Life in the mountains is great, but there are some due diligence issues that you may not have encountered before, unless you’ve lived in a mountain community. Most of our buyers need a little education on things like wells, septic systems, gravel road maintenance, and local politics. For those who like to “look before they leap,” the brief articles below point out some of the potential problems and pitfalls. These are some of the things I like to discuss with my buyers, so they can make an informed decision leading to an investment that will appreciate in value and provide the best mountain living has to offer. I’ve had a good time up here over the past thirty years, and I want my buyers to have the same. So … read on, and familiarize yourself with our market before you buy!
On the Concept of No Zoning
Folks who come up from the city seem to take it for granted that mountain counties have zoning, but it ain’t necessarily so. Fannin County, for instance, has no countywide zoning. It’s a hot button political issue with the local citizens, and our politicians have made it clear that they no stomach for the fight that would ensure if there were an attempt to enact it.
It’s very much a part of mountain culture that you can do anything you want on your own property, so much so that many people seem to assume that the law literally doesn’t apply to one’s own property. I remember listening to a local man brag about all the trout he caught last weekend, when someone in the audience observed that it wasn’t trout season. The fisherman shot back, “I was on my own property!” From the local point of view, that’s pretty much a knockdown argument.
For this reason, there are more than a few people who have bought property up here only to discover that Farmer Jones was putting a new chicken house next door, or that there is no way to prevent the next door neighbor from assembling a world-class collection of rusting cars in their front yard.
The lesson is that unless you are buying a fair-sized tract of land, or a lot in a very well established neighborhood where nothing is likely to change, that you need to buy in a development with covenants and restrictions. When we tell people that, we often get a negative reaction to the idea of being in a development. People will say, “I don’t want to be in a subdivision.” But if you aren’t in a subdivision with covenants and restrictions, you have no protection from unfriendly land use. Our covenants have evolved over the years, from “no trailers, no junk cars, no livestock” to more detailed restrictions. But they haven’t yet reached the level of craziness usually associated with big city condo and neighborhood associations. I tend to favor developments with an established road maintenance fund, as opposed to those where people chip in when they feel like it.
The listing sheet available on the MLS, which your agent should furnish you, will say whether there are covenants and restrictions. The listing office should also have a copy of them on file, and it is a good idea to review them thoroughly before making an offer. There are many, many people who have never seen the covenants and restrictions governing their property, which are on file at the courthouse, but are rarely furnished at closing.
What is “Unrestricted Land”?
When we say a property is “unrestricted,” it’s shorthand for “no deed restrictions or restrictive covenants.” They function the same way – to tell you what you can’t do on the property – but deed restrictions are enumerated in the deed itself, while restrictive covenants are recorded separately. Deed restrictions “run with the land.” That means that once they are there, they can’t be altered or removed. In rare situations, covenants can be altered, and there’s seems to be some debate about whether they expire after a certain period of time elapses.
Over the years, covenants and restrictions have undergone an evolution in our area. In the beginning, they were mostly “no trailers, no junk cars, no livestock.” We’re now seeing covenants that stipulate that you can’t cut a certain percentage of trees, or can’t cut trees bigger than a certain size without permission of the community association, and so forth. One local attorney has recorded a number of covenants with the ambiguous stipulation, “No large and/or potentially dangerous breeds of dogs.” That’s every dog, right?
In essence, the developer of a community records covenants in order to protect his investment by ensuring that it appeals to the market that he has in mind for the property. So the number one restriction is probably against mobile homes. But the issue is vital for people who want to grow chickens or live in a yurt or camping trailer, as these activities are forbidden by most covenants. It’s important for everyone to review the covenants and make sure he or she can live with them. If you really need unrestricted land, I recommend having the closing attorney do a title search – during the due diligence period – to make sure that the property is really free of restrictions. In other words, I wouldn’t take the listing agent’s word for it.
There are some definite tradeoffs, as I mention in my article on zoning. I’m not a fan of overly restrictive covenants, because this is the mountains, and most folks who have experienced the big city condo association foolishness have no desire to relive it here. But covenants do perform an important function, and most of ours remain pretty sensible and “livable.” At a minimum, I like to see something set up in the covenants – and actually functioning – for road maintenance, because that’s important here. Also, it’s often a matter of neighborhood contention if nothing is set up. Beyond that, it’s a matter of judgment.
There are some neighborhoods where the covenants have “slipped.” The developer is the person with the most interest in maintaining the covenants, and when he leaves, sometimes things happen. Enforcement is in the civil courts, so a neighbor has to sue. And I’ve heard the attorneys say that violations of the covenants must be addressed within a year, which I don’t think most folks realize. So there are developments where the covenants say one thing, but what’s really happening is another, which can have a definite effect on property values.
I’ve had some buyers go to the neighbors and ask if it is going to bother them if they do so-and-so, and if it isn’t, go ahead and do it. (I’m thinking of instances where people wanted to park a trailer on the property or wanted to build less than the square footage specified in the covenants.) Most folks, though, I think are wise just to avoid situations where what they want to do conflicts with the covenants.
The end result of all this is that small unrestricted tracts usually sell at a premium, simply because there are a lot of local folks who want to set a trailer. In my real estate practice, I’ve had many, many pieces of land that I could have sold – or could have sold at a higher price – if I could somehow have removed the restrictions and sold them as unrestricted land. This doesn’t normally come into play with larger tracts, as these are not usually restricted until development begins.
Log Home Basics for Buyers
It’s no secret that we’re hot for log homes, and there are a few things that people should know before they invest in one.
First, there are two basic types of log homes in our market, log and log-sided. The log-sided versions are also sometimes described in the MLS listings as “frame/log.” With log construction, the inside of the log is the inside paneling, and the log itself provides the structural frame that supports the cabin. With log-sided houses, a conventional frame is built, and log siding is attached to the exterior. Tongue-and-groove paneling is usually used to finish the interior. With log siding, therefore, you have conventional insulation between the exterior and interior walls – it’s basically a “stick-built” house. On a log house, the log itself is the insulation, and the R-value depends on the thickness of the log.
