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A Real Estate QA with Attorney Ryan P. B. Kelly of Parker Scheer LLP discussing the firm's real estate practice on Nantucket with some information for those considering buying real estate in Nantucket.
Q: Tell us about the firm's real estate practice in Nantucket.
A: Developing a real estate practice
in Nantucket requires an investment of time to develop contacts
and build relationships within the local real estate community.
Personal contact with mortgage brokers and real estate agents
has been the main source of leads and clients, resulting in
a larger percentage of business for our real estate department.
In contrast to Boston, Nantucket is
very provincial. Because of this, people who are buying or
selling a home there, want and expect to work with a lawyer
or law firm located there. This was probably the biggest hurdle
for us: trying to integrate ourselves into this small tightly
knit legal community. Due to its size, the trades and professions
are very protective of their island and their work because
there is only so much business to be had. Still, there are
quite a few lawyers there because real estate can be a lucrative
line of work so almost every lawyer out there practices real
estate law to some extent. Some of them have other practice
areas in addition, but they all do some type of real estate
work, which is natural because of the high cost of land and
homes on the island. In my opinion, having personal contacts
that not only work and live in Nantucket but also are native
to the island is an advantage. I have some good friends who
are native to the island so I have been able to use their
reputation to get access into the local social and professional
circles that otherwise would probably have not accepted me.
It has worked out well in a business sense and also from a
personal and social perspective because it has led to some
great opportunities in my business work and in my personal
life to be able to meet some new friends. Having said that,
there is still a limited amount of work to go around. One
thing that I think is really unique about PS is that we have
quick access to the island and we have office space there.
I can be on Nantucket in an hour and a half. Logan to Nantucket
is a 40 minute flight. But being in Boston is also advantageous
because a lot of people, who own a home in Nantucket or want
to buy one, live in Boston or the Metro Boston community.
For them it is far easier to meet with a lawyer in Boston
than to incur the cost of traveling there or paying a lawyer
to come off-island. Our firm doesn’t charge anything
extra to go there.
Q: So it is beneficial that you are in Boston because not everyone who owns real estate on Nantucket lives there. They might live in Brookline or live in Weston, or somewhere in the Boston area ...
A: For 95% of the Nantucket clients that I have worked with, the property they own there is their second, third, fourth, fifth or twelfth home, not their primary residence. Many of my clients live in North Andover, Weston, Wellesley, Dover, and Hingham. Their communication with their real estate attorney can be done remotely, but at the end of the day I find that most people like to meet face to face with their lawyer. I think this personal contact is beneficial. I have the flexibility to service my clients in either place.
Q: Do you think it is easier for people this way?
A: Yes. If a client lives in Andover and wants to buy a house or re-finance a loan on a house in Nantucket, the documents need to go to the registry in Nantucket which is the reason for having a lawyer down there, but since there are so many flights there each day, I can get the documents done in the same day. The client who had an appointment at my office at 9:00 AM that morning doesn’t have to go to Nantucket for an 11:00 o’clock closing. They are able to save time and money.
Q: These are advantages to working with the Parker Scheer real estate group.
A: Yes.
Q: What other real estate services does Parker Scheer provide to their Nantucket clients?
A: Homes on Nantucket are expensive so mortgages are often very large. Based on that we do a lot of re-finances. A small break in an interest rate on a mortgage of $900,000 or $1.7 million dollars, even a quarter point, amounts to hundreds of dollars a month. Saving money makes sense to everyone no matter what financial level that are at. Another service we provide is called a “mail away” closing. We have many clients from Washington D.C., New Jersey, California, Florida and Pennsylvania who have second homes or investment properties on Nantucket. When they want to re-finance, if they are comfortable with the loan package, we are able to take care of it without them having to travel to Boston or Nantucket. We go over the documents with our clients, send them to the client via FedEx or email where they are executed and returned to us the very next morning for recording. This can all happen in a period of less than 24 hours. Technology makes a lot of things possible. This process is not exclusive to Parker Scheer but it is something we have done quite a few times. It is another way we offer our real estate clients flexibility and convenience.
