Two-Unit Building: A Good Bet for You & Your Friend?

Many buyers who start out looking for a condo in San Francisco often end up deciding that they’ll join forces with their friends or family members to purchase a two-unit building. This can be a good decision, but it’s important to be aware of the key factors to consider when deciding whether such a group purchase is possible—or a good idea.

Here’s what you should discuss before you take the plunge into the two-unit building market:
You’ll need to have shared goals. The biggest advantage of a two-unit building is the process by which you can condo convert. (It typically takes 1.5-two years.) Make sure all the owners are on the same page about wanting to condo convert, if that’s the ultimate goal. If you’re all in it just to own a two-unit building for a few years and then re-sell the property, that’s fine, too. Just make sure everyone knows what the end game is.

All buyers should be financially compatible. It’s ideal for all buyers to be in similar financial situations. You will have many shared expenses, particularly if you plan to condo convert the building. And you’ll want to make sure you have sufficient financial resources when it comes to maintaining the building and dealing with necessary repairs. Remember: You’ll each own half of the common areas, so it’s not great if only one buyer can afford to pay his or her share of the roof replacement.

You should all share similar attitudes about maintenance and repair. For every homeowner who calls the plumber at the first sign of a leak, there’s one who lets it go until the kitchen floods. If you’re the type who sketches out a repair and maintenance plan for each year, it may not be a good idea to team up on a two-unit building with someone who ignores the rotten wooden siding and hopes it’ll go away on its own.

Your loan will be different. Your choices will be either a shared loan on the building, or two fractional loans. Both loans will carry adjustable rate mortgages, but the rates and requirements will be different. The traditional group loan requires that all buyers get preapproved together, and this factors in everyone’s qualifications and credit scores. If one buyer defaults on the mortgage, all buyers are held responsible because it’s a shared loan. Buyers using a fractional loan would be individually preapproved and would not share a loan. It’s more common for buyers who already know each other to get one loan on the building and then refinance into condo loans within two years after pursuing condo conversion. I recommend looking into the details for each loan option, and seeing which one will make sense for your situation.

Put a TIC agreement in place. Even if you’re planning to condo convert, I highly recommend having the basic TIC agreement in place for the interim. You never know what can happen prior to conversion, and having this legal document to refer to can help simplify things.

Vacant two-unit buildings aren’t a bargain. You will probably end up spending as much on a vacant, two-unit building with equal-sized units as you would were you to purchase an individual condo. Vacant two units are very close in value to condos, due to the direct path to condo conversion.

Luxury Home Buyers Land Cash Discounts—Finally

It’s been a while since we’ve seen substantial discounts on San Francisco luxury properties. Many have sold for over the list price, and in rapid-fire fashion. But I found three homes that sold for significantly under their list prices, and which were also paid for in cash.

This trio of homes had been on the market a while, which lends credence to my belief that you shouldn’t discount properties with lengthy days on market (DOM) if you’re…looking for a discount.

Here’s the story behind the latest crop of bargain luxury properties:
167 Buena Vista
Buena Vista/Ashbury Heights

4BR/3.5BA, 5500 sq ft
DOM: 151
List Price $4,995,000
Sale Price $3,850,000
Sold 10/22/13

167 Buena Vista first came on the market for around $5M in the Spring. It’s on a double lot, and has city views, with a top floor “flex space” that can be used for a gym and office. Even so, this was a home that had potential, which means someone could come in and spend another half million to really kick things up a notch. At $3,850,000, there’s now some room to spend even more cash and achieve that potential.

341 Filbert
Telegraph Hill

3BR/3BA, 2890 sq ft
DOM 192
List Price $4,250,000
Sale Price $3,425,000
Sold 10/18/13

Offering a garden setting at the base of Coit Tower, 341 Filbert is a four-level home built in 1995 that has Bay and city skyline views. There’s also an elevator in the building, in case you get tired of running to all the different levels. No charming period details, but those views are incredible. The only downside is a smallish kitchen with turquoise cabinetry. But with the $825,000 chop off the original price, it may be time to update the kitchen.

101 Lombard #414E
North Waterfront

2BR/2BA, 1550 sq ft
DOM 28
List Price $1,798,000
Sale Price $1,610,000
Sold 10/16/13

The sale of 101 Lombard #414E wasn’t as dramatic as the previous two. But $188,000 off the list price these days is nothing to scoff at. This is the penthouse corner unit, with direct views of the Bay Bridge, Transamerica Building, Downtown, Treasure Island and Coit Tower from most rooms. There’s an impressive master suite and two walk-out view decks, as well as a private and exclusive-use roof terrace. HOA dues are $1166/month and include a pool and 24-hour concierge.