You can usually tell the two apart quite easily, because a log cabin will have the logs criss-crossing at the corners, while a log-sided cabin with have tidy, square ends. Be aware, however, that builders sometimes employ an “end kit” to give log-sided houses a “true log” look. Look for the nail heads that will be present in log siding. In our market, almost all of the log houses constructed are log-sided when they reach the second story. I’ve seen very few log cabins that carry the logs all the way up to the roof, and the reason is simple – cost.
There are advantages to both types of construction. Advocates of true log construction say that log cabins are quieter than other types of construction, and they cite the “authentic” qualities of log construction. While this is in some ways a dubious claim, because today’s log cabin is in fact a highly engineered product, there is an undeniable charm to a true log house. On the other hand, log siding is a more conventional build, and it is usually cheaper. You don’t get the same shrinkage and movement problems that log cabins must be engineered for, and you don’t get the same moisture problems that can exist with poorly engineered or installed log cabins. Any contractor who can build a conventional “stick-built” house should be able to handle a log-sided project, while log construction requires a somewhat different process.
In our market, with the exception of some high-end, round-log cabins, the materials for which are usually imported from the west (Montana, for instance), most of our log cabins are pine, and most are built from kits, not from logs cut and hewn on the premises. In the past, we had some cedar log cabins, but the cost of cedar has made this option nearly obsolete.
There are dozens, if not hundreds, of log kits on the market. The differences extend to the thickness of the log, the shape of the log, and the method of joining the logs together. In one premium system, considered the best by one of our local home inspectors, there are actually large springs under the house at all four corners, to ensure that the logs remain tightly together as the cabin ages. Other systems allow for some adjustments, and in almost all cases, doors and windows are engineered to allow for a little expansion or shrinkage.
With true log construction, and with log siding to a certain extent, you must be prepared to accept a certain amount of checking (or cracking) and a certain amount of pitch dripping from areas that receive hot afternoon sun. This is less true of the round logs imported from the west, because their moisture content is very low compared to the local pine product. But for the most part, if you can’t convince yourself that those cracks and pitch drips are charming, you should not buy a log cabin.
Prospective buyers should know that log cabins are not maintenance-free. These days, they are usually finished with a Sikkens product that is fairly clear (there are several popular choices). This is a three-part process, and it needs to be applied correctly by a competent and honest craftsman. If it is not properly reapplied regularly, the exterior siding will darken, at which point, you might as well stain it brown. The only other option is to have it soda or corn cob blasted, an expensive process. In our climate, normally one side of the house will need attention every three or four years, while other sides may last five or more years. People who are scrupulous about maintaining the original look of their cabins reapply the Sikkens every three years. Others find it easier to let it go, and stain it brown when the time comes.
In our area, we’ve gone through several distinct generations of log homes. In the beginning, the middle 1980s, log cabins here were typically one-story affairs, and they tended to be small and dark. In the next generation, we had the idea of adding a loft to the cabin, creating a “great room” effect. Interiors were still finished rather dark, and they turned darker as they aged. In what I think of as the third generation, we moved to a more open floor plan, and a lighter interior finish. In the latest elaborations of this generation, the floor plan is even more open. The relevance of this to prospective buyers is that the older generations are becoming “functionally obsolete,” as we real estate people say. While I encounter some people who think the newer designs aren’t “cozy’ and don’t look “cabin-like,” most people love them. I’ve noticed that especially with my younger buyers, once they’ve seen the newer ones, they have no interest in the older ones that are less open and darker no matter how much more reasonably they may be priced.
Prospective buyers should also be aware that while we are now building some large log homes, usually about $350,000, that have some of the features of traditional homes, most log cabins have much less closet and storage space, smaller master bedrooms, and smaller kitchens than traditional homes. Laundry rooms are usually closets, and often are designed for stack units, which work fine, but have about 2/3 the capacity of the ones you have at home. It’s a fact that you can buy a traditional home in our market for less than you’ll pay for a log cabin. It’s also a fact that they have very little resale potential. The absorption rate for traditional homes, as we real estate people say, is just about zip. What it all means is that we’re hot for log cabins, and unless you are sure you’ll never want to sell it, you should think very carefully about buying a traditional home in our market.
If you want a deeper understanding of log home construction, the best reference I’ve found is “Log Homes Made Easy,” second edition, by Jim Cooper (Mechanicsburg, PA; Stackpole Books), 2000. There’s also an associated website, www.easyloghome.com. Cooper is a sensible guy, and there’s good information in here for anyone who is thinking about being his or her own general contractor. For instance, the immortal – and locally very relevant – sentence, “There are subcontractors in any region whose greatest skill is avoiding doing the work they agreed on for the price they agreed to” (page 7). If you’re thinking of building, see also my article on “Building vs. Buying.”
Building vs. Buying
Build your own cabin or buy an existing cabin? It’s a big decision, and there are a few things I always like to tell people before they make it.
First, in most cases, you’ll get a better deal on an existing cabin. You’ll also be able to see exactly what you are getting, and there will be no misunderstandings about colors, appliances, and build standards. Most, if not all, of the problems will have already been solved by the previous owners of the cabin.
There’s an undeniable appeal to building your own dream cabin, on a piece of property that you’ve fallen in love with in the mountains. But you should go into it with your eyes open, knowing that it is a big commitment.
Let’s start with the lot. It will need a soil science test, at a cost of about $350, to determine whether it is suitable for septic approval. Assuming it is approved for septic, you will need a septic permit and a building permit. Some site work will probably be needed at the lot, which means tree cutting and grading.
The most important decision, of course, is who to hire as a builder. I’d like to tell you that all mountain builders are good builders, but that isn’t true. The established builders with good reputations are understandably busy, which means that they are probably booked a year or two ahead. In dealing with any builder, it is important to get more than one quote, and to specify exactly what you want in terms of basic construction and upgrades. The time to nail these details down is before the building starts. In designing your cabin, it is well to consider issues of conformity, which affect your new cabin’s potential resale value (see my discussion of conformity for details). It’s a very good idea to arrange to view other cabins built by the builders you are interviewing, and to try to talk to their owners about their level of satisfaction. You should be aware that the enforcement of building standards in our area is probably not as aggressive as what you are used to at home.
