Top 10 HOA Issues in Condo Sales

You’ve finally found a great condo to buy that hits on all your preferences, is in a good location and has affordable homeowners association (HOA) dues. Now it’s time to review the disclosures, particularly when it comes to the HOA. What restrictions exist or could lead to potential problems?

Here are my top 10 HOA issues to vet when it comes to condo living:

1. Noise transference.. Are there restrictions against having hardwood floors, playing musical instruments, having surround sound speakers or a certain percentage of flooring covered by carpet?

2. Pets. Condo CC&Rs typically specify pet restrictions, which often limit the size/number of dogs and cats. Keep this in mind, for example, if you’re thinking of getting a second dog and the CC&Rs limit the number of pets in a unit.

3. Building maintenance and repair. What are you responsible for maintaining and repairing, and what does the HOA cover? Check the CC&Rs and other documentation to see whether your deck or windows, for example, are the domain of the HOA.

4. Ratio of rented to owner-occupied units. Most lenders have underwriting guidelines that prevent them from lending on buildings where there is a high percentage of rented units. From a quality of life standpoint, it’s always nice to purchase a condo in a building where other owners are as equally invested in the building as you are. Make sure you check out this detail.

5. Improvements and alterations. Most CC&Rs specify that owners need HOA permission for remodeling, so that’s the way it goes. It’s not a great idea to try to sneak contractors through the hallway. So if your transaction hinges on some type of unusual renovation, it’s best to talk with the HOA president or management company before you remove your contingencies.

6. Ability to rent your unit.. Short-term stays are typically prohibited in CC&Rs, and some buildings have a waiting list that prevents more than a certain percentage of units from being used as rentals. If you’d like to rent out your condo down the line, be aware of any restrictions that exist.

7. Upcoming assessments. Is the HOA planning to assess individual units for a future repair or improvement? And will you be the owner who ends up paying that assessment? It’s good to know what you may need to budget in the near term.

8. Inadequate reserves. Most larger buildings should have a certain amount of money on reserve for repairing, replacing, or improving building components such as the roof, exterior, or elevator. If reserves are very low, it could indicate poor HOA financial health, and also doesn’t bode well for building maintenance. Ultimately, you may be looking at a large assessment to cover an unexpected repair. And of course, lenders will shy away from providing financing on condos in buildings with insufficient HOA reserves.

9. Storage. Many condos have deeded or designated storage indicated on the condo maps (which are typically included in the preliminary title report). However, there are sometimes informally assigned storage areas in a garage that aren’t in writing anywhere. It’s good to be clear about where these storage areas are, and whether they are expected to be available to you after you close.

10. Litigation. Is the HOA in litigation, or planning to undertake litigation in the future? If so, that may have a major influence on your ability to get a loan—not to mention on your opinion of the property. Litigation issues should be disclosed, but also make sure to read HOA meeting minutes and check for any discussions on the topic. Sometimes there’s litigation coming up that’s not been formally started, and you don’t need the surprise after you’ve completed your purchase.

Is It a Good Time To Buy in San Francisco?

San Francisco has a very fast-moving, dynamic real estate market that often doesn’t reflect what’s happening across the country. For example, “hitting bottom” meant lower sales volumes, higher concentrations of foreclosures and short sales that were largely centered in a handful of neighborhoods, and many properties in prime neighborhoods still selling for more than list prices. In other words, it wasn’t exactly a real estate bloodbath in San Francisco.

I’ve recently been asked by a fair number of people whether it’s a good time to buy real estate in the city. The fact that it’s a seller’s market is giving many prospective buyers pause. Ironically, those same buyers may have been hesitant from 2008 to mid-2012—when it was a buyer’s market—because loans were more challenging to obtain, less cash was flying around, and the economy was a bit shaky.

So my response to the question about whether it’s a good time to buy? Well, I think timing has more to do with your financial situation and long-term goals than market conditions themselves. San Francisco is one of those cities that’s extremely desirable for many reasons, which is why our real estate prices are so high. If you have the ability to jump into the market, purchasing what you can afford should be the priority. We’ll never have screaming deals on property, which means that if you sit around waiting for the market to shift in your favor, you could be missing opportunities to own not only a great home, but a great investment.

I helped many clients purchase property over the past couple years amidst our downturn. And most of them could sell their homes for more money now. But many buyers sat on the sidelines, hoping prices would fall to the extent that they could swoop in and snatch up a single-family home or condo in a good area at some sort of discount. Homeowners made sure that didn’t happen, holding off on selling their own homes until prices crept back up to more desirable levels.

Which is where we are now. The scale has tipped back into the seller’s favor. I’m not sure how long this will last, but history dictates that market conditions will inevitably change. Whether it’s a good time to buy really depends on how closely your property goals are aligned with your purchasing power in the current market.

Good Value in Behind-the-Scenes Home Improvements

I meet with new buyer clients frequently who tell me they’re okay with “doing some work” and not paying for another owner’s remodel. And many times, that’s a sound plan when it comes to kitchens and bathrooms. After all, these renovations are typically pretty straightforward, and they provide an instant bang for the buck. Buy a house with a tired, 1940s kitchen and bath, tart them up, and you’ve added immediate value.