What You Can Buy: Houses in SoMa

The South of Market (SoMa) neighborhood in San Francisco’s southeast end is known for its lofts, multi-unit buildings and industrial/commercial spaces. On occasion, however, a single-family house goes on the market. Such unique properties are excellent for urban dwellers who want the privacy and space, as well as want to avoid monthly HOA dues and related issues. These houses, however, are a rarity; in the past three years, only six have sold.

That’s why it’s cool to see two SoMa houses hit the market simultaneously over the past week. Here’s a look at the details:

36 Rausch
Year Built: 1906
List Price: $1,100,000

36 Rausch is on a cute block between Howard/Folsom and 7th/8th Streets. The house has nice period detail throughout, like bay windows, crown moldings and coved ceilings, so it’s totally different from the usual architecture you see in the area. There’s a space at the entrance level that could be used as its own unit (unwarranted kitchen, etc). Finishes are Home Depot level, and the flooring could use an upgrade. But 36 Rausch scores points for being unique and offering an interesting space that future owners could renovate to their tastes.

275 Shipley
Year Built: 1913
List Price: $1,495,000

I’m a big fan of 275 Shipley, an artfully renovated house that’s right off 6th Street between Folsom and Harrison. The house sits on a 50-foot wide lot and has a very cool yard, unheard of in SoMa, which adds up to unparalleled indoor-outdoor living. The three bedrooms are all on the top floor, and the master has a private deck. Did I mention the two-car garage?

SF’s Luxury Market Sticks to Seasonal Trends

The high-end, luxury market in San Francisco (sales of $2M+) hasn’t pulled any fast ones so far in 2013. As is typical for homes in this range, Spring and Fall have seen an increase in volume, with cash buyers unsurprisingly making their rounds.

A total of 269 houses sold citywide for $2M+ in the time period January 1-October 21, 2013. And buyers for 13 of those properties paid cash. Eight of the total homes sold changed hands for $10M+.

On the condo front, 93 units sold for $2M or more, with 24 selling in cash transactions.

Selling patterns also subscribe to the list low, sell higher practice that San Francisco has been seeing for most of 2013. For example, 60% of house and 43% of condo sales in the January-October time period closed for more than their list prices. (But in many instances, the gap between list and sale price was not dramatically different.)

The most popular neighborhoods for luxury house cash sales were Noe and Eureka Valleys, the Marina and Pacific/Presidio Heights. Condo buyers flocked to Russian Hill and South Beach for their cash purchases. Tech money is driving many of the purchases in the south end of the city.

But pricing has been key; 42 houses and 39 condos in this segment of the market were either withdrawn or simply expired. Not every buyer is throwing money at just any property.

You can expect to see volume trail off after Thanksgiving, so it may be a good time to consider one of the 66 single-family homes or 40 condos currently available in the luxury segment. The end of 2013 is fast approaching, and buyers are well advised to look for “bargains”—particularly in mid- to late December. Though most high-end buyers retreat from the market in winter, I think it will be a good time to pick up an awesome trophy property.

And of course, if you’re considering selling or buying, please do contact me. I’d be happy to talk with you about your options!

5 Things You Should Know About Short Sales

Short sale volume has significantly declined over the past two years in the San Francisco market. But such sales are still popping up; I’m actually in the process of representing sellers on a short sale listing. And based on the questions I’ve been asked at my open houses, I think it might be a good time for a blog post for prospective home buyers about short sale basics.

Buyers and sellers both take on risks when they get involved with short sales. The seller risks having the short sale denied, or approved and then cancelled by the buyer. And the buyer risks waiting for short sale approval and then being informed that the sale won’t be approved by the seller’s lender(s).

But if you understand the basics, you can make an educated decision on whether the risks are worth it. Here are the most important things to know:

1. Short sales happen because the seller owes more on their loan(s) than the home is worth. Some homes and neighborhoods don’t hold their value in a downturn in San Francisco, and it turns out the seller paid far above the current value. Combined with selling costs such as broker commissions and transfer tax, the sale proceeds will not cover all costs.

2. Short sales require patience. A seller’s lender(s) may take two or more months to decide whether it wants to allow a sale to occur that will result in the lender getting paid less than is owed on the property. Buyers are expected to commit to waiting for short sale approval for a specific period of time (typically, a minimum of 45-60 days). This means that if you see another property you also like that comes on the market two weeks after your offer is accepted by the seller and sent to the lender for approval, you will honor your contractual commitment and not pursue that property.