If you are in a position to supervise the building, or at least to personally monitor progress on a weekly basis, you will be much better off. It’s best to plan for delays, due both to weather and to your builder’s other projects. It’s a rare project that doesn’t have issues, and if you are the sort of person who becomes impatient and frustrated when things don’t go as you planned, building a cabin will definitely try your patience. You should be aware that mountain standards of politeness often lead people to agree to do things they have no intention of doing, or agree to meet deadlines they have no intention of meeting. Some say that if someone tells you he’ll be over on Friday, you should be sure to ask him if he means this Friday.
Still in all, if you have the resources, patience, and time to build your own cabin, it can be one of the most rewarding experiences in life. With a little planning and persistence, you can get the cabin you want in a spot that you have chosen, and there’s probably no better feeling.
Developing Your Lot: Early Decisions Are Crucial
We’re beginning to see some lot and land sales, so it’s time for me to share some thoughts on developing your lot. The first few decisions you make will be the most crucial, and you will have to live with them for a long time.
First, whatever you do, don’t just let the builder go out there and build it where he wants to build it and orient it the way he wants to orient it. Unfortunately, they have a tendency to build it wherever it is easiest to build it. I can’t tell you how many times I’ve showed a cabin to buyers, only to have them say, “Well, I’d buy it if it were oriented the other way,” or “Why didn’t they build it over there?” I’ve seen cabins oriented away from the view, toward the house across the street. I’ve also seen prow front cabins built directly into the afternoon sun, which is great, if you want to roast. This is a big deal, so think it over carefully.
The first item of business is the septic system. It’s good to have spent some time on the lot before the soil scientist goes out there, so you have some idea what you want to do, and can discuss with him whether it’s practical to do it. If you can be there, that’s best. Because septic permits are site specific, it’s important to see if you can build it where you want to build it. It’s also best to be there when environmental health goes out to look at the lot for permitting, because if they tell you that it can’t be built where you want to build it, at least you can discuss the alternatives with them on site, instead of back in the office.
You’ll probably have to cut down some trees for the septic system. It’s great if this can be part of the cutting that you want to do anyway, for the view or for other reasons. Don’t rush into cutting down all the trees day one, as many people do. For one thing, it tends to get hot in the summer. For another, you won’t have the katydids and woodland creatures if you do. I think it makes the most sense to do some cutting to get a good view, but leave most of the trees. That way, when the leaves come off in the fall, you’ll have a bigger view. That’s something I look forward to as some compensation for the fact that winter is coming, and it also gives me some seasonal variety. A lot of people come here for the seasons. Why not enjoy them?
It’s crucial to spend some quality time on the lot, preferably over a period of several days, preferably from dawn to dusk. Take a couple of chairs, a picnic lunch, or a cooler – whatever it takes to keep you there all day. Watch where the sun rises and sets, and look for patches of sun and shade. Be aware that the sun moves a good bit from summer to winter, from slightly northwest to more southwesterly. Get to know your lot as intimately as you can before you decide where to build and how to orient the house. These are decisions you will have to live with for a long time, and they will definitely affect the value of your investment and your resale potential.
Finally, consider paying a little more for driveway and utilities, and building back a little further from the road. There are a lot of people who regret that they didn’t, either because of dust from the road or increased traffic.
So Where’s the View?
If you’ve looked for mountain property, chances are that you’ve asked that question. In theory, the listing sheet should specify whether the view is year-round or seasonal. In practice, agents – who are all fiction writers by trade – are sometimes inclined to stretch the truth. A good rule of thumb is that if there isn’t a picture of a view on the listing sheet, there probably isn’t a view. Unfortunately, it’s not unheard of for agents to take a picture of the best view in a development, and then run that picture for all the cabins in the development, whether they have that view or not.
There’s something to be said for looking for land in the fall, when the leaves are off the trees, because it’s usually easier to tell whether a given view could be improved by selective cutting. It isn’t always necessary to cut the tree down. Views can often be improved by topping trees, or by cutting selected branches in the middle of the tree. Here’s where an experienced tree man, who knows how to climb, can be invaluable.
In my own development, most people cut down every tree day one, which yields spectacular mountain views but doesn’t leave much to look forward in the winter. It also leads to a lot of complaining about how hot it is on their lot. My approach, which I have been quite happy with over the years, was to leave most of the trees that didn’t absolutely need to be cut. I did do a little selective cutting to create a year-round view of the highest point in the Cohuttas, the Big Frog, but I left most of the other trees that were in the view. That way, I can enjoy the forest and the forest creatures in the summer, and when winter comes, I enjoy a broader view.
If you are planning to do significant cutting, be sure to check the covenants and restrictions before you buy. I’m seeing more and more developments that specify that no more than 50% of the trees can be cut. Very strict covenants may even require approval to cut specific trees.
It’s also worth considering the direction and permanence of the view. I prefer sunset views to sunrise views. Although it’s always nice to have both, I’m more apt to have to time to relax and enjoy in the evening than in the morning. It’s also important to consider what you’re looking at. National forest views are more likely to remain unchanged over the years than views of land with development potential. If your agent has no idea what you’re looking at, and some of them don’t, a little work with a compass and map might well repay your effort.
Soil Science, Septic Approval, and How to Lose Your Shirt
The number one issue in buying mountain land today is septic approval, for without it, the land is virtually worthless. I’ve spoken to many people in the past few years who thought they had a great, appreciating investment but whose land is actually worthless because they either can’t get – or lost – septic approval for their property.
First, a mighty disclaimer: I’m going to talk in general terms about the septic approval process, based on the county I am the most familiar with, Fannin County, Georgia. This information is believed to be correct as of the date it was written, and should give you a general idea of the importance of the issue, and some of the “nuts and bolts” of the septic approval process. But you should be aware that septic approval is a moving target, and it is done on a case-by-case basis. The regulations, and their interpretation by local officials, change frequently, and surveyors, real estate people, and attorneys are generally not informed when they do change. In each and every case, it would be extremely foolish accept anyone’s assurance that a piece of property is buildable without personally investigating the situation and speaking to the responsible officials to make sure that you understand the situation in detail.
Let me repeat that. YOU WOULD BE ABSOLUTELY CRAZY to buy a piece of mountain property without personally speaking directly to the responsible local officials and making sure you understand everything they have to say that bears on your potential purchase. If you are going to risk your hard-earned money, at today’s land prices, please do your due diligence and make sure you will receive a septic permit in the end.
