Why Your Appraisal Matters in a Home Purchase

It’s important to understand the major contingencies in a purchase agreement, and one of the most important ones is the appraisal.

All lenders will require that a licensed appraiser determine the value of the property. This appraisal represents an unbiased and objective value opinion. The appraiser studies recent comparable sales in the neighborhood, making adjustments for various attributes such as number of bedrooms, bathrooms, parking, remodeling and the like. In the end, he or she arrives at a value for the property, which will hopefully be at least what you’re paying. (The appraisal can sometimes end up being more than you’re paying, which is great for you but doesn’t affect the loan.)

The appraiser submits the appraisal document to the lender, whose underwriter reviews the material. If the appraisal is “at value” for the price you’re paying, the underwriter will approve the appraisal—or could require more time if they have any issues with the content. If the appraisal is under the value you’re paying, the bank won’t kick in the difference. It will then be up to the buyer to bring in more money, or potentially negotiate with the seller to reduce the price.

Your appraisal contingency will cover you if the appraised value comes up short. If you don’t have that contingency, you’ll be in a position to cover the shortfall with more cash, or your good faith deposit sitting in escrow can be at risk. Your contingency timeframe has to allow for the appraiser to visit the property, complete/submit the written appraisal to the lender, and the underwriter to review and sign off.

It is very important for you or your agent to consult the lender about how much time will be needed for this contingency. I’ve recently had lenders tell me that it will only be seven days for the process to be complete, yet that seven days seems to cover only the time for the appraisal to get to underwriting. That means the buyer will have to potentially remove the contingency prior to underwriting giving its blessing, and that is not ideal.

How to Evaluate a Condo and HOA

There are always more condos than single-family homes available at any given point in time. And condos are the most popular property type in San Francisco, especially for first-time home buyers who want to be in popular, central neighborhoods. But before you rush out and write an offer on one, it’s important to consider the complexity of owning this type of property.

Here’s a quick condo primer that will help you evaluate the fundamentals of a unit and its homeowners association (HOA):

HOA dues: How much are your monthly HOA dues, and what do they cover? Is the total amount in line with buildings of the same scope? Are there any unit owners who are behind on their HOA dues?

HOA reserves: How much does the HOA have on hand in the event a major component of the building needs to be replaced?

Rental capability: What is the restriction on renting your unit, should you decide to move and not want to sell? And how many units in the building are rented?

Affordable housing designations: Is unit resale restricted by any city ordinances, such as affordable housing laws?

Pending litigation: Is the HOA involved in any lawsuits?

Special Assessments: Will there be any future, per-unit charges in addition to the existing HOA dues?

Parking: Is the parking space deeded to the unit, or is it leased separately? Are you able to rent your parking space in the event you want to? Will your car fit in the space?

Pets: What are the number or pound restrictions for pets in each unit? What restrictions exist for pets off leash?

Insurance: Is the insurance policy current? Does it include earthquake insurance? (You’ll know if the HOA dues are substantially higher than usual.)

Renovations: What’s the process required for remodeling any part of your unit? Similarly, did the previous owner complete any renovations, and were they done with permits?

Available Services: Is there a lobby attendant? Fitness center? Common garden or roof deck? HOA lounge? Check out every aspect of the building—even the trash and recycling room.

Move-out Fees: Is there a fee for moving in, and what days/timeframes does the HOA permit moves to take place?

Contract Contingencies Protect Your Deposit

When you submit an offer for a property, your contract will most likely have some contingencies, which are conditions of the sale. These contingencies exist to ultimately protect your good faith deposit in the event that you discover, for example, unacceptable property issues, end up with an appraised value that is less than the amount you’re offering, or suddenly can’t obtain financing.

But let’s back up. In a San Francisco purchase, it’s required to include a deposit equal to three percent of your purchase price. If your offer is accepted, you transfer that money via a wire or check into an escrow account held by a title company. In the event you back out of the sale for a reason other than a specified contingency, the seller is technically entitled to retain that deposit for what is called “liquidated damages.”

