Welcome to“Eye of a Builder,” the column written by a real estate professional skilled in Hamptons zoning, environmental regulation and construction, to better inform Hamptons real estate buyers.
Hamptons real estate. Some of the most sought after land in the entire world. That type of appeal and demand makes the local market a high stakes game. Property buyers must be aware of the myriad of regulation, construction and zoning complexities in order to ensure they’re getting what they’re paying for. To that end, here are five things homebuyers should know.
Home inspectors can be a great resource for helping to protect significant real estate investments. However, many are not licensed plumbers, electricians or builders—therefore the opinions they give based on their findings may not detect potential problems. Ask to see your inspector’s credentials and a sample home inspection report to look for disclaimers. Although home inspections may be helpful in negotiating price and fulfilling bank requirements, most home inspectors are not licensed engineers and many fail to unearth real structural issues “behind the drywall.” I had one client who was very satisfied with the home inspection process. Only later did she learn that the dryer was emitting carbon monoxide gas into her home due to poor ventilation, and an open sewage pipe was dumping raw waste into her crawl space. Hiring a qualified engineer to assess a substantial investment is seldom a bad investment and may save you a lot of money in the long run. At very least, ensure that your inspector has the correct credentials and don’t rush past asking for referrals—it may be the most important investment you make in protecting yourself from hidden costs and challenges.
Hamptons real estate is wrought with regulation. A myriad of agencies, including building and health departments, zoning and architectural review boards, and town and state conservation bodies all can have a say in what you can do with the property you own. I have one client who bought 2 acres of waterfront property in Sag Harbor only to subsequently learn that the only permitable building addition on the entire property was a space 36 feet by 20 feet, or 3,300 total livable square feet. This was a factor she did not consider during investment. Also, be absolutely sure you are aware of the state of all permits affecting a property you are considering, including that appropriate Certificates of Occupancy (C of Os, aka compliance with local building codes and other laws ) are in place. Also, don’t assume that just because a property has a C of O, all permits have been closed out. Many C of Os are issued in error, giving the false impression that the home complies to code, which can result in unforeseen and frustrating costs in the future
If you are considering building or renovating a home in the Hamptons, be sure to thoroughly investigate the various codes that will affect that particular property. And don’t be complacent in assuming one code holds true from town to town. What is allowable in East Hampton may not meet approvals in Sag Harbor. In addition, even codes within the same town may differ. In Southampton and East Hampton for instance, there are different building departments for both town and village, creating many code differences depending on your address. Building a patio at grade level in East Hampton will be included in the total square footage of lot coverage, in Southampton it will not. What this means, is all things being equal you may be able to build a pool house in Southampton whereas in East Hampton you may not meet the requirements unless you forget about the patio. Be sure to get expert advice regarding the possible complications and costs of building approvals necessary for your unique property.
If you are considering renting your property as part of your investment strategy, be aware of requirements for rental permits in that particular area (some towns require permits while villages may not). To legally rent your home in Southampton town, you must obtain a rental permit and to get a rental permit, you must prove your home is up to code. To prove this, you must either pay a town inspector or hire a licensed architect or engineer to verify the home complies with all codes including such things as smoke and pool alarms, carbon dioxide detectors and egress requirements. In one documented case, a renter sued the landlord for back rent, totaling more than $150,000. The main reason the suit was allowed was that the landlord had rented without a rental permit. Furthermore, permit regulations allow only two short-term rentals per six-month period in East Hampton, a short-term rental being 14 days or less; however, 15 days or more has no restrictions, which may hinder plans to capture income using short-term vehicles like Airbnb. Be realistic about the potential for future rental opportunities, and make sure you have appropriate permits in place to protect you legally.
Hamptons real estate is a fickle market. When assessing the value of a property you are considering for purchase—make sure you are looking at the correct comparisons to decide if the price you are getting is fair. Many buyers use “for sale” prices for comparisons, which is a dangerous practice. The only “comps” that should be analyzed are transactions where homes have actually passed from seller to buyer, as this is the only valid indication of market value. This rule remains true for both buyer and seller alike. One client for whom I built a high-end luxury home was advised by a real estate agent to list the home for $11.5 million. The estimate as it turned out was based on list prices versus better market information reflecting actual sales that would have indicated a price closer to $9.5 million. My client turned away potential buyers irritated by the inflated price and ended up missing the market to eventually sell the home years later at $8.1 million.
Also, you must take into consideration the condition of the comp home you’re evaluating. A “tear down” should obviously be priced at land value, which is much different from new or recently renovated construction. Additionally, ascertain if the comp you are assessing is a transaction between relatives, which can result in an off-market price. Local real estate agents are often helpful in this endeavor. And be sure to carefully consider the dates of the transaction, as the state of the market at a given point in time will affect price as well. Don’t rush through assessing comps—be careful in considering “like” home values and collect as many examples as possible.
on Mar 27, 2017