3. Lenders could ask the buyer to pitch in money. As funds aren’t available on the seller side, the lender could ask the buyer to cover city/county transfer tax ($6.80 per thousand dollars for properties up to $1M; $7.50 for $1M+ homes). There are also other costs that crop up during escrow that the buyer may be asked to cover, such as reports the seller usually pays for.

4. Don’t count on negotiating credits during escrow. The seller is not in a position to provide credits or pay for repairs during escrow. Such requests will have to be approved by the lender—the same lender that’s already taking a loss, and has approved the sale based on the contract price. Attempting to negotiate during escrow will most likely not result in the buyer getting a credit; moreover, there’s a good chance the approval will have to start all over again. Best advice: Do as much due diligence up front, including a preinspection. And assume that you will have to spend a reasonable amount of money on maintenance and repairs if the systems are not all brand new.

5. The lender(s) can pursue foreclosure on the property during the short sale approval process. It’s a good idea to find out whether the seller has stopped paying his or her mortgage. Foreclosures don’t happen overnight, but if the lender has already taken steps toward foreclosure, it could significantly complicate your purchase.

1BR Houses a Popular Option for SF Buyers

In any other part of the country, a one-bedroom house would be scoffed at. But in San Francisco, such a property is viewed as a good condo alternative.

Buyers seeking a home in popular, centrally located neighborhoods for up to $1M are in a condo price range. That means shared walls, HOA dues, group decisions on building expenses, and shared or very limited outdoor space. But if you’re willing to sacrifice a second bedroom, a one-bedroom house can give you the privacy and exclusive outdoor space you need, and can also steer you clear of sometimes expensive HOA monthly fees.

The one-bedroom house market has been quite busy in 2013. A total of 37 such homes have sold this year, for an average of $630,351. Of course, there are the crazy, outlier sales that happen in prime areas, like the one-bedroom house at 439 Hill in Eureka Valley near Mission Dolores park that changed hands for $1,205,000. But these homes generally sell for well below $1M. There are five one-bedroom houses in contract at the moment, and six are on the market.

The neighborhoods in which you frequently see one-bedroom houses are Bernal Heights, Mission Terrace, Eureka Valley and Corona Heights. Many of these “cottages” were built in the Victorian era, so they’re also great for buyers who love period detail and charm.

One-bedroom houses fall into various categories. The most valuable tend to be the homes that offer expansion potential within the building and/or on the lot. These can be a good investment. Then there are the small homes that have one bedroom on the main level and some unwarranted space downstairs that could be legalized as a master suite. And then there are the cottages on small lots which have no development potential, but which will provide a nice home for someone for a few years in a good location.

SF Overbidders Don’t Disappoint in October

Though overbidding activity in San Francisco this month has been somewhat run-of-the-mill, a few sales are noteworthy for the trends they represent. These buyers are officially inducted into the SF Overbidders Club for paying 25%+ above the list price:

88 Hoff #109
The Mission

List Price: $775,000
Sale Price: $975,000
Overbid Amount: 26%
Closed Escrow: 10/4/13

The sale of 88 Hoff #109 shows you just how much buyers are willing to pay for a loft space in what is now considered to be a prime Mission location. Situated on a street bordered by 16th & 17th and Valencia and Mission, this loft has that ginormous private patio (above), as well as a den area. Lofts continue to have their limits with respect to privacy and enclosed space. But with the average price for a 1BR loft in the Mission being $753,333 since August, it’s clear that something really resonated with this loft buyer.

514 Precita
Bernal Heights

List Price: $995,000
Sale Price: $1,255,000
Overbid Amount: 36%
Closed Escrow: 10/7/13

Bernal Heights’ single-family home market has been off the hook for a while now. So it’s no surprise that this 2BR home with bonus room, nicely done yard, and two-car garage right on Precita Park attracted multiple offers. The cash buyer who purchased this home actually didn’t pay top dollar; that honor goes to the buyers of three other 2BR Bernal houses which sold in 2013 for $1,325,000-$1,525,000.

239 14th Avenue
Central Richmond

List Price: $999,000
Sale Price: $1,600,000
Overbid Amount: 60%
Closed Escrow: 10/4/13

What does a big contractor special in the Central Richmond cost these days? If 239 14th Avenue’s sale is any indication, you’re looking at around $1.6M. (And it doesn’t hurt to have cash, which was the case here.) This 2580-square foot home on 14th at California has a huge basement, period detail throughout, and large yard. These all translate into renovation potential, and 14th Avenue’s buyers have already gotten their permits underway for the job.