The primary contingencies in the purchase agreement are typically that of the inspection, appraisal and loan. If you include these conditions and decide to back out due to one or more of them, the sale will be cancelled and the deposit rightfully returned.

Many buyers are waiving these major contingencies in the current market in order to be competitive. If they’re doing that, it means that they hopefully fully understand that they need to be comfortable absorbing costs and repairs that may come up unexpectedly in the absence of inspections. Or they are extremely confident in their financing and have no doubt they will obtain their loan. (These buyers typically have much more than 20% down.) And finally, if their appraisal comes up short for the value they’re paying, they are ok covering the difference between the purchase price and appraised value.

If you’re not quite confident in all of that, it’s best to include the standard contingencies. Three percent of the price of any San Francisco home is a hefty amount, and you won’t be happy potentially losing it to a seller who seeks damages due to a sale cancellation.

Spotlight on The Mission, Latest Sales & More!

The latest Zephyr Market Tracker shines the spotlight on the Mission, from what’s happening in the new “Mission Creek” microhood to the deets on one of the hottest new condo developments.

And you can also check out the most recent sales across the city, too. It’s all here in the Zephyr Market Tracker!

Smackdown: Forest Hill House vs Lake Condo

Welcome to our $1.4M smackdown, pitting one one house in need of updating vs one condo that’s good to go, in two different but equally tony neighborhoods. Which property would you choose?

Contestant #1
30 Santa Rita Avenue
Forest Hill
4BR/2.5BA, 2078 sq ft
$1,395,000
30santarita
This Spanish-Mediterranean “diamond in the rough” on a lovely tree-lined block of Forest Hill is perfect for buyers looking for a house with good bones that would vastly benefit from a sound remodel. One key factor is that all four bedrooms and two bathrooms are upstairs on the same level, including a master with sweeping views of Twin Peaks.

Contestant #2
66 5th Avenue
Lake District
3BR/1.5BA, 1599 sq ft, 1 pkg
$1,399,000
66_5th
Located on a prime north of Lake block, 66 5th Avenue is a large condo that opens directly on to its own private deck and garden. The master bedroom also opens to a deck and has nice yard access; the third bedroom has no closet and is probably best for an office or baby’s room. There’s also a huge private storage room and independent parking. Half a block to the Presidio and about three blocks to the restaurants and shops on Clement. This unit was last sold in…July 2013 for $1,422,000.

So which one would you buy?

My Clients Remodel With Amazing Results

My clients purchased a single-family home in the Crocker Amazon neighborhood last year, and aimed to complete an extensive remodel prior to moving in. They just moved in a few weeks ago, and I stopped in to see the renovations this week.

This was an older house that sorely needed a new kitchen, bathroom, and a better “flow.” My clients worked with their contractor to totally revamp the kitchen, move doorways, add closet space and create a more open living/dining room area, among the more major items. They agreed to let me post a few before and after photos, as I thought it would be cool for my readers to see just what you can do when you buy a cosmetic fixer.

The living room got a fireplace facelift, with lovely stonework, a darker wood stain and new wall color:
lvroom_before

lroom_after

Here’s the before and after of their kitchen. I love their choice of new countertops, cabinets and finishes:
kitchen_before

kitchen_after

kitchen_after2

It’s always encouraging to see what can be done to make a home more enjoyable, and ulimately, more valuable.

Another Jaw Dropper in Bernal

315coleridge
The San Francisco market has been somewhat off the hook in 2014, with eye-popping sales happening in full force in seemingly every neighborhood in the city. But even I’m caught off guard by some buyers’ willingness to fork over disarming amounts of money on certain properties.

Case in point: The 3BR/2BA, 1358-square foot home on 315 Coleridge. Sold in January 2012 for $850,000, the house had two bedrooms and one bath on the main level, a remodeled kitchen and a bedroom/bath on the garage level. Outdoor space consisted of a small patio area just outside the main level, with stairs going up to a deck with views.

Fast forward to March 2014, when 315 Coleridge was listed for $1,150,000. The selling price? $1,501,000. I would have liked to been at the table when that winning offer was revealed.

