With the current situation in the banking industry, financing has become a paramount concern in any land project. Banks have tightened up in all Real Estate lending. This is particularly so in the purchasing and development of land. There are still a lot of government lending programs that apply to the purchase of homes, but almost none that can be used for the purchase of land. As a result land purchases are going to have a higher bar to cross in order to get financing. You are going to need a bigger down payment, better credit and a higher level of feasibility than you would have needed a couple of years ago. On the plus side land values have come back down to reasonable levels so that helps to make projects more financially feasible.

The story with down payment these days is simple. You need more money. Back in the day, it was common for spec builders to be able to finance a construction project with putting in absolutely none of their own money. The banks would loan 80% of the appraised value of the project. Since part of the end value represents profit and closing costs, the project could be build entirely with this 80%. Fat appraisals helped too. I haven’t herd of this happening much anymore. The banks are now going to want to make sure that you have some “skin in the game”. This makes you less likely to walk away and gives them some room if they need to repossess the property and sell it at a discount. This use to be a theoretical consideration for the bank when prices were rising fast, now it is an obsession. The bank are concerned about their loan to value ratio. In the current environment they want to keep this as low as possible. The actual amount of down payment that is required will vary but 30 to 40% seems to be common.

Another finance problem can be getting an acceptable appraisal. Dropping Real Estate prices can be a double sword for land buyers. Sure the prices are dropping but that’s scaring the appraisers. They tend to extrapolate current trends out in to the future forever. So if price are dropping they assume they are going to continue to drop. With fewer closed transactions out there to use as comparisons, the appraisers are becoming even more conservative. Low appraisal will make the bank want to loan even less. Their value in the loan to value ratio is the appraised value. Simple math tells you you’re going to get a smaller loan. It’s all about the numbers on the paper to the bank.

There is two parts to this lending decision as far as we are concerned. One is the loan to value ratio the bank will accept which we already discussed. The other is whether or not they’re going to make you the loan at all. One of the main things they will be looking at is the buyer’s credit rating. Same story as earlier, the bank is probably going to want to see a higher credit rating than they were willing to accept a few years back. This problem is compounded by the fact that with the economic down turn, a lot of people’s credit ratings are dropping. In the short term there isn’t a lot you can do about this. In the long term, you just have to struggle along with the rest of us to keep those bills paid on time. Income ratios are also probably being scrutinized more closely. But I don’t think that these ratios are as important when buying land as opposed to buying a house. Home lending is normally subject to standard underwriting guidelines. In this case a certain debt ratio is an absolute that must be met in order to get the loan. This isn’t generally true with land loans. That said they are still going to be looking at it harder than in the past.

Another determinant of the loan process is the financial viability of the project itself. This may not apply if you are buying a piece of property for yourself to hold on to. But if you are building a home or doing a development project of some type this can be very important. The financial viability of a project is usually evaluated by the proforma budget. For a development project this can involve a very detailed budget, marketing survey and plan, engineering cost estimates etc. That’s a little more involved than I plan to get here. For a single family home it normally consists of looking at the budget and comparing against the appraisal that was done from the plans and specifications. There are two considerations when preparing these budgets. One is be accurate. The banks don’t like surprises. Plus they are going to expect you to actually build this house with this amount of money. The other consideration is, keep these costs low. This keeps the loan amount low and therefore the, all important, loan to value ratio low. The other obvious point is this is your money your spending here so spend it wisely. The good news on this is that with the building industry being really slow right now subcontractors and suppliers are willing to provide there service cheaper than a few years ago. It is actually a great time to build.

Overall when applying for land acquisition financing you are going to have to step it up a notch. You need a bigger down payment, better credit and a better proforma. Even with that, bank financing could hard or impossible to get. Banks don’t want to make these kinds of loans right now because of the perceived risks. To be fair to them in a lot of cases they can’t make these loans. Banks are very highly regulated and are probably going to get even more regulation. They have to meet certain capital ratios. This basically means that they have to have a certain amount of their own capital in this loan. Banks borrow most of the money they loan. Well with the credit crisis, banks have loss a lot of capital and many are having a hard time meeting these ratios. Compounding this is the fact that land loans tend to get thrown into a higher risk category quickly if things don’t go well. This means that they require more back capital. So bank financing could be hard to get.

