also be burdened by it.

The first clause was reduced such that the indemnification only covers actual damages caused by construction. This means that if a neighbor decides to sue the City because they don’t like the look of my house, I’m not on the hook to defend anybody or pay anything. The second clause was modified such that the indemnification ends if and when the property is sold. This is key in preserving value, as I would flinch if I was buying a property which transferred such indemnification to me.

A lot more language was clarified as well, and I feel like the $1049.50 I owe my attorney in fees has been well worth it.

During these final stages of preparing for construction, I’ve also completed a few more tasks and spent a little more money:

• We had the asbestos abated for $2,335.64 by Partners Construction, Inc.
• Some additional structural engineering work from Swenson Say Faget was completed for $2,192.29.
• Some additional geotech work was required by the City and performed by Icicle Creek Engineers for $600.
• The additional City of Seattle fee to complete the permitting process was $3,450.75 (bringing the total permit fee to $8,911.50).
• Printing fees of $172.91 for some additional drawing sets.

So with that, we’re almost all set to build. I’m still waiting for my refinance to close, but after that it’s all systems go. Unfortunately, the place that is going to deconstruct and recycle most of the existing house is a little booked up right now so we may be looking at July.

It’s also interesting to note that the official amount of investment it took to get to the point of breaking ground has been exactly $78,543.85.