Thinking of buying a vacation property or second home on the Outer Banks? Here’s a quick
look at the most important information to know as you begin the process. While none of these
are absolute hard and fast rules, here are some basic guidelines to create the easiest and best
experience.

Securing the best rate requires:

• Credit scores of 740 or higher
• Non-Conforming loans allow a 43% debt to income ratio, 45% on Conforming
  (exceptions apply)
• Tangible assets are key (i.e.: checking, savings, 401K etc.)

Second Home MUST do’s for best experience:

• 20% or more down payment
• Live at least 50 miles away
• Must have access at least 2 weeks of the year- no full-time tenants
• Use a local lender – Out of town lenders won’t know what to do with the Bill of Sale,
  Vacation Rental Addendum and might use an appraiser who isn’t as familiar with the
  area
• Don’t own another beach house in the area (some exceptions apply)

Investment Loan Quickies:

• If you need the rental income to qualify for the loan it becomes an investment loan
• Investment loans carry a higher rate, but the down payment can remain 20% (lower
  down payments carry higher rates)
• The income to qualify will be determined by an appraiser. Appraiser will do an analysis
  of the reasonable rental income available and you can use 75% of that amount
• Titling in an LLC will carry a higher interest rate

Best practices for any loan:

• Flood insurance has to be escrowed and the 1 st years payment is required at closing
• To waive escrows there is a .25% fee on loan amount due at closing
• If you are self-employed you will need to fully qualify through underwriting to be sure of
  the amount qualified for
• If you own multiple rental properties you will also need to be fully qualified up front to
  be sure
• If you have declining income, the lender will take the worst of the last 2 years as the
  basis from which to work
• Don’t buy anything requiring financing once you start the lending process

Best sources for down payment:

• Mutual funds/stocks
• Savings/Checking
• 401K Loan – not counted in your debt to income ratio
• Home Equity – will use full line payment for qualifying
• Gifted funds can sometimes work

Worst sources for down payment:

• Any funds that are untraceable or unseasoned
• “Mattress Money”
• Business funds will require additional documentation from a CPA

We are fully into our summer season here on the Outer Banks.  As expected, the summer months typically bring in a decline in sales as well as inventory.  While we still have a fairly active market over the summer, some property owners just elect to wait out the season and sell in the fall.

Here are the most important market points:

• Sales for the year so far are down 5% over last year
• Inventory is also down 5% from last year
• Land sales are down 11% from last year
• Land inventory is down 8% from last year
• Number of homes going under contract is also in a steady decline since April
• This is largely due to the rise in interest rates

Taking a look at the chart below, you’ll see the cycles we’ve experienced in market activity.  It’s not uncommon after a year with double digit increases to have a flat year following it.  What is most exciting is the inventory level change since 2012.

The other notable difference in our market is the way buyers are buying.  We are seeing much more emphasis being put on price and condition rather than location and rental income.  I wrote about this a few months back, click here to read that article again.

As always, if you have any questions about buying or selling please contact me for an analysis.

Summer grew up in a military family and moved to Virginia Beach, Virginia in 1994.  As a teenager and young adult, she spent most of her Summers on the Outer Banks, knowing that one day she would call it home.  In 2016, she made that move and fulfilled her long awaited dream.  Summer has a great love for the beach and couldn’t imagine any life without it.

As a licensed Real Estate Broker in North Carolina, Summer comes to Beach Realty with a high level of customer service skills.  She has served 17 years in the Medical industry, working with a vast array of people from all walks of life.  This gives her great ability and flexibility to work well with anyone.  As a Senior Leader in her previous job, she also knows when to take charge and get things done, accurately and effectively.  One of Summer’s highest qualities is her exceptional communication skills.  She also takes great pride in her commitment to her clients.

Contact Information:

Reprinted with permission from the Outer Banks Association of Realtors

Flood Maps – Know Your Zone/New Informative Web Site

HIGHER LOCAL ELEVATION STANDARDS BEING DEVELOPED

Dare County’s Program for Public Information/Flood Insurance Community Rating System (CRS) Committee met last week and discussed a flood map education and awareness campaign and local flood elevation standards/freeboard regulations. Dare Planning Director Donna Creef led the discussion and shared that Dare County should soon receive their revised preliminary flood maps for Review and Comment and by this time next year, Dare County should be in the 6-month adoption period. This puts the effective date of the maps approximately sometime early summer of 2019. The timeframe for Currituck’s preliminary maps to become effective is similar.

