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What is a Property Reservation?

by Connie Yoshimura

    With today’s tight inventory of homes (only 584 homes on the market this past week) and lack of building sites due to recently delayed recording of plats, buyers and builders are resorting to reservations for future home sites and, in some cases, even for improved property.   A reservation is like a promise and like all promises, some are kept and some are not.  A reservation shows intent but it is a non-binding agreement, more like a verbal promise than a true commitment.  A ‘reservation’ is used when a developer is unable to enter into a contract with a prospective lot purchaser until the lots are legally created with an MOA  recorded plat and a public offering statement is provided to a buyer.  However, some buyers, who are anxious for a particular lot will enter into a ‘reservation’ that will allow them certain preferences upon the completion and marketing of the property.

    The reservation is accompanied by a deposit which may be withdrawn at any time until the developer and depositor (prospective purchaser) have entered into an actual purchase and sale agreement, and the potential buyer has had the required 15 days to review the public offering statement.  A reservation does not warrant or guarantee any time frame when the lot will be available for sale or that the lot will be of any particular size or configuration, although the reservation is usually accompanied by a preliminary plat which generally defines lot lines and square footage.   The depositor’s sole recourse is to withdraw the deposit by giving a written request to the developer. A reservation does not need to include a price but it may do so if the developer is willing to commit to an actual purchase price prior to receiving his final costs and MOA approval.  The developer and depositor may also put a time frame on the lot reservation.  It is not, under any circumstances, an agreement to purchase or convey real property. The money deposit is held by the developer or if a real estate broker has facilitated the transaction it can be held in the broker’s non-interest bearing trust account.  Regardless of where the deposit is held, it is refundable to the depositor.

    A reservation can also be accepted by a builder from a buyer who wishes to have a new home built on a legally recorded lot.  This scenario usually occurs when the builder and buyer agree on a specific lot but the home plan and features are not finalized.  This may occur when a buyer requests several revisions to a plan and specialty items that the builder will need to price out with subcontractors.  Under this scenario, a builder may accept a refundable reservation until he is able to present the buyer with a specific set of plans, allowances and a final price for the home.  However, once an agreed upon price has the approval of both buyer and seller, the reservation is abandoned and a purchase and sale agreement is consummated. 

    Reservations that go on for long periods of time can be disappointing for the depositor.  A lot line can get moved, a new easement created and a previously discussed price can turn into a promise not kept.  From a developer or builder’s perspective, it is a good vehicle to demonstrate interest to their lender and whether or not their product has market viability and potential absorption.  The benefit to the depositor allows him to do some long term planning for a new home or home site while at the same time keeping his options open for other opportunities.  It is rare for a major change to a preliminary plat to occur and so there is a certain amount of assurances that the depositor will likely get what he has been ‘promised’.       

A Look Behind the Numbers

by Connie Yoshimura

    Despite the mild fall weather, the Anchorage building season is almost over and the permit numbers and valuations won’t budge upward much between now and the end of the year.  As of the end of October, new permits for single family homes, duplexes and multi-family are pretty much the same as last year—despite the local and national hype that the building business is in recovery.   Single family permits are only up a modest 11 homes; duplexes up by only 8 permits; and multi-family actually down by 19 units.  That’s pretty small potatoes for a community of almost 300,000 people.

    What is up is the total valuation of all permits, including commercial and residential alterations from $401,067,017 to $540,862,206.  That good news increase is what politicians like to quote about the strength of our building sector but behind all these numbers are some underlying needs and concerns that remain unaddressed.  The increase in valuations is due primarily to residential alteration permits which have increased from 1,066 to 1,243 as homeowners and remodelers try to address our aging housing stock.  Commercial alterations are also up from 775 to 998 which includes signage permits. A closer look at the residential permits shows a consistent increasing pattern of roofing permits which again speaks to our aging housing stock.  Functional obsolescence sets in at about 25 years and the majority of our housing stock was built in the early l980’s.  Thus, the need for major roof repairs consistent with new technologies such are peak vents.  Another area of permit growth is for elevators, which speaks to the need of our aging baby boomers.   But, the fact that these are alteration rather than new permits indicates that many homeowners are willingly or being forced to age in place because there are not enough new housing permits to accommodate the need of our modest growth in population.

    However, despite the pressure on our aging housing stock due to lack of new permits, the Anchorage marketplace has seen only modest increases in appreciation.  Year to date, the Municipal sales data from multiple listing service shows only a 2.68% increase with an average sales price of $346,332.  That 2.68% increase barely covers the cost of new carpeting and vinyl of an average priced home that is 25 years old.  Appreciation is being offset by the seller’s cost for cosmetic and health/safety repairs required by buyers, appraisers, home inspectors and lenders in order for the home to be sold.  The appreciation rate of 2012 was a healthier 4.76% but it was offset by the previous year’s loss of value by 2.16%.

    Statistics don’t always tell the real story but they are good indicators.  It’s clear that Anchorage has a demand for more housing of all types with the exception of the custom $1 million home market where there is  a 36 month supply with less than one home per month selling in that price point.  Anchorage doesn’t need to worry about that million dollar home buyer. They have resources and opportunities that the $350,000 buyer doesn’t even know how to dream about.  The real need now and in the immediate future is for homes under $500,000.   Those homes can be single family, duplexes, affordable and luxury multi-family for sale or rent.  Anchorage, which includes Eagle River, has only a two month supply of homes between $300,000 and $350,000.  That price point has an average of 42 sales per month and yet we have only 88 homes for sale in that category.   

    When Anchorage loses an economic opportunity for job and population growth like just recently occurred at JBER because of ‘lack of housing’, it is time for us as a community to take a hard look at our municipal development and building policies.  Residential building permits are now far more expensive and what used to take 12 to 18 months for a new subdivision can now take as long as two to three years. The demand is there.  We need new internal policies and procedures that recognize our diminishing land base and that encourage growth and creativity.  Otherwise, our stealth neighbor to the north, the Mat-Su Valley, will take not only our population but jobs as well.

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Dwell Realty
561 E. 36th Ave., Suite 200
Anchorage AK 99503
907-646-3600