So if not a bank, then what. For a personal project the first consideration should probably be a Credit Union. They tend to be much more flexible and since land projects are usually unique, they are often a better way to go than a bank. They also don’t seem to have been hit as hard by the credit crisis. Still they do have a lot of the same constraints as regular banks. They also don’t make a lot of large or commercial loans. Of course, you also have to be a member.

Another alternative is an owner contract. This is great if you can get it. The problem is that ever body seems to be broke right now. A lot of people who are selling are selling because they have to. If they didn’t have to sell they would probably wait till the market and prices improve a little. So if they have to sell, they need the money, which means they can’t use it to finance your purchase of their property. This also doesn’t work if they owe much on the property themselves. The bank needs to get paid at closing. Still there are some sellers with lots of equity who might consider an owner contract. Given that prices are down and you are probably getting a good deal on the land, you could offer them an interest rate that is a little higher than market. This might entice them and make your project possible.

One way to go, if you are planning on having a home built, is to have your builder finance the land purchase and house construction. Then you get a take out loan at the end. This allows you to take advantage of the government and quasi-government lending programs. These include FHA, VA, Farm Home Loan, and conforming Fannie Mae and Ginnie Mae. These types of loans tend to be easier to get and require less down payment. This of course only works if you are having and house built and then your builder still has to get his construction financing. Now days it can be hard even with a locked in buyer.

The last form of financing that I can think of falls into the general category of alternative financing. This can be anything from a finance company to a private hard money lender. As a general rule, this type of financing will cost more but be less stringent- the more cost the less stringent. On the expensive side, this is basically asset lending. They don’t care about your financial situation. They just make sure they have enough equity in the project so that if they get the land back they can easily sell to recover their money. The obvious draw back with this type of funding is that it can be very expensive. Think long and hard before making this kind of commitment. Also with the current situation, even these guys are short on money to lend. The loans they’ve made in the past are paying slowly and there are lots of people looking for money right now.

The current financial situation is going to present some challenges to land acquisition financing. But with prices down this is a great time to buy. You will simply have to do your homework better. Good Luck Jay Kobza

If you are interested in similar information check out my web site at www.thurstoncountylandsales.com

The latest fade in home sales is staging your home. This is a fancy way of saying “getting it ready to sell”. It consists of getting rid of all the junk and doing a little decorating to make it look appealing. There are a lot of classes being taught right now, showing Real Estate agents how to make a house seem larger and more marketable by painting an accent wall a certain color or by the strategic placement of an ottoman. I don’t know a whole lot about this stuff. It is all alchemy to me, but it must work because everyone is doing it.

What I do know about is staging your land for sale. What I mean by this is doing a few things that can make it sell faster and for a higher price. I recently took a close look at all of the land listings in Thurston County. There are currently 727 listings for vacant land. That’s a lot of competition. The demand for vacant land isn’t exactly booming right now either. So you are going to have to work a little harder to sell land. Staging it will help.

The simplest part of this is clean it up. That is the first thing a listing agent says to a seller when they list a house, but it never occurs to them to say it when they list a piece of vacant land. Cleaning up a piece of land can include getting rid of garbage and junk cars. Brushing it can help too. People in the business like to refer to this as “parking it out”. If you have a nice forested property, having a dozer remove the under brush can make it a lot more accessible. This will allow the buyers to walk the entire property and see what they are buying. Speaking of accessible, putting in an access off of the main road can be very helpful too. That way your prospective buyer doesn’t have to park in the road to view your property. If your going to do it, you might as well put in a culvert and make sure that it meets Thurston County specifications. This will also add value to your property. If you do bush your lot, it may be a good idea to clear a building site. This will help the potential buyers imagine where their house will go and what your lot would look like with their house on it. Remember you’re selling a dream here. One draw back to doing this is that if there are several possible building sites, you don’t want to lock them in to one. Depending on the characteristics of your land there may be other things that you can do at relatively little cost to make your property more aesthetically pleasing. Think about it and see what you can come up with.

These are the physical aspects of staging your land, but there are also entitlement aspects. Land entitlements have are basically what you are permitted to do with the land. This can best be understood by looking at the land development process. A big part of what a land developer does doesn’t involve putting in streets and splitting a property into lots. It involves getting the rights to do these sorts of things. In today’s highly regulated world, it can be harder to get the permit to build a road than it is actually build the road. A tremendous amount of value can be added to a piece of property by getting a preliminary plat and engineering approval for it. Having this in hand can sometimes double the value of a piece of land without doing any physical improvements at all. It is the same piece of dirt but a little stack of papers with the right signatures makes it worth a lot more. I am not advocating that you become an amateur land developer. Land developing is a specialized and very risky business. What I am suggesting is that you do a little paper work to make your property more valuable. That said, if you can subdivide your property you might be able to make some money. But use a good consultant and be careful. It isn’t easy.