PLEASE TAKE NOTE: The preliminary maps show many properties in Dare County being removed from the special flood hazard area (AE or VE zone) and being shown in an X zone. For the past year, there has been a county-wide effort that has focused on historical and future flooding hazards that were not addressed in the development of the preliminary maps. Instead of appealing the maps and holding up their adoption even further, local leaders came together to tackle this issue with forward thinking and a proactive approach. The outcome of “taking ownership of our own problems” will result in a more resilient community and lower flood insurance costs when maps change in the future.

Leadership of the Outer Banks Home Builders Association in collaboration with Dare County Planner Donna Creef, Town Planners, Engineers/Surveyors, OBAR reps and others have been hard at work to develop local elevation standards that are above what is shown on the preliminary maps. The standards will more accurately reflect local flooding hazards. The higher local elevation standards will be used for new development and re-development projects; the maps will be used for insurance rating purposes only thus allowing property owners to take advantage of much lower flood insurance premiums. The new elevation standards will apply to all X-zone and Shaded X-zone properties. Properties mapped to VE or AE zones will have a freeboard requirement of possibly 4 feet or more. Local governments will adopt the elevation standards prior to the preliminary flood maps becoming effective.

To summarize, those involved in the building or real estate industry should not use the preliminary mapped base flood elevations for future planning purposes or for marketing the potential re-development of a property. The preliminary maps may show that a property owner can now enclose a first floor or build slab on grade on the oceanfront. This will likely not be permitted when local standards are adopted!

Know Your Zone – “Low Risk” is Not “No Risk”: Check out www.obxFloodMaps.com for more information. While property owners in an X-zone are not mandated to carry flood insurance, a local campaign is underway to encourage ALL property owners to have coverage. The flood maps do not address flooding from heavy rain events and other storm scenarios which have caused major flooding and property damage on the Outer Banks. After all, the Outer Banks is surrounded by water – a property owner would be “flood foolish” to not have coverage!

What to expect when you’re expecting…to buy a home on the Outer Banks!

Navigating the home buying process can be a complex process.  Knowing in advance what to expect regarding the condition of the home can make it a lot smoother.  Here are the main things to consider regarding this process.

1. Create realistic expectations on condition. In most cases these homes are anywhere from 20 to 40 years old.  The main reasons the condition might not be where a buyer is expecting it are:

• We live in an environment that has harsh weather and it is tough on these homes
• Most homes are rented anywhere from 15 to 25 weeks a year with multiple families occupying them. Wear and tear is going to happen
• Since this isn’t the primary home, owners aren’t seeing it every day and often aren’t aware of what needs to be done
• No one else is telling them about things that need to be addressed
• Most homes are owned for several decades and owners get to an age where it’s more difficult to do the work themselves
• Finding and managing good contractors from a distance is a challenge, especially as owners age
• Sellers have disengaged from the property – this happens for many, many reasons.

2. It is standard language in our Offer To Purchase contract for North Carolina that buyers are purchasing the home “AS-IS”.  Yet many buyers are never told this.  When you make an offer to purchase a home you need to factor in the condition/maintenance items that you can already visibly see into the offer price.  Once you settle on a price and go under contract, it’s important to remember those items have already been accounted for.

So many times we see great deals go awry because the buyer is never educated on how to handle the home inspection results.  This can create some unnecessary difficulties and even result in the buyer terminating the contract on a great home, simply because they didn’t understand the process.

Here’s the actual language from the contract:

Paragraph 4(c) Buyer acknowledges and understands that unless the parties agree otherwise, THE PROPERTY IS BEING SOLD IN ITS CURRENT CONDITION.  Buyer and Seller acknowledge that they may, but are not required to, engage in negotiations for repairs/improvements to the Property.

