Properties In Contract on the Upswing

The sale last week of  the 2BR/2BA condo at 3721 21st Street in Liberty Hill was a good example of what’s happening in San Francisco at the moment. On the market for just under two weeks, the $1,249,000 property went into contract and closed at its asking price. Whether or not there was a lot of negotiation or haggling isn’t the point; the fact is that the seller commanded a nice price for a 2BR unit (albeit with views)–and there was a buyer right on hand to purchase the property.

There are 379 condos and 381 single-family homes under contract (some with conditions to be removed, others pending and through the contingency period). These are extremely healthy numbers for the first quarter of any year, not to mention one that’s still recovering from the economic downturn. But it seems like buyers are very active in the San Francisco market; anecdotes among my colleagues abound about multiple-offer situations and all-cash offers.

Indeed, a look at the past year’s numbers from 1/10-1/11 shows a  25% increase in condos and a 33% increase in single-family homes under contract.  Click on the charts below for a closer look:

This is relevant information for both buyers and sellers as we head into March. We could be looking at much higher volume in the pre-Spring time period, which means that waiting until the Spring to sell won’t really make much difference.

Lovin’ The Russian Hill Cul-de-Sac Condo With Killer Views

This unassuming exterior belies the major views within 31 Grenard Terrace, a lovely condo on a cul-de-sac in Russian Hill. And who doesn’t love cul-de-sacs? They tend to be more quiet and private, and traffic is limited to nearby residents or the occasional driver making a u-turn.

I’m spotlighting 31 Grenard because it’s got two levels, overall decent space and parking. You get 1500 or so square feet, three bedrooms and 2.5 baths. HOA dues for this unit are $300/mo.

Two of the bedrooms are on the lower level, which tends to keep the price down a bit. But it’s best to keep the focus on the more positive attributes, such as this deck:

31 Grenard last sold in 1997 for $815,000, so the current list price of $1.4M is more in line with today’s market. The average price for a 3BR condo in the neighborhood since January 2010 is $1,885,667.

Sorting Out Post-Condo Lottery Confusion

Whenever San Francisco holds its annual condo lottery in February, the winning homeowners put their game plans together. Some immediately embark upon the condo conversion process, while others quickly decide to sell.

My colleagues and I have noticed a few listings coming on the market that are being classified as condos—but which are really TICs in buildings that recently won the lottery. It’s important to note that until a building is fully converted and all units are officially condos, you can’t call a TIC a condo. Even if everything is on track for condo conversion.

This is a good distinction to make if you’re a buyer who’s not interested in completing someone else’s condo conversion. And sellers, it’s important to recognize that condo conversion does incur quite a few fees, so expect buyers to factor those costs into the price they pay for your TIC.

Do Your Homework Up Front in Short Sales

“BOM” is shorthand for Back on Market, and several properties earned this status over the past week. Three of them started off as short sales, meaning that their sellers could very possibly be foreclosed upon if they’re unable to find new buyers.

I point this out because it’s key for buyers who make offers on short sales to do their homework up front, and understand the full scope of the short sale process.

The three BOM short sale properties include the one above at 643 5th Avenue—a 3BR/1BA, 1700-square foot single-family home in the Inner Richmond listed at $895,000. There’s also a house on 22nd and Church in Noe Valley for $720,000 that needs some work, and a 2BR/1BA starter home in Sunnyside for $529,000.

Short sales are being approved much more easily in 2011, but buyers need to know that when they make an offer on a property that’s being sold in this manner, they will have to wait around for weeks or months to find out whether the lender will approve the sale. It’s expected that a buyer making an offer on a short sale home will do so in good faith, and won’t flake after a month passes without a response from the bank. This does sometimes mean missing other opportunities that come on the market in the interim.

And if the lender(s) respond with a counter offer, buyers should not be surprised. The reality of short sales is that they aren’t necessarily “deals;” lenders are taking a loss to begin with, and they do their homework with respect to current market values. Short sale properties are typically listed at lower prices to attract interest; it’s up to all parties involved to strategize so that the lender accepts the contract. That might mean going through a couple counter offers. A good listing agent will have a strong sense for what the lender will accept, so by the time a buyer’s offer is finally reviewed, the price should be very close to acceptable.

Buyers need to do as much reconnaissance work as possible with the guidance of their agent before submitting an offer and making a contractual commitment. Disclosures can sometimes be very limited (more so with condos, as sellers may not want to pull together HOA documents if they will be charged for them). Your agent should be able to guide you in researching the permit history and in the case of a condo, HOA health.

It may be worth it to have a walkthrough with a general contractor so you can get an idea about how much money you may end up needing to spend on improvements (more relevant for single-family homes). For example, the 22nd Street property I mentioned has a brick foundation and a city easement between the property and train tracks nearby. In this case, it’d be really important to attain a comfort level with those details prior to submitting an offer.