The investigating process would normally start by looking at the title. Your agent should get a copy of the preliminary title when he is getting ready to list the land for you. Take a close look at it with your agent. If there are any liens or encumbrances on the property, it is best to get them taken care of now. If you can’t clear them up now at least get started on the process so that they can be more easily cleared up at closing. A title report will also tell you if there are any easements on the property. You probably can’t do anything to change this but it is important to know about them so that you can give the buyer as much accurate information as possible early in the buying process. It is a good idea to investigate any easements so that you can pass along to your prospective buyer why the easement is there and what it is likely to be used for. There are a several property tax programs designed to help reduce that large burden of property tax on certain taxpayers. These include senior citizen, forestry and agricultural. These are great programs. The problem with them is that some of them just delay the tax. It accumulates and can be due at the time you sell. If you are not sure if you are in one of these programs, the title report should tell you. Then you need to disclose this and decide how it is going to be paid at the time of the closing.

Another way of staging your property is to have them studied by specialized land consultants. One of the main studies is to have a perk test done on the soils. This will determine how difficult and expensive it will be to have a septic system designed and installed. I have a list of approve Thurston County septic designers on my web site at www.thurstoncountylandsales.com. If you are selling your property as a home site you may consider having the system completely designed and approved by Thurston County. This will make your property more appealing. It can also speed up the closing process. If your buyer is using a construction loan to purchase your property, he probably can’t close until he has his house permitted. This means he needs an approved septic design, which can take along time. Other studies that can be done on your property include wetlands and wildlife delineations. A casual look at your property may tell you if you need a wetlands delineation. But it would also be a good idea to go to the Thurston County Geodata site. The address is in the helpful links section of my web site. Geodata can provide you with a lot of other information as well such as flood plane and critical slopes. Just because Geodata shows that your property is covered with wetlands, don’t panic. These maps are derived from aerial photos and are therefore inaccurate. Seeing wetlands on Geodata is just an indication that you probably need to have a wetlands delineation performed. This involves having a wetland biologist come out and look at your property. He can tell you where the wetlands are and how large a buffer you are going to need. This is very valuable information to you buyer.

Another valuable piece of information for the buyer is showing him exactly what he is buying. That means clearly and accurately marking the corners. This may involve having a full-blown survey of your property done and having a licensed surveyor mark the corners. Be very careful about telling a buyer where the corner of your property is unless you know for certain. My advice is do not, under any circumstances, pound a stack in the ground where you think the corner is and tell the buyer that that is where the corner is. I already advised you against be an amateur land developer now I’m saying you definitely don’t want to be an amateur land surveyor. This brings up the problem of adverse possession. This comes about for two common reasons someone put a fence in the wrong spot or someone has used a portion of the property continuously over a number of years. You may know about adverse possession problem or your surveyor may point them out to you. Either way, if you have a possible adverse possession claim against your property you need to deal with it. This may be as involved getting a lawyer and starting a quit title action, or it often can be handled more simply. Often if you just point out to the buyer that the property line is here but the fence is there, and say, “there may be a problem”, it might not be an issue to them. Adverse possession claims are often not improved. If you do have a problem, I would suggest that you talk to a surveyor or an attorney. I am not giving you any legal advice here. I don’t want to be an amateur attorney.

Researching you property is an important step in selling your property. You are legally required to disclose everything that you know that affects the value of the property. Because of this, some people subscribe to the notion that you should not try to learn anything about your property so that you don’t have to tell your buyer. The thing is, they are going to investigate the property and probably discover any defects anyway. You might as well get it out front right off the bat. If something about the property is going to kill the deal it is best that it happens early rather than tie up your property for months then have your deal fall through. I think that the more information you provide the buyer and the easier you make their investigation the more likely they are to buy your property. By knowing as much as possible and being able to trust you, they will have a higher level of comfort when making the purchase decision. A lack of information equals risk. And risk means a lower price. If a buyer is forced to make a purchase without complete knowledge, there is a chance that something will be discovered later that will make their new property unusable for the purpose they intended. Therefore they are going to offer a lower price in case this happens. Your buyer is going to conduct a due diligence process between the time that he makes an offer on your property and the time that he closes. The easier you make this on him, the faster and smoother the closing will go.