What You Can Buy: 2BR Condos

There’s a healthy inventory of condos on the market right now in San Francisco—particularly in popular neighborhoods which are convenient to transportation, restaurants and services. I thought I’d share some of my picks for newly listed condos that I would consider if I were searching for this type of property in the city:

50 Lansing #601
South Beach

2BR/2BA, 1499 sq ft
2-car parking
HOA dues: $763.43/month
List Price: $1,295,000

The Lansing is an 82-unit development right off Harrison and First that’s a great option for South Bay or financial district commuters. #601 has two balconies, a large, 640-square foot private roof terrace and two-car parking. (The latter is a challenge to find in the San Francisco condo market.) The well-appointed kitchen features Studio Becker cabinetry, and the unit has air conditioning, another thing you don’t find often in San Francisco. Common areas include a fitness center with sun deck, pano-view roof deck and on-site property manager. 50 Lansing is perfect for buyers who want to be near the Embarcadero waterfront, Ferry Building and everything that South Beach has to offer (including good weather). This unit sold in 2006 for $1,395,000.

628 Rhode Island

2BR/3BA, 1850 sq ft
No parking
HOA dues: $332/month
List Price: $950,000

628 Rhode Island is great for buyers who are looking for a unique property that could use some cosmetic and reconfiguration work to bring out its full potential, in a prime Potrero location. The property consists of a three-unit association, and this particular unit is a freestanding cottage with a separate, rented studio space. The cottage is at the rear of the lot, amidst a very nice garden. It also has city views. 628 Rhode Island is located in the heart of Potrero, and is in proximity to the design district, restaurants, Anchor Steam Brewing Company and the freeway.

2750 Market #101
Corona Heights

2BR/2BA, 1528 sq ft
1-car parking
HOA dues: $623/month
List Price: $825,000

1980s construction may not have the classic San Francisco architectural charm, but it is extremely functional and typically more spacious. Witness 2750 Market #101, which has good natural light throughout, generous square footage and an open living/dining area. There’s a raised hearth fireplace, as well as recessed lighting and a walk-out deck. The remodeled kitchen has lots of storage space and hardwood floors. Yes, this building is right on Market at Douglass, so you traffic will be a presence. But the unit has double-paned windows, and many also have plantation shutters. Common areas include a roof deck with views and outdoor furniture. You’re just up the hill from the Castro and its Muni station, restaurants, services and bars. This unit last sold for $705,000 in 2009.

Just Listed: 2BR Ingleside Charmer

My new 2BR/1BA single-family home listing at 231 Jules Avenue in up-and-coming Ingleside just hit the market. Featuring lovely 1920s detailing throughout, the home has a living room with wood-burning fireplace. The remodeled kitchen is well-appointed, with granite countertops, window atrium, and stainless-steel appliances. Two bedrooms are at the rear of the main level and overlook the garden, which has mature fruit trees and lawn with irrigation system.

Need a little extra space for guests or an office? Downstairs are a couple bonus rooms and bathroom, as well as a one-car garage and laundry area.

Conveniently located two blocks from Ocean Avenue, 231 Jules is super convenient to Whole Foods, public transportation, cafes, restaurant, services and schools. And if you commute to the South Bay, there’s easy access to 280.

List price is $629,000 and we’ll be open Sunday, October 13 from 1:00-4:00. Stop in and see me!

(Please note: This is a short sale, subject to lender approval.)

Don’t Let Your Loan Get Shut Down, Too

The current government shutdown is certainly having its effect on the real estate industry. The main issue seems to be lenders’ individual policies on verifying borrowers’ tax return information—and how that verification can potentially shut down your loan during a home purchase.

The loan process typically requires buyers to complete a 4506-T tax verification transcript. However, the IRS is closed. And that means lenders are deciding how to handle this requirement.

I consulted with several lenders and mortgage brokers to see how they’re handling this aspect of loan processing. First Republic and mortgage company Primary Residential are both waiving that requirement. Preliminary feedback from RPM Mortgage indicates that the company will fund conforming loans (up to $625,500) without the tax verification, but the jury is out on jumbo loans. Wells is not requiring tax verification immediately, but requesting it by close of escrow.

Bottom line on the shutdown is that if you’re planning to write an offer on a property, double check with your lender on how it plans to handle these tax and social security number verifications. You don’t want to be caught in contract with a tight contingency removal timeframe, only to learn that your lender insists on verifying the info. The key is to work with a lender who will be nimble in the face of this government shutdown, so the real estate industry doesn’t end up shutting down, too.

