Cost of construction, selling and buying real estate in the islands has continued to increase based on the requirements to meet the current regulations, overall material, and service cost increases. One could say that it costs more and takes longer to comply with the various regulations that govern the real estate and related construction industries.
Based on the medium home price of $775,000 during the last 12 months, a cash buyer will spend an average of $19,375 in basic closing costs; that includes their half of escrow, title insurance for their lender, recording fees, 1% land bank tax, ½% affordable housing tax and home inspection fee, but it doesn’t include the prorated taxes, insurance, homeowner’s dues, loan closing costs or well water testing. If the buyer needs a loan, they will have monthly payments of $4,046 based on a $155,000 or 20% down payment, 5% interest and a 30-year loan. The monthly payment includes principal, interest, taxes, and insurance. The payments would be higher if there are HOA dues or have Mortgage Insurance if the down payment was less than 20%. Our real estate tax rate is $8.03 per $1,000 of assessment.
A buyer would need to make around $97,000 annually or $8,092 per month to qualify with a ratio of 50% to purchase a $775,000 home ($4,046 x 2 = $8,092 monthly income needed x 12 = $97,000 annual income). This income requirement calculation is only based on the principal, interest, taxes, and Insurance and assumes this buyer has no reoccurring debit, such as charge cards, car loans, HOA dues or mortgage insurance. This is typically not the case. Even if you pay your charge cards in full each month, the underwriters will use a minimum payment amount in the calculation.
The San Juan County Annual Median Income is $64,753 for a household.
The seller will spend on average $65,750 based on the median home price. This does not include any repairs that may be necessary as part of the contract or the seller’s prorated items; it is merely closing costs, septic inspection, and a tank pump.
In the current market a buyer can still purchase a home for less than the cost of new construction and in some cases, under the home’s replacement costs, however this is changing. As we continue to have multiple offer situations with escalating prices, many of the properties are being bid up over market value/list price. However, market value is a moving target these days.
The ability to purchase a home below the cost of new construction is diminishing as our housing inventory is being absorbed and the result is less selection. We are experiencing upward pressure on our prices and buyers are starting to seriously consider custom construction as a viable alternative. The advantage of custom construction is a buyer can have built the exact home they had in mind, and it will be ready for occupancy in about 18-35 months, more time may be needed if size and complexity are above average. This also assumes that the contractor selected does not have a waiting list, many are longer than 1 year, so that waiting period needs to be added to the range cited above. The design and architectural process typically takes 2-5 months, permits take 4-6 months, and the actual construction will take 12-24 months.
Below is a detailed list of typical rates and fees that as a REALTOR we note in the industry when we are managing a transaction from listing or selling a property through the closing. Most real estate transactions require several of these service providers during the contract period.
The list is not meant to be all inclusive nor relied upon; it is merely for general information purposes. In most cases, I provided the actual cost or the floor of the price range but have not included sales tax. As in the case of any project, you can always spend more money.
LIVING HERE: Priceless but . . . .
This list of prices may be startling to some, but it is the reality of living in our islands. Some of the General Contractors struggle to process competitive bids as there are so many variables and unknowns to each project. One of the largest issues is that our labor in the construction and related industries has, in some cases, become transient. If a framer cannot find an affordable rental, he/she will relocate to a city that not only offers a good wage but has rental housing available.
Another issue is the current level of inflation on building materials. General Contractors said they have experienced a 600% increase in materials within the 12 months. This is attributed to low existing housing inventory, which is pressing buyers to build, COVID and low staffing levels at the mills and warehouses. Hopefully, this should correct over time.
If you have any questions regarding our real estate market, please be sure to contact me. If you would like a list of the service providers including land use consultants that I recommend, please email me.