RSVP This Week for Home Buyer Boot Camp!

Time is running out for RSVPs—Get in shape for the Spring real estate market by attending our Home Buyer Boot Camp! Back by popular demand, Boot Camp will whip you through the ins and outs of getting financing, writing a winning offer and completing a smooth transaction. We’ll give you tons of practical, useful information you won’t find anywhere else.

Here are the deets:
Date: Saturday, April 19th
Time: 10:00-noon
Place: 1746 18th Street (betw Arkansas & Carolina in Potrero Hill)
Your Hosts: Yours truly, blogger-Realtor Eileen Bermingham of Zephyr Real Estate, and loan extraordinaire Mike Koran of Primary Residential Mortgage.

We’ll have refreshments and we won’t make you do push-ups. RSVP today to Eileen at ebermingham@zephyrsf.com, or call/text at 415.823.4656. I’ll confirm your reservation. Space fills up quickly, so please RSVP as soon as you can so we can guarantee you a seat.

What You Could’ve Bought: For Under the List Price

Buyers are paying an average of 12% over asking for houses and 10% for condos in the current San Francisco market. So I always catch a little thrill when I spot properties that sell for under the list price.

A handful of homes sold for under asking in April in popular neighborhoods. Let’s take a look at some sales that were possible without overbidding and waiving contingencies:

301 Main #20B
South Beach

List Price: $2.1M
Sale Price: $1,975,000
Days on Market (DOM): 50
Cash Sale: Yes
301Main_20B
Shed no tears for this seller, who managed to flip this unit for significantly more money. Purchased in October 2013 for $1.6M, this 2BR/2BA unit at The Infinity was listed again in February for $2.1M. That price apparently didn’t fly, but $1,975,000 did. If there’s ever a case that needs to be made for the strength of the 2014 market, #20B is a good sale to reference.

229 States
Corona Heights

List Price: $2,050,000
Sale Price: $1,925,000
DOM: 27
Cash Sale: No
229states
This ultra-modern, 2BR/2.5BA view townhouse on a great block in the neighborhood was designed by well-known architect Zack de Vito. The property was very well appointed, but a little on the small side (1545 sq feet) for buyers in the $2M range.

1806 20th Street
Potrero Hill

List Price: $1,650,000
Sale Price: $1,585,000
DOM: 38
Cash Sale: No
1806_20th
1806 20th is a two-level condo on a prime Potrero block, in the 86-unit development called Victoria Mews. Featuring three bedrooms and technically one bathroom—one bath was converted to a laundry room—the unit had stunning city views and a remodeled kitchen.

Latest SF Sales, Spotlight on SoMa

Who doesn’t love to look at sales reports hot off the presses? This edition of the Zephyr Market Tracker shows you what sold, and for how much above or below the list price.

We also look at what’s for sale in SoMa, and what Project Open Hand recently did for the community.

It’s all here in the Zephyr Market Tracker!

RSVP for Home Buyer Boot Camp!

Get in shape for the Spring real estate market by attending our Home Buyer Boot Camp! Back by popular demand, Boot Camp will whip you through the ins and outs of getting financing, writing a winning offer and completing a smooth transaction. We’ll give you tons of practical, useful information you won’t find anywhere else.

Here are the deets:
Date: Saturday, April 19th
Time: 10:00-noon
Place: 1746 18th Street (betw Arkansas & Carolina in Potrero Hill)
Your Hosts: Yours truly, blogger-Realtor Eileen Bermingham of Zephyr Real Estate, and loan extraordinaire Mike Koran of Primary Residential Mortgage.

We’ll have refreshments and we won’t make you do push-ups. RSVP today to Eileen at ebermingham@zephyrsf.com, or call/text at 415.823.4656. I’ll confirm your reservation. Space fills up quickly, so please RSVP as soon as you can so we can guarantee you a seat.

Where’s 2014 Going in SF Real Estate?