Once the lender has accepted your offer, the escrow can close in normal fashion (of course, most lenders respond with a two-week required close, but that’s another story). And yes, unexpected events can occur to throw things off track. But if you do your due diligence up front and work with an experienced buyer agent who’s closed short sales, your short sale can be a success without a lot of stress.

7 Best ‘Hoods, North Beach Development Update

My latest MarketTracker report takes a look at the future residential project on Columbus in North Beach, as well as the latest on the Brannan Street wharf improvements. 

We’ve also included 7×7 Magazine’s popular Seven Best Neighborhoods (Most House for the Money in…NoPa?), and a drill down on citywide market trends!

Click here for the latest MarketTracker report.

Lender Trends See Buyers Scratching Heads

The real estate lending landscape has changed significantly in the past couple years. Lenders are girding themselves against fraud in many ways, and that trickles down to what sort of documentation they’ll request from buyers in transactions.

Two areas that have raised questions recently center around gift money and personal information requests. Our team at Guarantee Mortgage recently presented an explanation about the issues related to these topics, so I thought I’d share this very practical information with you.

Many buyers today are receiving gift money to help pay for their purchase. This used to be a lot simpler. But now, lenders are requiring a gift letter, copy of the gift check or transfer, proof of deposit and source. Yes, this is a bit excessive. But the reason it’s being done is because the lender wants to make sure that the borrower is not “borrowing” the money and laundering it through a relative, according to Guarantee Mortgage. A lender is making a loan based on certain assumptions, which include the borrower’s existing debt. Additional debt will skew the debt ratios and may possibly disqualify the borrower from the loan. Lenders will also want to see the funds sitting in the relative’s account, followed by a step-by-step paper trail of the transfer.

Keep it in mind if you’re gearing up for a purchase with gift money involved.

Another recent development is a request from the “shorting lender” (the one on the seller side) to obtain the first five digits of the buyer’s social security number, along with his or her birth date and phone number. Sounds strange. But Guarantee Mortgage says that so far, only Bank of America is requesting this information in transactions with big losses for the institution. The lender asks for this info in order to verify that there’s no fraud in the sale (for example, that the buyer and seller are not related). The lender doesn’t run a credit report on the buyer, but enters the info in its systems and runs some algorithms in order to see if there are any connections that come up (i.e., shared property ownership, co-signers, etc).

So there you have it—wacky lender activity debunked. I’ll keep you posted as more trends pop up that beg for rationale.

Romantic European Hideaway for Valentine’s Day

There are few neighborhoods in San Francisco that inspire romance more than that of Russian Hill. So in honor of Valentine’s Day, I thought I’d spotlight a romantic Russian Hill home: The 2BR/2BA, 2,160-square foot unit at 1020 Union #7 has been on the market since last Fall. It’s currently being offered at $2,095,000, which may break a few buyers’ hearts. But for those in this price range who strongly desire Bay, Russian Hill and Alcatraz views from a walkout terrace (above), 1020 Union #7 will definitely do.

Union Terrace, one of my favorite Russian Hill developments, was constructed in 1921. It’s charmingly landscaped with terraced gardens and fountains:

#7 is a top-floor unit that has one of the largest and brightest floor plans. It features six skylights, a living room with fireplace and a formal dining room. You can also enjoy a library, family room, and direct access to the garage.  

So step out on to that terrace, take in the view, and consummate your home search with the perfect Valentine’s Day location. I’ll even throw in the wine and cheese and a chocolate heart if you hire me as your agent.

Preview: 2BR Haight/Cole Valley Condo

Last sold in 2006 for $1.1M, this 2BR/2BA condo at 756 Clayton on the Haight/Cole Valley border will be coming on the market at $889,000. I checked out the unit today during our weekly Zephyr Preview Tour, and I really liked the space. The well-appointed kitchen (photo above is from the last time the unit was on the market) has a very cool breakfast area. And the master bedroom is at the rear of the unit with an ensuite travertine bath.

This is the lower level in a two-unit building, so you enjoy the benefit of having a lovely walkout garden.

There’s also one-car independent parking and storage. This stretch of Clayton is attractive, as it’s tree lined and only a short walk to the heart of Cole Valley—as well as a block and a half to Haight Street. (Walk Score is…100.)

Give me a call if you’d like to schedule a showing.

Update: Bernal Flip Definitely Not A Flop

I recently spotlighted a home in Bernal Heights that had been sold in September 2010 for $590,000 and was quickly renovated and put back on the market in January for $849,000. There was substantial interest in the property, which surprised me, as most buyers tend to not want to pay for someone else’s renovations.

That sentiment is most definitely not in play these days. And a quick update: 3719 Folsom is now in contract for well above $900,000, and garnered ten offers. Keep it in mind as you shop for newly renovated homes in close proximity to the Cortland corridor. There’s a strong demand for this type of home, whether it’s being flipped or not.