Why do you need one? First, you can’t get a building permit without it. Second, you can’t get electricity without it. A request to the electric company to have a meter set triggers a request for a septic permit. In the “good old days” many septic systems were installed without permits, and tying electric service to septic permitting is the way in which compliance has been assured.
The process starts with a soil science test. A licensed soil classifier is hired, usually by the buyer. The current cost is usually between $300 – $350. The soil scientist takes your plat or survey out to the lot and drills core samples, marking the test holes with flags for the environmentalist’s reference. He then rates the soil as to type, which indicates the rate of absorption, or percolation rate. This is why the soil science test is often referred to as a “perk test.” He marks the location of his core samples on your plat, and provides notations as to type of soil and their suitability for a septic field.
Although this is a state function, it is handled differently in different counties. In Fannin County, the county environmentalist uses a chart that tells you, in effect, how many acres you need for a septic system with a given perk rate. This is the number one reason that lots get turned down for septic approval: Not enough land for the soil type. This is a moving target, because every year, it seems that the regulations require more land. At this point in the cycle, any lot with less than 1.8 usable acres is dubious for septic approval. There are some exceptions to this rule, and I’ll discuss them below. A recent development seems to be that our health department, at their sole discretion, can exclude setbacks from creeks, roads, replacement areas, or “other unsuitable areas,” which can – obviously – result in a lot having a lot less “usable acreage” than the survey shows. In that case, you will pay the surveyor to go back and compute “usable acreage.”
The septic permit is “site specific.” You must mark the proposed location of your cabin for the environmentalist’s approval. You could get a septic permit on a lot, but not be allowed to put the house where you want to put it – say to enjoy the best view. This is one important reason to accompany the soil scientist when he does the soil work. A good soil scientist should have a good eye for this, and should be able to advise you on cabin placement.
With the original soil science test in hand, with the seal of the soil scientist affixed, you then visit Land Development, which is the county department in charge of issuing building permits. It is primarily concerned with things like setbacks, and the environmentalist is primarily concerned with septic approval. You apply for your septic permit, which is currently $50, and the environmentalist goes out to your lot. You will be required to have a sign on the lot identifying it, and you will be required to mark the proposed footprint of the cabin. The environmentalist then tells you whether or not you can build there. She will also tell you not to build anything in the area that is designated as your replacement field, should your septic field ever fail. She then marks these things on your plat, and – if approved – this goes into your file. After the septic system is constructed, it must be inspected and signed-off on, this document then goes into the permanent file. It is, in fact, your septic permit.
Now. You can’t get a septic permit for a piece of land that you don’t own. Nor is a septic permit transferable. However, the Fannin County Environmental Health will now issue a “real estate letter” indicating their intention to issue a permit after closing.
Developers of subdivisions, if they follow the correct procedures, may obtain pre-approval for their lots. Again, you should not accept the assurance of anyone that this approval has been given. You must speak directly to the environmentalist and assure yourself that it is so.
There are certain exceptions to the lot size requirements. If the subdivision was officially recorded – and that means in the courthouse, signed by the county clerk – prior to 1987, the current lot size requirements may not apply. However, you must still have room for a septic field and replacement field, and these must be fifty feet from any running water and 100 feet from any well – not just your own. Be aware, however, that these “grandfathered” conditions may be very strictly interpreted. I was involved with a lot on the river that was ruled grandfathered if and only if community water could be obtained. Another outside water source, even if it was far from the property, would not do.
In certain cases, having access to city water or to a community water system reduces the number of acres required to build.
In certain cases, especially around water, environmental health may require the surveyor to calculate the “usable acreage” – that’s the acreage minus any stream setbacks, road easements, unsuitable soil, or other adverse conditions. Obviously, this can be quite different from the overall acreage.
New regulations have recently come into play concerning the slope of the lot. More than a 30% slope will require either an alternative – and more expensive – septic system or site remediation to correct the slope. Bear in mind that while a hundred feet of drop over a hundred feet is a 45% angle – or grade – it is a 100% slope, which means that it does not take much slope to bring this requirement into play. The upshot is that you may not have enough land to install an alternative system – they require more land – and you may not want to pay for it. This is another reason why it is important to listen carefully, and personally, to what the environmentalist says. Yes, you might have a septic permit. But the required system might cost more than you want to spend.
When the lot is near running water, especially – but not exclusively – the Toccoa River, special regulations come into play. A site plan may be required, which is prepared by a surveyor, and costs $2, 000 or more. Lots not grandfathered will probably require at least two acres to be buildable on the river.
Bear in mind that while your soil science doesn’t expire, your septic permit does. In Georgia, it’s good for one year. In Tennessee, three years. When it expires you must reapply – under whatever new regulations exist at that time. This means that it is extremely prudent, especially if you are near water, or on a steep slope, or on a lot that is marginally big enough, to get that septic system in the ground and have it inspected. Once that is done, they can’t take it away from you, except in exceptional instances. Given that the cost of a conventional septic system generally doesn’t exceed $5000, it is a very good precaution.
Bear in mind that you will need a survey or plat to get a septic permit.
Just because an existing cabin or lot has a septic system doesn’t mean it has a septic permit. Before electric was tied to septic, many cabins were built with unpermitted systems. It can be extremely difficult to locate a septic permit, because the exact date it was permitted is generally unknown, and any one of a number of people may have applied for the permit – the owner, the builder, the subcontractor, and so forth. In cases where the septic system exists but a septic permit cannot be located, you will be required to uncover the septic system for inspection in order to receive a permit. If it isn’t a rain barrel shot full of holes or a Volkswagen – don’t laugh – the environmentalist will consider issuing a permit.
Many people have asked me why they should be expected to pay for a soil science test on a piece of property they want to buy. Why shouldn’t the owner pay for it? In some cases, we can negotiate that, but the custom in our market is that the buyer pays for it. It may be unfair, but it does make some sense, because in that case, the soil scientist is working for you, not the present owner, and you have the opportunity to go to the site with him and learn the details first-hand.