The first quarter of 2014 is history, but the sales stats and other market conditions I’m experiencing give us an idea as to where the market is heading this year.

Let’s take a look at activity for single-family homes and condos first:
Single-Family Home Market
# Sold: 442
Average Price: $1,401,901
Percentage of Cash Sales: 25%
# Homes Sold for $1M or Less: 226
Where to Buy for $1M or Less: Outer Parkside/Sunset; Parkside/Central Sunset; Merced Heights; Ingleside; Midtown Terrace; Miraloma Park; Sunnyside; Bayview; Crocker Amazon; Excelsior; Outer Mission; Visitacion Valley; Portola; Silver Terrace.
Volume Lower, Prices Higher: It was full speed ahead for the single-family home market in the first quarter. Though volume was down slightly from the first quarter of 2013 when 497 houses sold, the average price was up from $1,164,962 (Q1 2013). Of the 109 cash sales, more than half were for homes above $1M, including a $10M home on Green Street in Pacific Heights and a $7M property on Duncan in Noe Valley.

Condo Market
# Sold: 568
Average Price: $1,033,560
Percentage of Cash Sales: 24%
# Homes Sold for $1M or Less: 321
Where to Buy for $1M or Less: Ingleside Heights; Diamond Heights; 1BRs in Eureka Valley and NoPa; Western Addition; Downtown; Van Ness Corridor; Bernal Heights; Mission; Mission Bay; Potrero; SoMa; South Beach; Dogpatch.
Volume Again Lower, Prices Higher: The condo market also didn’t miss a beat where prices were concerned. A total of 546 condos sold for an average of $901,046 in Q1 2013. A year later, the average has broken $1M.

Where Are We Headed in 2014?
I’ve received at least half a dozen calls or emails from clients in the past two weeks asking whether it’s a good time to sell. The concern is that selling now may find them leaving money on the table if prices increase.

I think that if you own a home right now and are in a position to sell it, you should take advantage of this market. For one thing, interest rates are on the rise. And though 25% of buyers are running around with cash, the other 75% of the buyer pool will be sensitive to higher interest rates, and will be watching their offer prices a bit more closely. I also believe that we’re in somewhat of a peak period, and that prices have only so much further to go this year before they flatten. I didn’t feel that way in 2010, 2011, 2012 or 2013. But based on market activity to date, it feels like 2014 will be different.

Another major factor that may keep resale prices even in 2014 is the expected increase in inventory. We’ll see the typical inventory bump in Spring and Fall, as well as many new construction condo projects kicking off sales on many buildings in the city pipline. This means that buyers will have more properties to choose from. And for sellers, that will translate into less offers per property and less intense overbidding.

What You Can Buy: For Up to $500,000

symphonytowers
The average condo price in San Francisco in the first quarter was just over $1M, and for houses, it was around $1.4M. So what can you buy if you can afford…half that amount or less?

I surveyed first-quarter sales to nail down specifics about what you can expect to be available in the $500,000 range. So let’s get to the point and look at each property category:

Condos
The condo category will have the most inventory in this range. Studios or one bedrooms will come up most frequently in larger buildings in neighborhoods such as Ingleside Heights, South Beach, Downtown, the Van Ness corridor and Potrero. For example, a 400-square-foot studio with parking at 750 Van Ness in Symphony Towers (pictured above) sold for $454,000 and overlooked the courtyard.

Other buildings that often have units in this range are 631 O’Farrell and 900 Bush, along with 8400 Oceanview Terrace in Ingleside Heights.

Two-bedroom condos do come up for under $500,000, but are typically located in Hunters Point or Crocker Amazon.

About a quarter of condos in this range were purchased in cash transactions in the first quarter.

Single-Family Homes
Inventory here mostly consists of houses that need work or are tenant occupied (or both) in the city’s southeastern neighborhoods such as Bayview and Visitacion Valley. Many of these are purchased in cash transactions.

TICs
It’s possible to purchase a TIC in this range that will be in a smaller, more charming type of building, in a more popular neighborhood, However, such units will be in properties with three or more units and will require fractional financing.