Q: Educate us about the typical
Nantucket real estate buyer. Is it usually someone who already
owns property on Nantucket and wants to buy more? Is it someone
who has come into money and has decided they would love to
have a place on Nantucket? What types of properties are they
buying? Houses, rental properties, or condos?
A: It is all types of people and transactions. There are plenty of returning customers who want to buy more than one property because of the great investment opportunities because of the very high rental rates. Many of the people we deal with may never have spent one night in the home they own on Nantucket. They are able to make money in the summertime rental market and they don’t have any interest in going out there in the wintertime. It is strictly an investment. I also help property owners market, list, and rent their homes; that is a big business in Nantucket. There is a reason that there are so many real estate offices on the island. There are some properties that change hands every year. You can’t predict what properties will be bought and sold because you never know how long people are going to hang on to properties, but there is always a very large rental market.
Q: What does it cost to rent a home in Nantucket?
A: A 3-bedroom house for one week in July or August could cost $4,000 or higher. There are houses that go for $50,000 a week. It is mind-boggling. These properties are the lifeblood of the real estate business in Nantucket. There are brokers who will have a home on the market for a whole year but they can rent it for 15 weeks. The commission on a rental is higher than it is on a sale transaction. The typical sale transaction is 5% of the purchase price of a home or property. The commission on a rental is 15%. The work involved in renting a home can be much more demanding than the purchase or sale of a home. The broker often becomes the go-to person for renters. They ask for local recommendations and report minor problems like, “The second bathroom’s faucet doesn’t work”. The broker has to scramble to take care of all of this because the family is only there for a short period of time and spent a lot of money for it. A home purchase involves multiple visits and inspections so people usually figure things out before their transaction and brokers usually aren’t really involved in that.
Q: What are the issues or pitfalls for first-time buyers or sellers in Nantucket? What are the tax implications and other issues they should be made aware of?
A: There are very strict requirements and restrictions that need to be adhered to, like lot size, and different areas on the island are run differently. There is very little mixed-use property there (residential and commercial), where as in other towns, there are fewer restrictions resulting in more mixed-use development and property. The smaller towns try to protect the integrity of neighborhoods with a little bit more fervor than you may expect in other towns. The Zoning Board of Appeals on the island is very busy. A potential buyer interested in some form of development may need to appear before these boards to request a variance. There are a lot of issues that need to go before the Zoning Board of Appeals. Another example is when a property has a main house and a cottage or a guesthouse. A guesthouse is very desirable because it increases the value of the property and owners want to get as much appreciation out of their investment because the cost of land is so expensive. The properties are often very small. Very few homes sit on major acreage. When a large piece of land is available it is usually subdivided and multiple houses are built on it and sold for millions of dollars. The historical commission on the island requires various approvals for property transactions. The historic commission regulates a lot of Nantucket town and is very strict. Any renovation, redevelopment, or sale of any property that is within the control of the historic commission, is difficult. For example, a contractor who I know was renovating a historic house on Nantucket. The exterior of the home had to remain standing while it was demolished from the inside out, and then built from the inside out which is opposite of how houses are generally built. Only through numerous applications, hearings, and approvals could he refinish the exterior clapboards and shingles. The irony of it was that the home was approved for renovation because it was falling down, but they had to leave that deteriorated exterior standing. The commission has a lot of authority and can often do whatever it wants, another hurdle in the process of purchasing real estate in Nantucket.
Some owners end up condoizing their home. We recently had a situation in which a client owned a property in Nantucket with a guesthouse that had been converted into condos 10 years earlier because it was on a lot that was 3,000 square feet and in that particular zoning district, single family homes were required to be on a lot of at least 5,000 square feet. It probably existed before any zoning regulations went into effect and was grandfathered in because it was on a “non-conforming lot” (less than 5,000 square feet). They property was split into 2 condo units and sold separately.
Inventory and availability on Nantucket can be seen as decreasing because for every transaction that takes place on the island, there is a 2% land bank fee that the Buyer must pay above and beyond the purchase price of the home/property. It is nonrefundable and is basically a tax. The Nantucket Land Bank uses this money to maintain and purchase more conservation land.