As you can see, it is not mandatory, nor really expected for the seller to agree to repairs after the initial agreement is signed.  It is imperative that a thorough, on-site review of the property is conducted prior to making the initial offer so that all visible maintenance items are considered in the pricing strategy.  The goal when listing a home is to have it priced in relation to those items to begin with.  However, it is important to understand value is relative from person to person.

3. What exactly is the purpose/scope of a home inspection? There are several things to consider about the home inspection process.  The primary function of a home inspection is the following:

• Find hidden defects
• Building code check – for information purposes. It is not realistic to require a seller to bring every outdated code up to par
• Professional opinion of the functionality of the main systems of the home
• Expanded review of the home (attics, roof, crawl space, etc)
• Inspectors are paid to find problems. No home is perfect and items will be found commensurate with the age of the home.  It’s important to have that expectation up front.

4. Because of the nature of the in depth inspection, it is not uncommon for unexpected issues to be revealed. How do we then handle the unexpected?

• First, quickly remember Paragraph 4(c), the seller is not under any obligation to do anything at all.
• We need to quickly organize some quotes so we know exactly what we are dealing with, even if the buyer is going to take on the repairs.
• We have to decide whether we want the seller to actually fix the issues or if we want to receive a credit at closing instead. There are pros and cons to both of these.
• We need to share the report with the seller so they can be educated on the condition of things
• Recognize once these items are discovered they become a material defect that will have to be disclosed to any future buyers, should the buyer decide to walk away.
• Prioritize the list of repairs that are important, rather than just asking for the entire list to be addressed. Especially since we already factored into our pricing strategy the items we could already see.
• Understand that perfect condition will be reflected in the price. Chances are the home is already priced commensurate to the condition and age.

Main walkaway points:

• Be realistic – you’re not buying a brand new home
• Be flexible and willing to compromise – no house is going to be perfect
• Weigh out the options – don’t lose a great house over a few needed repairs

The following is reprinted with permission from the Outer Banks Association of Realtors.

The following is reprinted with permission from the Outer Banks Association of REALTORS®

Dare County Flood Map Update – IMPORTANT INFO

Dare County and its six towns have been working on how to respond to the preliminary flood maps that were released last June. While it looks like an appeal of the maps will not happen, there is ongoing conversation about developing local elevation standards for development and re-development purposes. The maps, when effective, would then only be used for flood insurance rating purposes.

Approximately 75% of Dare County properties currently in a special flood hazard area and required to carry flood insurance are coming out of the special flood hazard area altogether under the preliminary maps. The preliminary maps show some properties that are currently zoned in a VE – highest risk flood zone on the oceanfront moving into an X zone, which is out of the special flood hazard area and not required to carry flood insurance. Technically, a house could be built slab on grade in this zone. The maps, while developed using the latest, most advanced technology, do not take into consideration our high water table and heavy rains that cause flooding from standing water. They were developed to address flooding from storm surge.

OBAR and OBHBA recognize the potential of risky development when it comes to flood hazards under the new maps and have been part of the local conversations on how to move forward. The 90-day appeal process has still not yet started thus delaying the effective date of the maps even more. There is a timeline of things that need to take place before the maps become effective which now may not even be until 2019.

A meeting was held this week with Dare County Planner Donna Creef and members of the county’s Program for Public Information Committee to review and consider approaches to encourage property owners to maintain flood insurance coverage or purchase it if they have not had it. “Low Risk IS Not NO Risk”, “eXceed the X Zone”, and “LES is MORE (Local Elevation Standard) and other possible slogans for a public information flood insurance promotional campaign were discussed. The Committee also talked about how to move forward on developing elevation standards in various areas in unincorporated Dare County and how additions/remodeling/repairs might be treated.

WORD TO THE WISE: Banks are also looking at the impact of the preliminary flood maps if they become effective as presented. You may see banks imposing a flood insurance requirement to qualify for a mortgage in the future although the flood maps show the property in an X zone, where flood insurance is not mandatory. Also, be careful when advising clients as to the redevelopment potential of properties for sale based on the preliminary maps. With focus on the development of local elevation standards, creating new first/ground floor living space may still not be allowed when all is said and done.

Dare County has more information on the map process here.