Condo Conversion Can’t Come Soon Enough

The annual condo conversion lottery took place last week, with more than 2,000 property owners hoping that they’d win the right to convert their tenancy-in-common (TIC) interests to condos. However, under existing regulations, only 200 units were selected for conversion—leaving most owners out in the cold.

A recent story in The Bay Citizen notes the currently diminished TIC sales and loan markets. Sales are down, and not many lenders are participating in the more popular “fractional” loans that grant TIC owners individual mortgages (as opposed to the more traditional group loans, wherein all owners share the same mortgage). Indeed, TIC sales have decreased gradually since 2008. At that time, 436 TIC interests sold for an average of $628,295. A total of 407 TICs sold in 2009, at an average of $602,325.

And in 2010? Only 273 TICs changed hands, at an average of $579,048. The softened condo market has become more attractive to buyers who at one time could only afford TICs. More importantly, qualifying for a fractional TIC loan is difficult, as they carry down payment and cash reserve requirements. They also have substantially higher interest rates than regular loans. Additionally, many buyers also aren’t into adjustable-rate mortgages these days, and the few lenders who offer fractionals don’t provide 30-year fixed products.

There are 125 TICs on the market right now vs 582 condos and 462 single-family homes. So the TIC market is substantially smaller. But I think the larger issue lies in the fact that there are many, many owners (more than 2,000, anyone?) who would otherwise like to sell their TIC interests—but can’t.

I’m talking about those owners with units in 3-6 unit buildings who are still on group loans. These individuals never dreamed that almost five or ten years after purchasing their portion of the property, they’d still be sharing a mortgage with other people (especially given the turn in the economy over the past two years).

Frighteningly, many owners are now unable to sell their TICs because doing so will retrigger a refinance for the group—and the group can’t qualify due to diminished values and stricter loan requirements. Perhaps these owners went into a purchase with only 10% down, and now do not have enough equity to refinance for either a group or fractional loan.

One couple I met in 2009 had purchased their TIC interest in Corona Heights in a four-unit building several years prior. We discussed the possibility of selling their TIC and buying a larger home. Unfortunately, the group couldn’t qualify for a refinance, so everyone was essentially trapped in their TICs. The rare good news, however, came last week when the group “won” the lottery after entering it for seven consecutive years. 

The couple to whom I spoke can now put plans in motion for acquiring a larger home that can accommodate them and the two children they’ve had in the interim. But unfortunately for many other TIC owners in San Francisco, having the ability to sell will probably not be a reality until they can get through the city’s conversion system.

One of my real estate predictions for 2011 is that our new, more moderate Board of Supervisors may finally make some headway with all the groups that oppose lifting the 200-unit annual cap on conversions. We’ll see if that comes to fruition. Ironically, the objections to easier condo conversion from tenants’ groups and others who are concerned with preserving rental stock are not having much effect on the numerous, newly renovated TICs that are coming on the market and selling fairly easily with fractional financing.

I’m all for preserving rental stock; I’m a landlord myself. But when I see tenants in San Francisco paying upwards of $2,500/mo for a two-bedroom apartment in a central neighborhood, I start wondering if it might make more sense for them to purchase a home. TICs, as you can see by the average sale price, are not exactly in the luxury price range. Most are below $500,000–which essentially is San Francisco’s middle class.

It’d be nice to clear out the conversion backlog and free up some of these units so more buyers in this price range would have a place in which to live and invest.

Diamond in the Rough for $2.4M

Where can one purchase a partially gutted, unfinished corner home with no heat and limited lighting in San Francisco for around $2M? Look no further than 620 Euclid Avenue in Jordan Park. The sale of the 7BR/6.5BA home with more than 7,000 square feet was listed in September 2010 for $3.1M. The sale went into contract around Thanksgiving and closed this week for $2,437,000.

Though there’s work to be done, Euclid did have lots of period detail intact, as well as seismic upgrades, a new roof, and substantial electrical/plumbing completed. Permits were pulled for various renovations as far back as 2008, but apparently the work got to be a bit too much for the current owners. The home was last sold in 1999 for $1.4M.

Given that the most expensive home in 2010 in Jordan Park sold for $3,725,000—and that most homes sold in the neighborhood last year were substantially smaller—I’m thinking that the Euclid sale was not a bad deal.

Strategic Remodeling Can Turn a Profit

When consulting with home sellers, I’m often asked whether it might make sense to, say, remodel a kitchen or bathroom to potentially increase the ultimate selling price. The answer: A profit is possible, but it depends on all the variables involved.