Finally, on a social policy note, it’s worth noting that intentionally or not, the system favors developers rather than resellers, because developers can afford to buy a large tract of land, do what is necessary to gain septic approval, and price their lots accordingly. Resellers, on the other hand, will be stuck with a worthless piece of property if they cannot comply with current regulations. One of my clients owned a lot on the river that she bought around 1950. Buildable, it was worth upwards to $150,000, but it was ruled unbuildable. Now, that woman had paid property taxes on her investment for over fifty years. If she had put that money in the stock market, she would have had a considerable return. As it was, she was very fortunate to sell the lot for a sacrifice price.
People call me every week who want to sell unbuildable property. In most cases, they are sure it is worth a lot of money, money that they need for retirement, or college education for their kids, or for some other purpose. In most cases, these regulations didn’t exist, or were much less stringent, when they bought the lot. In others, they were told it was buildable by the seller, or they had a favorable soil science test a few years ago, or they just assumed that something this unfair couldn’t happen to them. It’s perfectly clear that from the perspective of the county and the state, that’s just their tough luck. (They don’t consider it “constructive condemnation.” Their answer to that question is, “I’m not saying you can’t build. I’m saying I can’t give you a septic permit.”)
Foreclosures and Short Sales: An Introduction
We handle plenty of foreclosures, so we’ve got nothing against them. But are they always the best deal? And are they right for you? I’ve had a lot of questions about this, so here’s my best advice at this point in the game.
Please note that I’m not talking to serious, seasoned investors – those people who own six or more rental properties. These folks know what they are doing, and they can evaluate the risk/benefit ratio for themselves. I’m primarily talking to people who are looking to buy a single property for their own seasonal or weekend use.
First, there’s a big difference between foreclosures and short sales. The foreclosure sales we’ve been involved in have gone fairly smoothly. The bank has a list price, we make an offer, we negotiate, we agree on a price, and we close. Our experience has been different with short sales. We’ve found that they can take six months or longer to complete, and that in many cases, the lending institution demands significantly more than the agreed upon price, just before the closing. Our recommendation based on this is pretty simple. If you have a choice between a foreclosure and a short sale, go with the foreclosure.
Foreclosures are, by definition, bank or lender-owned property. You can buy them directly from the lender, or you can buy them through us. If you buy them through us, our role is essentially to act as a buyer’s representative. In other words, our job is to advise you of the pros and cons of the neighborhood, local regulatory and governmental issues, access to recreational opportunities, due diligence issues that affect the property – wells, septics, road maintenance, construction issues, and restrictions – and contractual issues that need your consideration. Most lenders will pay us a commission if we bring them an offer.
Again, if you are a seasoned investor who is familiar with our market and its due diligence issues, it may make sense to buy directly from the bank. If you are an end-user, not an investor, your interests may be better served by having our advice as a buyer’s representative. Bear in mind that the bank will not be representing you, and that you will not be receiving either a seller’s disclosure or a one year builder’s warranty on a foreclosed property. (It is also important to realize that you will not receive a General Warranty Deed on a foreclosure sale.)
But aren’t foreclosures always better deals?
First – and most obviously – a foreclosed property is one that the market has rejected. It wouldn’t be a foreclosure if the seller had been able to sell it in the normal real estate market.
If it’s a new property, why didn’t it sell? In some cases, it’s because it isn’t a very attractively designed and sited house. Either the lot isn’t very attractive, the development isn’t attractive, the infrastructure in the development – roads and wells – isn’t complete, or the cabin’s design isn’t very attractive. In some cases, it just wasn’t very well built in terms of fit and finish. In the case of a resale, it’s often because it wasn’t well maintained.
So, maybe it wasn’t attractive enough to sell against others in the market. But what about the value proposition? Isn’t the bank willing to settle for a whole lot less less than it’s worth? Well, what it’s worth to the bank is based on what they have in it, not on the market. We’ve tracked foreclosure sales, and the average discount over the asking price on a foreclosure in our market is running less than 10%. This is a shocking fact to people from some other markets, where banks have been willing to accept fifty cents on the dollar. Unfortunately, that’s just not happening in our market. In our market, the banks have been pretty stubborn about their listing price.
Even if the bank is willing to settle for “what they have in it,” that doesn’t mean that the property is worth what they have in it. Why not? In some cases, the builder paid way too much for the lot, betting on an appreciating market. In a lot of other cases, the builder didn’t put all the money he borrowed into the house. There are many cases where the builder bought a new pickup truck and a bass boat instead of putting all the money in the house. (Please don’t laugh. This is serious stuff.) In cases like this, the house simply isn’t worth anything near what the bank “has in it.”
The harsh fact is unfortunately this: A foreclosed property is usually a property that has been built by a builder who is a failure. Maybe he would have been all right if the market had continued to boom, maybe not. But in a weaker market, his product didn’t stand up to the test.
Also, the builder may have cut corners or may not even have completed the house. Some of these defects may not be as obvious missing siding or fixtures, but may be structural issues. In some cases, these places have been empty for several years, and may even have been stripped. Obviously, a builder who sees foreclosure looming isn’t going to spend money maintaining the property. In the case of foreclosures, it’s definitely a case of “buyer beware.”
In all honesty, I’ve rarely seen a foreclosure sale that I thought was as good a deal as the best deals in the conventional market. (But it does happen. I’m proud to say that I’ve been able to get a few truly outstanding deals for my buyers.) There has been a lot of downward pressure on price, and builders are eager to get rid of existing inventory. For their part, resellers tend to have more equity in their property and many are able to take less and still make a profit if they are motivated to sell.
Be aware that you will have to sign an addendum to the standard Georgia Association of Realtors Purchase & Sale Contract prepared by the bank. Essentially, it overrides most of the consumer protections that we’ve put in the standard contract over the years. Some of them are fairly reasonable, some of them not. I’ve seen the local banks stipulate that while you have the right to inspect, you don’t have the right to get out of the deal if you find something bad. The other day, I saw one where you didn’t have the right to turn on the water, to find out if it had any. And so forth. Review the addendum carefully before signing and get competent advice if you are confused by the legalese.
What does it all mean? (1) Look before you leap. (2) Think carefully about whether you need the advice of a real estate professional who knows the local market. (3) Don’t just assume that a foreclosure is a smoking deal just because it’s a foreclosure. (4) Shop the conventional sales along with the foreclosures to be sure you’re getting the deal you deserve, (5) review the addendum carefully.
