GENERAL COSTS TO BUY, SELL OR BUILD

Cost of construction, selling and buying real estate in the islands has continued to increase based on the requirements to meet the current regulations, materials, 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 County’s median home price of $862,500 during the last 12 months, a cash buyer will spend an average of $24,000 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, OR ANY loan closing costs or well water testing.

If the buyer needs a loan, they will have monthly payments of $5,220 based on a $172,500 or 20% down payment, 7% interest and a 30-year loan. The monthly payment cited above includes principal, interest, taxes, and insurance. The payments would be higher if there were 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.  The buyer would need more than $196,500 in cash from savings for the down payment and closing costs.  Again, this doesn’t consider loan closing costs.  Many buyers utilize financing for the  homes that sell under $1M in our County. 

A buyer would need to make around $125,280 annually or $10,440 per month to qualify with a ratio of 50% to purchase a $862,500 home ($5,220 x 2 = $10,440 monthly income needed x 12 = $125,280 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 $68,830 for a household (2024). This is per the State of Washington Office of Financial Management report.

The last time I updated this article in 2022, the buyer needed to make $97,000 per year, the median income for the County was $64,763, the buyer also needed $174,375 in cash for down payment and closing costs to purchase a home around $775,000, which was the median home price in 2022.  The interest back then was 5%.  The path we are on is pricing out the buyers for middle and low-end priced homes.  Unfortunately, the median income didn’t change all that much but all of the other components of the transaction changed substantially. 

The seller will spend on average $71,402 based on the median home price. This does not include any repairs that may be necessary for the home, septic or water system or the seller’s prorated items; it is merely closing costs, septic inspection, and a tank pump.

In the current market a buyer can purchase an existing home for less than the cost of new construction and in some cases, under the home’s replacement costs.  Many of these homes require updates to their systems and interiors. 

We continue to experience upward pressure on our prices even though our market has been on a downward trend the last 2 years in volume and number of transactions. It is clear that the cost of new construction is so high, and the process is so cumbersome, lengthy and frustrating, that the existing homes make a more attractive option.  Therefore, the sellers of existing homes are able to sell for a decent price.  In a sense, the new construction prices are propping up the existing home prices. 

However, some buyers still want to consider custom construction as the buyer can have built the exact home they had in mind, and it will be ready for occupancy in about 20-42 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 2-6 months, permits take 6-12 months, and the actual construction will take 12-24 months.

Realistically, the person that will consider new custom construction in this current market, is planning on a high-end project.  The owner builder or DIYer will most likely be in the price category under our median home price and they will struggle to stay on budget or get a loan.   Financing options, if needed are slim to none; land loans and construction loans are currently at a very high rate of interest.

The better option is to buy existing and remodel under the owner builder permit program.  Hopefully, our County will retain the Owner Builder program as it is essential in helping to keep the costs down.

Some property owners may be able to reduce their new construction expense by doing some of the work themselves.  I know of several general contractors that allow the owners to work on site along with the contractor’s crew for some of the less intensive construction line items.

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 expect to spend more money.

General Costs

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 force 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.  In some cases, our General Contractors are forced to compensate their work force at above market rates in order to retain them.  The going rate is very competitive and constantly has upward pressure.   This all adds to the total costs of the project.  

Another issue is the current level of inflation on building materials. General Contractors said they have experienced regular increases on materials since 2020.  These increases started with COVID and lower staffing levels at the mills and warehouses, but will most likely continue with Tariffs.  Many of our building materials and products come from Canada. 

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 that I recommend, please email me.

As with all my articles, the opinions expressed herein are solely my own. And these opinions are based on my personal experience, observations, and from interviewing and reviewing both public and non-public information sources.

Written by:

Merri Ann Simonson

Coldwell Banker San Juan Islands Inc

Managing Broker

1-800-451-9054

simonson@sanjuanislands.com

Posted Feb 2025