Most of the time, remodeling to sell is not wildly advisable. This is because all buyers are different and have individual tastes. So that CaesarStone countertop you install may or may not be viewed favorably by the buyer who ends up writing an offer on your home (especially if it’s somewhat out of synch with the older oak cabinets you don’t want to spend the money replacing). That buyer may actually be deducting a few thousand in order to replace the counters or bring the cabinets up to speed.

I think it’s best is to make remodeling decisions throughout your ownership, with an eye toward what will have the best chance for adding to the home’s overall value. You can’t go wrong with tasteful kitchen/bath updates or garden landscaping that you’ll enjoy yourself. No, you may not recover all the money you spent, but those updates will count for something at the time of resale.

The annual “Remodeling 2010–11 Cost vs. Value Report” provides breakdowns in multiple cities for numerous types of remodeling jobs done at mid-range and high-end levels. It analyzes estimated costs, and the percentage you can expect to recoup if you undertake those projects. At the top of the list for returns in San Francisco are jobs such as window replacement; attic bedroom remodels; deck additions; bathroom and kitchen remodels; and garage door replacement.

Less likely to break even or turn a profit are projects like roof replacements; master suite additions; and home office remodels. Though you typically can add value by installing a garage, the report essentially says that you won’t recoup your costs. (It also lowballs the garage addition cost, so I’m not sure how accurate this is.)

I sometimes see laundry lists of “improvements” included by sellers in disclosure packages. Quite frequently, many such improvements are actually defined more as maintenance items. So as a seller, it’s important to note that replacing a water heater, repairing a roof or siding may not be items buyers feel compelled to cover in their offer price.

Another important factor is working with permits. Trying to save time and money by failing to take out permits for jobs that normally require them can certainly come back to bite you in the end. For example, I’ve seen a good number of homes for sale that disclosed kitchen remodels that were not done with permits. Ditto that for “rooms down” functioning as master suites on the garage level. Buyers can be wary of unpermitted work for safety reasons (incorrect electrical wiring or plumbing behind the walls), and you can actually lose money in the end.

Bottom line: Before embarking upon a home project that will cost a fair amount of money, it might be good to check with your Realtor to get a sense for whether you can expect to recover at least part of the cost when reselling. This is where the “strategic remodeling” comes in handy.

Good Luck in the Condo Conversion Lottery!

Our city’s annual condo conversion lottery takes place today. I’d like to extend my best wishes to all those TIC owners who have been waiting years for their multi-unit buildings to earn the right to condo convert. TIC ownership in San Francisco is no cakewalk, especially for those sharing loans with their TIC partners.

I’m hoping that our current Board of Supervisors will make headway toward clearing the backlog of homeowners who live in their units and aren’t causing any threats to the housing stock or renters in the city. These are folks who purchased TIC units as a way to own a home they could not otherwise afford were it a condo or single-family.

I spoke yesterday to The Bay Citizen/New York Times reporter Scott James about the current state of the TIC market, so more to come on that. But today is for congratulating lottery winners and sending positive energy to the homeowners I know who have been waiting four or more years to win.

How’s The Market In: Lakeside

One of the lesser-known neighborhoods in the west part of San Francisco is Lakeside. Bordered by Sloat on the north, Junipero Serra on the east, 19th Avenue on the west/south, Lakeside is a slice of a ‘hood that’s adjacent to San Francisco State University, Stonestown Galleria, Stern Grove, and Ingleside/Balboa Terraces. Here’s a map for your reference:

The homes in Lakeside were constructed from 1936-1950, and the developers targeted buyers who were professional men (and their families).  The plan for Lakeside was explained in the October 1936 issue of California Homes: “For the Man of Means: If you are a San Francisco executive you’ll like Lakeside. Close to your executive offices in the matter of distance and in the matter of time due to the Twin Peaks Tunnel; close to your favorite golf course and bridge club; close to your heart in the architecture of your needs…” They made sure to put utilities underground, and also built out Lakeside Village on Ocean Avenue so there were some stores and services. These days, Lakeside dwellers and buyers like the area because it’s convenient to the aforementioned places, area schools, West Portal and Hwy 280.

Lakeside is a small geographical area, so sales aren’t exactly prolific year round. A total of 17 single-family homes (no condos here) sold in 2010 for an average of $913,014. All but three were three- to four-bedroom homes with large square footage. All but four sold for less than $1M.

There are presently three listings available for sale in Lakeside, ranging from $695,000-$749,000. Three other homes are in contract. The market has held up well in this neighborhood, and there’s probably not sufficient inventory for all the buyers who might like to reside here.

Given that Lakeside has such a limited inventory and sales history, sellers (and buyers) can use sales in the neighboring areas of Merced Manor; Balboa Terrace; Stonestown; Merced Heights; and even Lakeshore and Pine Lake Park. Those neighborhoods tend to share a similar feel, but it’s important to note that comps should involve homes of similar architecture, number of bedrooms and adjust for remodeling and overall condition.