Fire Protection and Road Grade
In March 2008, Fannin County began notating the plats for subdivisions with very steep roads with a legend to the effect that the county cannot guarantee fire protection to the subdivision. According to my sources in the insurance industry, this does not affect insurance ratings, which are still done by distance from the fire station. However, it is possible in the future that new standards could be issued that take account of this situation. It’s important to note that this legend might not appear on individual lot plats. However, it should appear – if applicable – on the master plat for the subdivision filed with land development. It would normally be found on the first page, which includes general information and signatures. If the road up the the subdivision seems very steep, it’s well worth considering whether it’s worth it.
I recently tried to get some updated information on this issue for one of my buyers and basically hit a stone wall. Among other things, I spoke personally to our fire chief, who denied ever hearing anything about this issue. Obviously, it’s some sort of CYA for the county, but the implications beyond that aren’t clear. The chief assured me that wherever it is, the fire department is going to be there to help.
See the article below on insurance issues for other due diligence issues relating to insurance.
The Sugar Creek Raceway and Your Little Cabin
The Sugar Creek Raceway has been inactive for several years, but there are plans to open it again. See my column for September 12, 2016.
Stock car auto racing is the indigenous sport of the mountains. Not too long ago, most of the crew members who worked on the NASCAR teams were from our area. There are a number of little dirt tracks in the mountains, which usually run on either Friday or Saturday night. They usually race into the month of September, and then close for the year. The two closest tracks are the Sugar Creek Raceway in Fannin County, and Tri-County Speedway in Brasstown, North Carolina, not far from the John C. Campbell Folk School.
If you like auto racing, I’d recommend that you give it a try. If you’ve never been to a dirt track, the trick is to try to avoid sitting too close to turn three, where there’s apt to be some mud flying into the stands as the cars come off the turn. There’s generally a lot less of that if you sit on the front stretch, down toward turn one. These tracks usually have some concession stands with the basic dogs, fries, and burgers. Sometimes, it’s a good plan to take lawn chairs.
On the other hand, this may not exactly be what you have in mind to listen to when you come up to your cabin and sit down on the deck, favorite beverage in hand, to enjoy the sunset. Since our buyers are usually not out looking at property on Friday or Saturday night, some of our local agents have a regrettable tendency to forget to mention the neighborhood race track.
The Sugar Creek Raceway is a Saturday night track. As best I can tell, it isn’t being used this summer (2014). But that’s no guarantee that it won’t be used in the future. It is located on the Sugar Creek Road, which is called the Boardtown Road in Gilmer County. If you’re looking at a map of Fannin County, Sunrise Road is the closest road. Noise carries a long way in the mountains, depending on how high you are on the ridge, and how the ridges run between you and the source of the sound. The main area that is affected by noise from the track is the Sugar Creek Road itself, the Boardtown Road, Chestnut Gap Road, and anything on the north side of the ridge between 515 and the Sugar Creek Road – Maxwell Road, Moss Lane, or the Bullen Gap Road, for instance. There may be some properties off Old Hwy 2 from Hwy 5 to Cashes Valley Road that are affected. I have heard that it can be heard from the ridges in Cashes Valley and even (faintly) from the top of Doubleknob, which is a considerable distance southwest.
In my opinion, properties in these areas should be evaluated for noise from the track. The only way I know to do that is to go out there personally on a Saturday night, when the cars are running. You are the only one who knows whether it is loud enough to bother you. The track opens around 5 PM and racing is over around 10 PM. Of course, this can’t be done during the winter when the track doesn’t run. If you can find a reliable informant in the neighborhood, you might take their word for it, but be careful. Some people don’t want any more neighbors, and are apt to tell them anything to discourage them from buying.
Important Insurance Issues in Our Market: Insurance Fraud 101
Some buyers fib to their mortgage lenders, saying that they are purchasing a property as a primary residence when it will actually be a second home or a rental. That’s loan fraud. In a similar way, some buyers fib to their insurance company. That’s insurance fraud, and it can lead to non-payment of a claim.
If you are not familiar with the different coverages offered by insurance companies, it is quite possible that you have the wrong coverage on your mountain cabin, and might be denied payment through no conscious fault of your own.
It is important to understand that there are different coverages, based on different uses of the property. The homeowners insurance we are all familiar with is the “Primary Dwelling Policy.” This is for an owner occupied dwelling that will be occupied 365 days of the year.
There is also a “Secondary Dwelling Policy,” which is for properties that are occupied for more than 180 days, not for rental purposes.
Most of our buyers would fall under the “Seasonal Dwelling Policy,” which is for occupancy of less than 180 days, not for rental purposes.
Weekend and weekly rental properties fall under a “Commercial Rental Dwelling Policy,” which typically has higher available liability limits and may include coverage for loss of business income. Typically, a number of rental units can be placed under the same policy.
Obviously, premiums increase as we move up this ladder. The point is that if you are not insured with the correct policy and you have a claim, you are at risk for having that claim denied. I would be willing to wager that this is the case about 80% of the time for rental properties in our area. In that case, you might as well just not have insurance and save yourself the expense in the first place. You might think something like this never would be discovered, but I’ve recently heard from a former claims adjuster that it is not at all uncommon for claims to be denied for this reason.
(The same person told me that carriers are becoming increasingly nervous about rental hot tubs, due to some large claims that have recently been filed for infection and disease.)
There are not many insurance companies who will insure rental dwellings, so it is quite possible in some cases that insurance agents who do not have carriers who will issue the proper coverage will try to slip the coverage through under the wrong category in order to write the policy and earn a commission. This would not be the cabin owner’s fault, although it would probably still lead to denial of the claim. The expert I consulted said, “Well, it would be your word against theirs.”
Finally, there is coverage on vacant land for liability that might accrue from an accident or incident on the property. I’m told that this coverage is very reasonable, but I haven’t priced it lately.
One thing to consider for properties with additional acreage is that the additional acreage may not be covered under the existing homeowner’s policy – some policies only insure within a stated distance of the cabin.