A lot of what I have discussed here can applies to someone looking to buy a piece of property also. If the seller of the property didn’t stage it well, then you are going to have to do it for him. Keep in mine that you should get compensated for this. If there are a lot of unknowns out there that you have to investigate, the property may not be as valuable. If you do the investigation and gain a superior knowledge of the property, then you have gained superior bargaining power and should be able to get a better price. Back to you sellers, don’t let this happen. Stage your property so that you can sell it fast and get the best price. If you are thinking of listing your property contact me, maybe I can help jkobza@reachone.com . There are other helpful resources on my web site. Check it out www.thurstoncountylandsales.com

THURSTON COUNTY ENVIRONMENTAL HEALTH DIVISION 2009 WA. STATE LICENSED SEWAGE SYSTEM DESIGNERS 02/02/2009 NOTE: This represents Sewage System Designer professionals or Professional Engineers (PE) who have paid a listing fee and are qualified* to perform design work in Thurston County. It is not a recommendation, endorsement, or guarantee of workmanship. Current status of sewage system design professionals can be obtained from the Washington State Dept. of Licensing (DOL) by calling 360-664- 1568, or by looking at their website: www.wa.gov/dol/bpd/onsitefront.htm.

ADVANCED ENGINEERING 3427 Mud Bay Rd W (360) 352-3669 Olympia, WA 98502 (360) 352-4412 CHRIS ELSTROTT

ALTERNATIVE DESIGNS P O Box 1962 (360) 458-9548 Yelm, WA 98597 PAUL MORNEAU

AYRES & ASSOCIATES 1349 East Bay Dr NE (360) 943-5499 Olympia, WA 98506 (360) 790-9213 JAMES AYRES

DESIGNS BY STEVE, INC P O Box 28 (360) 273-7346 Littlerock, WA 98556 STEVE DEVRIES

DICKINSON & ASSOCIATES PO Box 11264 (360) 867-9002 Olympia, WA 98508-1264 JIM DICKINSON

DRAINAGE WORKS 520 E. Pioneer (253) 845-9625 Puyallup, WA 98372 (253) 840-1181 DAN VILLWOCK

GOODE & ASSOCIATES 1421 Harrison Ave (360) 736-5218 Centralia , WA 98531 (360) 623-1092 JEANNIE YACKLEY

J.B. ENGINEERING 6429 Shady Lane SE (253) 312-2315 Lacey, WA 98503 (360) 412-0062 CHRISTIAN BROBECK

JIM HENRY DESIGN SERVICES P O Box 14531 (360) 956-7242 Tumwater, WA 98511-4531 (360) 956-7242 JIM HENRY

JIM HUNTER AND ASSOC Po Box 162 (360) 753-1226 Olympia, WA 98507 (360) 705-1360 DICK YUNKER JIM HUNTER

MASON ENGINEERING 425 N. Market Blvd (360) 740-6147 Chehalis, WA 98532 (360) 740-6148 TONY GODAT TODD MASON

MORRISSETTE, JERRY & ASSOCIATES 1700 Cooper Point Road RD SW # B-2 (360) 352-9456 Olympia, WA 98502 (360) 352-9990 JERRY MORRISSETTE

NET SEPTIC 3933 Balsam Ave NE (360) 923-1080 Olympia, WA 98506 (360) 923-1030 KEN MORSE

PARNELL ENGINEERING 10623 Hunters Lane SE (360) 491-3243 Olympia, WA 98513 WILLIAM PARNELL

R & J TRENDS LLC 7020 Fairview Rd Sw (360) 352-5736 Olympia, WA 98512 (360) 534-9145 RANDY JACKSON

R B ENGINEERING P O Box 923 (360) 740-8919 Chehalis, WA 98532 (360) 740-8912 ROBERT BALMELLI

RUSSELL & ASSOCIATES 1414 Mc Corkle Rd Se (360) 789-3607 Olympia, WA 98501 (360) 352-1558 ERIC RUSSELL

*Qualified design professionals include Civil or Professional Engineers currently licensed with the Washington State Department of Licensing (WSDOL) and persons who have obtained an on-site sewage system designers license from the WSDOL.