Q: Is this to keep the island pristine?
A: Exactly, and to prevent rampant development. A similar land bank exists on Martha’s Vineyard as well.
Q: What about a developer who
wants to purchase a few lots? Give me an idea of what a developer
might encounter.
A: First and foremost the availability
and the options for a developer or anyone who builds a home
for investment and resale can be limited. Yes a developer
considers it, but a developer is going to think on a little
bit of a bigger scale.
Q: It doesn’t happen?
A: It does but it is rare. It is all depended upon the zoning region, zoning map, where you are looking to build, historical restrictions, and a lot of wetlands that you have to deal with. There are restrictive covenants in certain areas. There are neighborhood associations where there are restrictive covenants for the types of houses that you can build and the size. Almost all homes on Nantucket have the same color. They start out as wood colored shingles and they eventually turn grey as they weather. There are a lot of restrictions but it is all to keep the island atmosphere and culture that has been there for a long time.
Q: Let’s say a parcel of land becomes available, maybe a home with a little bit of land. First of all, it sounds unlikely that it would be undeveloped already. Secondly, it sounds like a lot of things would have to be in alignment for someone to develop a few units on them.
A: Again, it all depends on zoning. That is where to start if you want to try to subdivide an existing lot because it is big enough to support another independent lot depending on the square footage. Some have 5,000 square foot requirements and some areas have 10,000 square foot requirements. In order to purchase conforming lots, you have to get approval from the zoning board. If you want to seek a variance to develop a nonconforming lot, it all comes down to the board. There is a hearing in which the Buyer must prove his case for needing the variance and why he should be able to do x, y, or z. Development on Nantucket is almost the lifeblood of the trades that are based there. There are new houses being knocked down and rebuilt, renovations of existing houses, and subdivisions where a lot is split and both properties are built on. One of my clients owns an L-shaped lot in Nantucket. There is a home on one side of the lot that will be moved about 12’ to the right so there will be enough space to subdivide, create a new conforming lot and build a very small house on. There is a lot of that where you all of a sudden either realize or through foresight in buying a piece of land, say down the road, “This will support another lot and I can build something on it and sell that as well and still retain my original investment whether it is land or land with a home on it.” Again, you have to get approvals for new curb cuts, new driveways, as you would in any other town. Nantucket is just a little bit more protective.
Q: You touched upon closings,
refinancing, and mortgages. Not sure if you want to talk more
about that or if you want to talk about whether the process
is different with the Purchase and Sale if it is a second
home. We talked about recreation. One thing you might cover
is how the historical commission or the land bank handles
issues where they wanted to develop something but it is near
wetlands.
A: There is the Conservation Commission that deals with any issues having to do with the wetlands. They are obviously very protective.
Q: There might be restrictions?
A: I guess a quick point on mortgages and lending and the current climate would make some sense to talk about. From the bank’s perspective the lending requirements are very different depending on whether you are borrowing money for a primary residence as opposed to an investment or a second home. You get better deals and more flexibility or leniency if it is a primary residence because the bank knows you are living there and you are going to take care of it. An investment or second home has no guarantees about how it is going to be taken care of. Presumably, since it is an investment, the owner is going to take care of it but they have little control over their renters and how they treat the property. In this market, especially with the heightened underwriting requirements and standards due to the credit crunch and mortgage crisis, getting a loan for a second home or an investment property is much more difficult. Unless 20% is put down with a conventional 80-20 split, it is tough. Lenders and brokers need to find banks that are still willing to doing that. The 90-10 lending is not very likely because there is more risk involved. This is an area that I would defer to a bank, loan originator, or mortgage broker because they know the specifics of what is required by certain lenders. It is something for the consumer to be aware of. Borrowing money for a vacation home or investment property is a little bit harder to do now than it has been in the recent past.
For more
information on buying / selling real estate in Nantucket,
or if you are looking for a Nantucket real estate lawyer,
please contact Ryan Kelly. If you prefer,
you can also telephone our offices in Boston seven days a
week at toll free 866-414-0400.
Nantucket Real Estate and Community
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