A Few Words About Our Lakes
There are three major lakes in our area – Lake Blue Ridge (Blue Ridge), Lake Nottely, (Blairsville), and Chatuge (Young Harris/Hiawassee). There is also a beautiful little lake north of Ducktown, Tennessee, called Campbell Cove Lake and a “wilderness lake,” Appalachia in North Carolina.
Lake Blue Ridge has about 100 miles of shoreline. About 80 miles of this are national forest, which severely limits the availability of property and drives price. It’s well over 100 feet deep in the river channel, and the thrill for the lake fisherman is walleye. Years ago, it was a destination for muskellunge, and some say there is still a small population. Many people consider it the finest lake in Georgia. Lake Nottely is more narrow and shallow, and it is also developed to a greater extent. Chatuge is the largest in terms of shoreline, with about 130 miles of shoreline. There is some public property on Chatuge, but most of the lake is developed. Chatuge lies partly in North Carolina, close to the town of Haysville.
All three of the big lakes are TVA lakes, which has considerable implications.
First, the TVA is in charge of dock permits. Anything you want to buy that has an existing dock has to be investigated to make sure the dock permit exists and is valid. There are quotas on dock permits in most cases, and it isn’t easy to get a new one issued. This is probably the major due diligence issue. (The other is the validity and adequacy of the septic permit for existing construction or the ability to obtain one for a suitable number of bathrooms on a vacant lot. The septic permit should state the correct number of bedrooms.) There is no way I would buy a piece of property on any lake without making absolutely certain about these two things.
Second, the TVA pulls these lakes down in the winter for flood control. The TVA has recently agreed to keep the lake levels higher all winter and wait longer to begin the drawdown, but there are no guarantees with the TVA. Because of the drawdown, docks may not be usable in the winter, depending on the lake and location. In very dry summers, like the one we’re having now, most docks may not be usable. So you’ll see talk about “deep water” lots and so forth, implying that the dock is usable year round, which may or may not be the case. Sometimes, what you have is a creek in the winter and a lake front when the lake is full. Some coves only have water at full pool. There’s very little underwater structure in these lakes, and the lake at winter pool isn’t nearly as attractive as it is at full pool, because you see the muddy bank all around the lake. However, this doesn’t seem to diminish their appeal. The property on all of these lakes has appreciated considerably – in most cases incredibly – in the past ten years.
Third, in most cases, the TVA actually owns to a certain contour line or elevation on the lot, 1700. (Full pool is considered 1690.) If the water level on a particular lot is below this line, you don’t actually “own” the lake frontage. This can mean that the TVA will not allow you to cut trees to improve your view, for instance, if they’re on the part they own. In theory, it means that someone could come in a boat and camp there, although I’ve never actually heard of that happening.
Campbell Cove Lake, north of Ducktown, Tennessee, is a smaller lake that is not a part of the TVA system. It’s very beautiful, and is quite peaceful because no gasoline motors are allowed. It is the water source for Ducktown. Fishing, swimming, and boating are permitted, and there is some very nice property on this lake.
Appalachia, which is between Murphy, NC and Farner, TN, is a TVA lake, but it enjoys special status as a designated wilderness lake. While there is no building on the actual lake frontage, this lake enjoys a full pool all year long.
Resort Market Buyer’s Markets
It’s no secret that we been in a resort market version of a buyer’s market, but that’s a little different from a normal residential buyer’s market.
The overall dynamics of a resort market are a bit different, because unlike the normal residential markets we are all familiar with, most people in a resort market are generally not strongly motivated to either buy or sell. If people can afford a second home in the first place, they can often afford to wait until they get the price they want for it when they decide to sell.
For one thing, if people aren’t using their cabin any more, they can often put it in a rental program and recoup at least a good portion of their mortgage payment. In effect, a strong weekend rental market has the effect of stabilizing selling prices in the event of a market turndown.
That’s all another way of saying that we rarely encounter the classic distressed seller in a resort market – the home owner who has been transferred, has lost his job, or who is getting divorced and cannot afford the house payment. In our market, many transactions are made for cash in the first place, and many others are made as long-term investments.
The same goes on the buying side as well. We agents in a resort market almost never encounter the buyer who has to buy, the fellow who is being transferred and has a week to find a house. Nobody has to buy a second home, which is one reason why high pressure sales tactics don’t work with second home buyers.
For the past few years, we’ve had some of the classic marks of the buyer’s market – an increasing number of listings and a decreasing number of transactions. That’s good for buyers, because there are more properties on the market to choose from, and sellers are less likely to be in a position to hold out for the highest possible price.
On the other hand, sellers are not as likely to yield to lowball offers as they might be in an ordinary residential market, simply because they aren’t as distressed. One thing that means is that the biggest price reductions we’re experiencing are in new construction, where there really have been some good deals lately, in terms of offering prices. Facing the big payments that start after the house is finished, builders are more likely to feel distressed than resellers. The typical response from our sellers, when faced with a lowball offer, is something like this: “If I can’t get what I want for it, I’ll just hold on to it until I can. I know it’s worth what I want, so I’ll just wait until I can get it.”
The bottom line is that right now is a very good time to buy, but buyers can’t expect – except in rare instances – to steal something. We definitely haven’t been seeing cabins or land sell for 30-50% off list price.
Why Low Price Offers Have To Be Clean
I heard about one of these just the other day. Another agent had worked a great deal with some very particular buyers, and finally found them a cabin that met their requirements. This was good, because they wanted to make an offer. Unfortunately, they wanted to make a very low offer. Well, most cabins close somewhere in the middle, so there was at least some hope that the sellers would counteroffer with their bottom line selling price. But the buyers also insisted on including in their offer a long list of things they wanted done to the cabin before closing, personal items they wanted included in the sale, and some rather high ticket landscaping items. It didn’t take long for the answer to come back from the sellers’ agent. The buyers and the buyer’s agent had insulted the sellers, who instructed their agent to tell the buyers to jump in the lake.
These weren’t my buyers, so I don’t know what they were thinking, but I do know that buying a cabin is a big decision, and people tend to focus on themselves and their problems rather than trying to see things from the seller’s point of view. But it’s stressful for the seller, too.
According to real estate guru Danielle Kennedy, the first complication introduced into a low price offer cuts its chances of being accepted 50%, the second cuts it to 25%, and so on. The lesson is very simple. Low price offers should be clean. As Kennedy says, “No contingencies, no nit-picking, and no grabs for the seller’s furnishings.” She also recommends an extra large deposit.
