Sunday, May 16, 2010

Getting started and finding land

I have long been a fan of the modern Seattle architecture firm PB Elemental, who designed and built modern townhouses around Seattle in crazy numbers. While their work is often controversial, I simply love their buildings, and appreciate their focus on affordable modern.

So, when I noticed that PB had a facebook page, I became a "fan." As a result, I got frequent updates on buildings and designs in progress. A set of images on a new prefab design piqued my interest; I assumed a that a prefab house would be much more affordable. It turns out that is a common assumption and not really true (see here and here for some great arguments), but not realizing this I emailed the firm's co-founder, Chris Pardo.

He told me that prefab was not necessarily cheaper than traditional stick-built homes, but that there were other advantages (faster, no exposure to Seattle weather). Either way, PB was building several affordable modern homes in our price range, and he felt that our budget and criteria were very possible given the recent decline in construction costs and land values. So we scheduled a meeting, which went great. Chris, who is also a licensed realtor, offered to help us identify land or an existing house for a substantial renovation. At this point I didn't really think that our project was realistic, but I thought that it would be fun to explore, and wouldn't cost me any money if we couldn't make it happen. And the dream of living in something like the Crockett or River Bend houses below was certainly inspiring.

So, the first thing we did was get a pre-approval for a construction loan from Washington Federal, who Chris recommended. Given that we were in the depths of the economic crisis I was somewhat amazed that anyone was giving construction loans, but our originator, Anne Curran, assured us that they would IF the project appraised well.

The process seemed amazingly low-risk. We could make an offer on a property with a long financing contingency. Then, we could do the basics of a house design, get a bid from a general contractor, and get the appraisal. If it didn't work out, we could exercise our contingency and get our earnest money back. (It turns out that it is not really as straightforward and low-risk as painted by this rosy picture, as I will later describe, but luckily it worked out.)

So we decided to give it a go. Unfortunately, the first stage of finding land turned out to be not so easy. Over six months, we made offers on five properties:

1. The first was a tiny, roughly 900 sq ft house on a big, flat in Magnolia. The idea was to renovate it while Method Homes would simultaneously build a second floor in two modules in the factory; these modules would be craned on to the renovated house (and several support columns) once it was done. The concept seemed great to me; it's greener to reuse an existing structure than tear it down, and the whole process would take only 2-4 months since the work could go on simultaneously. The house seemed to have great bones, too. Unfortunately, the owners were stubborn. Even though the market was very slow at this point, their counter-offer was full price, and they cut the inspection period to 7 days. While we eventually met their price, we needed the standard inspection time of 10 days, since along with a normal inspection we needed the oil tank on the property tested for leaks and a structural engineer to examine the foundation. So, sadly we had to walk away from the deal. (The house recently went pending, seven months later and at a list price $10k less than we offered; I hope those 3 days were worth it!)

2. The second lot was in Phinney Ridge with a tear-down existing house. The views were some of the best I had ever seen. The land, which wasn't on the market, was owned by a developer facing foreclosure from a hard money lender. The developer told us for a month that he would sign our offer any day now, but it eventually became clear he wouldn't, so we gave up.

3. The third lot was also on Phinney Ridge, with nice views. It was vacant, split off of a larger lot with an existing house gutted by fire damage. Both lots were for sale, but only ours was affordable. They accepted our offer, but it turns out the owner was in a short sale situation. She originally thought the split-off lot could be sold in a normal sale, but her lender told her otherwise. It became clear the short sale would take forever, and the price was fictional until the slow-moving bank had their say. We eventually gave up.

4. The fourth house was on the north side of Queen Anne, again with great views. The house was older, so the plan was to tear it down to the foundation, and build on top of that. The property received 12 offers, mostly from flippers, so we weren't even close.

Incredibly frustrated by our inability to find land, I resorted to surfing the city's online parcel viewer, superimposed on satellite imagery, looking for vacant lots. It turns that there was exactly one other vacant lot in Phinney Ridge, our favorite neighborhood. As you can see in the image below, it was a pretty strange lot; there's a driveway right through it to another house. None the less, it was a real lot with its own address and tax parcel ID, but no house.

I used city online records to look up the owners and googled them; it turned out they built and owned the house up on the hill that the driveway serves. After some hesitation I decided to email him; amazingly, he replied that he was was interested in selling to the right people (since we would be neighbors), and he invited us to meet him at the lot.

The sellers were very nice, but the lot was certainly unusual. Though it was a standard-sized lot, the driveway easement meant that the house footprint would be restricted to the area east of the driveway (north is up in the image above). This restriction meant we would have a three-story house, rather than two, and the yard would be quite small. On the other hand, the lot had a lot of privacy, since there was quite a distance from other houses on three sides (typical Seattle houses are just 10 feet apart). There was also the possibility of views from the third floor, and from a potential rooftop deck which could serve as the primary outdoor space rather than the tiny yard. The area was quiet, low in traffic, and close to the zoo and Woodland Park. Finally, the price was low. PB Elemental visited the lot, and they thought it had great potential. I think they were also excited by the challenge of designing on such a constrained, oddball, sloping lot.

So, we made the owners an offer at the full price they suggested; we thought the number was fair, and it turned to be the cheapest property sale in Phinney Ridge for the last several years. This made our tight budget much more feasible (though, it turns out, the roughly 20% slope of the lot would also add quite a bit to construction costs).

They accepted our offer! However, it was going to be a fairly complicated transaction. First, our negotiated financing contingency period was fairly short. Second, there were a number of easements, and we needed to create three more documents: a joint use and maintenance agreement for the driveway, an easement to access parts of the driveway on their land, and an easement allowing our building to cantilever over the driveway (more on that later). So, we had to get a lawyer involved. Finally, the front of the lot had a steep slope area that fell under city "environmentally critical area" (ECA) regulations. This meant the city had to approve that we could even build on the lot; we didn't want to get caught buying an unbuildable lot, or one that required expensive civil engineering.

I won't go into all the details, but with the help of the cooperative sellers, our architects, our attorney Charles Horner, and our permitting consultant Ard Consulting, we got the agreements and the ECA exemption from the city done before our contingency expired. It was quite a time sink, though, and there were some dicey moments!

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