Hot Sales in the City & Free Wi-Fi

San Francisco sales continue at a frenzied pace, with the pattern of listing low and selling high remaining intact. And our median price ranges are $827,250-$1,351,000 for condos, houses and two- to four-unit buildings.

We’re finally getting our free public wi-fi throughout San Francisco, due to a partnership with Google. And if you’re looking to lose your iPhone for a weekend in favor of a book, check out Litquake, a literary festival that takes place in mid October.

It’s all here in this edition of the Zephyr MarketTracker!

Up-and-Coming Ingleside A Good Bet for Buyers

Nothing attracts home buyers more than a good, solid retail area that they can walk to from their new home. Consider all the wildly popular neighborhoods that have retail areas featuring hot restaurants, cafes, shops and services: Noe Valley, Hayes Valley, The Mission, Cole Valley, Cow Hollow, the Marina and the Inner Sunset, to name just a few. Buyers will pay dearly to be in walking distance of these strips, because if you can’t walk to anything, why live in San Francisco?

Blog readers and clients alike often ask me where I think the “up-and-coming” neighborhoods are. I think one of them is definitely Ingleside, particularly if you’re looking for a single-family house. Known for years as the area around City College in San Francisco’s southwest end, Ingleside is becoming more high profile as its Ocean Avenue retail area grows. The arrival of residential units, a refurbished library and of course, Whole Foods, has really bumped up the neighborhood’s desirability. (Click here for a profile of the neighborhood, as presented by Zephyr.)

And in terms of public transportation, Ocean Avenue has two bus lines, the K Muni line, and BART’s Balboa Station—not to mention proximity to 280. As a result, the area is getting popular with young professionals who commute to downtown San Francisco or the Peninsula.

Developers are taking notice of Ocean Avenue opportunities; along with condos aimed at the family demographic in the works at 1490 Ocean Avenue, developer Brian Spiers is in the process of obtaining entitlements for a residential property at 65 Ocean. These are certainly signs that Ingleside is poised for big changes over the next few years.

As if you needed more proof that Ocean Avenue is the hot place to be, the Chronicle featured the area this week in a pretty cool article.

Ingleside was hit hard during the economic downturn, but many of the home values are gradually recovering. The average price for a 2BR house in the third quarter was just under $600,000. So you can actually find a house here for less than the $1M San Francisco average. But the more spacious, well-situated homes (e.g., near Ocean Avenue) are already starting to sell for well into the $700,000s.

There was a time before 24th Street, Cortland Avenue, Valencia and Union Street first started attracting buyers and visitors—kind of like what Ocean Avenue is doing now.

SF Overbidders Hit Single-Family House Market

Late September was a busy time for the latest crop of home buyer overbidders, most notably in the Mission, Inner Sunset, and Glen Park. Buyers can join the club when they pay 25% or more over the list price. Here’s what went down:

837 South Van Ness
The Mission

List Price: $1,395,000
Sale Price: $1,901,000
Overbid Amount: 36%
Closed Escrow: 9/17/13

For those who doubted that this total fixer would attract the attention of buyers who would pay dearly for their opportunity to create a Mission compound on South Van Ness, this one’s for you. This severely dilapidated property with gaping wall holes, unfinished rooms and a “lodger on the premises” garnered almost $2M. But the three-level home on a huge lot was sold for 36% over its asking price, and will probably require at least another half million to get it up and running.

1566 9th Avenue
Inner Sunset

List Price: $980,000
Sale Price: $1,395,000
Overbid Amount: 42%
Closed Escrow: 9/25/13

$1.4M is a pretty typical price for a large house in the Inner Sunset that’s in good shape. So the $980,000 list price could definitely be viewed as a teaser. But buyers were sucked in and the non-contingent, highest offer for 1566 9th Avenue took the prize. Four bedrooms up, and another bedroom/bath on the garage level. Perfect for the crowd that wants to be near UCSF, Muni and the Irving Street retail area.

101 Miguel
Glen Park

List Price: $849,000
Sale Price: $1,110,000
Overbid Amount: 31%
Closed Escrow: 9/26/13

This unassuming corner house at the corner of Chenery and Miguel was another one for the contractor set. Big views were involved, as well as a great location near the Glen Park retail area and BART. The buyers for Miguel were happy to pony up just over $1.1M for an opportunity to renovate a house that had been in the same family for three generations. Say good-bye to the wood paneling.