It seems to be difficult for some of our customers to accept that we have a seller’s market in our area, with very few distressed sellers. Even if we didn’t have a popular, growing area for resort homes, sellers here are much less likely to be distressed, because of our very strong weekend rental market. When they encounter buyers who think our sellers can be bullied, agents are inclined to say things like, “They think we’re all a bunch of ignorant hillbillies!” But I think the answer really is that most buyers don’t understand what is really drives our market.
New Developments vs. Mature Developments
The other day, I was showing property in a new development where there were only two houses built, both spec homes nearing completion. As we were getting ready to leave, the husband pointed to the lot next door one of them and asked, “Are they going to build a cabin on that lot?”
These particular buyers, you see, wanted a fantastic view in a setting where there weren’t other cabins near, for under $200,000. Of course, that sort of thing is hard to find at any price, and impossible to find at that price, but that’s what they wanted. I’ve seen the builders stretch the truth a little at times like this, and I think that may have happened on another one of our stops. But Realtors can’t do that, unless they want to be sued or want to lose their license, so I just said, “Yes, they probably are.”
As my father used to say, “Everyone wants to build the last cabin on the mountain.” Things being as they are, that isn’t apt to happen, unless you buy the last lot on the mountain, or unless you own the entire mountain. With the current state of affairs in our area, you can take your pick among developments. You can choose a new development, and enjoy the low density for as long as it lasts, which is often a number of years. Or you can choose a mature development on the theory that it is already built out, so you can tell what you are going to get in the end. Mature developments are also more likely to have some of the amenities like well maintained roads and functioning community organizations.
Along with lot size and density, it’s important to consider how the cabin is oriented, and where you are really going to do your living. If the most important thing is the view, you’ll want to consider how future development will affect the view. Views of the national forest and wilderness areas are inherently more stable than those of privately owned land, a fact that is not lost on developers when they price their lots. Another thing to consider is whether you plan to use your place mostly in the winter or the summer. Many cabins have great privacy during the summer when the leaves are on the trees, but when the winter comes, the neighbors seem to have suddenly inched closer.
My advice to buyers is to expect development and make their plans accordingly. In extreme cases, the only remedy may be to sell and move further out of town, so it is a good idea to factor in how long you expect to hold the property. We’re all looking for that fantastic view with not another cabin in sight, but in most cases, that was thirty years ago.
What is Conformity, and Why Do We Keep Talking About It
In real estate theory, the principle of conformity states that a given cabin will appreciate best in a neighborhood of similar cabins. This also means that developments with good conformity (those with similar homes) will appreciate better than developments that lack conformity.
Obviously, it’s stupid to build a mansion in the middle of a trailer park. But people make the same mistake on a smaller scale fairly frequently, when they make improvements and renovations. I did it myself when I built a $20,000 patio room on the back of a renovated house in an emerging neighborhood in Atlanta. It was fine when I was using it, but when I decided I wanted to sell, I couldn’t get my money out of the house. Nothing in that neighborhood had ever sold for what I needed to sell for, so it sat empty until I decided to make it a rental. So the rule to remember is this: Lack of conformity won’t hurt you until you decide to sell or refinance.
In other words, it’s risky to build a $300,000 cabin in a development of $150,000 cabins, because appraisals are always framed in terms of comparable sales in the same neighborhood. This means that even if you do find a buyer who is willing to pay your asking price, it may not appraise for that price, which means that the buyer will not be able to obtain a loan. You’ll only be able to sell if you find a buyer who wants to pay cash.
By the same logic, a $200,000 log cabin is a better investment in a log home development than it is in a development that has log homes, brick homes, and vinyl sided homes. In the city, this is rarely an issue within developments, because the developer usually builds every home in the subdivision. In our area, it’s not unusual for the developer to build some, and for others to be built by a variety of other builders. In recent years, we’ve also seen builders buy lots on the retail market and build spec homes on them. All of this tends to dilute conformity, which in our area is enforced by the covenants and restrictions that the developer attaches to the land rather than by the developer building every home.
In our area, covenants and restrictions have tended to improve and tighten over the years. Fifteen years ago, it was normal to simply forbid temporary structures, mobile homes, and animal husbandry. Today, it is not uncommon for developers to specify minimum square footage and type of siding. One restriction that I’m seeing more often, one that I particularly like, is that not more than 50% of the trees originally on a lot can be cut. In general, the tighter the restrictions the better, unless you really want to do something that is restricted (like rent your cabin in a development that forbids it).
Enforcement of covenants and restrictions is by the courts, which means that if some nut builds a monstrosity that is forbidden in your development, you or your neighbors have to bring suit at your own expense to secure enforcement. This isn’t a very common situation, because most buyers respect the covenants, but there are some developments that have a poor track record of enforcing their covenants, and they are probably to be avoided.
Of the three counties that we service, Fannin County probably has the best overall conformity, and Gilmer County probably has the worst. For instance, there is a certain development in Gilmer County that is notorious in the real estate community for its lack of conformity, as it countenances everything from camping trailers to yurts to brick mansions on the river. That’s an extreme case, but it’s common in Gilmer and Union to see a mix of brick, vinyl, and log in the same development. This is not to say that you shouldn’t buy in these developments. But you should be aware that some buyers won’t.
I think the relatively greater conformity in Fannin County is probably due to the fact that Fannin was developed a little later than the other counties, and attracted a critical mass of upscale buyers relatively early in the development cycle due to the success of one of our local developers, who advertised heavily in Atlanta and Naples, Florida. In other words, mountain developments are rarely designed by architects. The local builders simply watch what works, and do more of what works and less of what doesn’t. Over the past ten or so years, our developments have evolved to suit the tastes of the buyers in our demographic. Cabins here tend to be either log or log-sided with tongue and groove paneling inside instead of sheetrock. And, no matter how expensive, they tend to be cabins, designed for weekend occupancy, rather than year-round homes with things you would expect in the city, like a large kitchen pantry and walk-in closets in the master bedroom. While this has its pros and cons, there’s no doubt that the relatively greater conformity has supported greater appreciation.