However, there are certain property upgrades that should be appreciated and valued more than I think they are in San Francisco. A chef’s kitchen with a CaesarStone counter and a slick, high-end soaking tub in the master suite are all fine and good. But what about an upgraded foundation–or a substantially repaired one? Or a new furnace/ductwork; roof; seismic upgrades; repaired dry rot/termite damage; upgraded plumbing and electrical? Though you can’t necessarily see these sorts of repairs in slick marketing photos, they’re important building components that need periodic attention.

A good portion of the aforementioned items can be fairly expensive. For example, the foundation repair/improvement work being done on my own two-unit building is so not cheap. We found a leaking drain pipe under the concrete that wouldn’t have been addressed had we not opened up the ground. And the seismic upgrades we’re doing at the front & rear of the building will also contribute to a more solid footing. Sure, we have a remodeled kitchen and bath in our unit, which is great, but future owners will most likely not have much else to do in light of the work we’re doing.

I’ve seen some good buildings sit on the market a while because owners were trying to recoup all the money they spent on certain structural items. It’s difficult to quantify how much money you can expect to recover on, say, the $20,000 roof you installed, or the $10,000 on plumbing and electrical upgrades. These items will certainly add value, but how much value will be up to buyers. In general, they’re the type of items you address as part of long-term property maintenance. And hopefully, the buyer who likes your house will be savvy enough to appreciate the upgrades and repairs.

The Ins & Outs of Leased Parking

You start your home search with a parking space as part of your criteria. And then you see the perfect condo, but it has what’s defined as “leased parking.” What exactly are the ramifications for this?

The SF Realtor Association recently changed the data fields in the MLS to include leased parking and its related details in a given listing. Previously, you either had some type of deeded parking, or not. Some agents indicated “1L” in the data field, which resulted in listings showing a parking space that technically wasn’t going to be sold with the unit. So the new leased parking fields are a good thing, in my opinion.

The main distinction to make with respect to parking is that a space is included with the purchase, or it’s not. There are also variations on parking that comes with a unit, such as deeded, assigned, tandem or independent style.

A leased space is not included in the purchase price, and it doesn’t run with the property. The seller typically has leased the space for a while, or has just secured it so the property can be marketed with a solution to the no-parking problem. The seller has a signed agreement with a third party, and that third party also has to approve the buyer if the lease is to be transferred to the new owner.

Leased parking can be in a private garage, or it can be in a lot or even a public parking garage. You’ll want to visit the space and consider the distance to and from your unit. If the space is in a parking lot, know that someday that lot may be a condo development.

Most importantly, there is no guarantee that the leased space will be available throughout your ownership, or that you’ll be able to transfer the lease in the future. But having a leased space available addresses immediate concerns (i.e., where am I going to park?!). Neighborhoods that have major parking challenges—the Mission, Russian Hill, the Haight, Hayes Valley, to name a few—often also have leased parking available, and securing that lease may entice some buyers to move ahead with a purchase.

So if you’re considering a property that has leased parking, just know that there is no guarantee you’ll have that space forever. It’s also a good idea to get a sense for how available other leased spaces are in a particular location, in the event you someday have to replace that space. And also note the monthly cost of that space, because it will be in addition to HOA dues, too, if you’re purchasing a condo.

Short-Term, Furnished Rentals Good Seller Pit Stops

I’ve met recently with a number of homeowners who are considering selling their properties, but don’t know where they’ll be able to buy next. Though they know they’ll do extremely well in the current market with the sale of their property, they’re nervous about competing with buyers to purchase their next place.

Here’s a suggestion that will work for these potential sellers: Rent a short-term, furnished rental. There are actually quite a number of these available at any given time, in all parts of The Bay Area. (Short-term, unfurnished rentals are more of a challenge to find, given the demand for long-term apartment leases.)

Just hit Craigslist for the area in which you’re interested in moving; it’s best to be in geographical proximity to your destination. Type in “furnished” or “short-term” in the “apts/housing” section, and a host of entries will pop up.

I recently spotted two-bedroom, short-term/furnished apartments in the Sunset ($1800/month), Marina ($3800/month; Mission Dolores ($3900/month) and a Noe Valley one bedroom ($2550/month) on Craigslist that could totally work as seller pit stops.

These rentals aren’t cheap. However, you’re able to put your belongings in storage and then move them to your new home once you purchase it, negating the need to move twice. You also won’t get too mired down in a rental, because both the price and the lack of your own possessions will keep you motivated to find the home that’s right for you.

And best of all, you’ll eliminate the possibility of making decisions under pressure, allowing you to think clearly and ultimately make the right purchasing decision for the long term.

Attend Our SF Condo Buyer Workshop!


If you’re considering purchasing a condo this year, please also consider attending our upcoming San Francisco Condo Buyer Workshop. We’ll be covering all the details you’ll want to know, from the scoop on the current market to what to look out for in HOAs and how condo building details can affect your loan options.

I’ve been selling condos for the past decade in all neighborhoods in San Francisco, and have pretty much seen it all when it comes to HOA pros and cons. I’ve also been covering the condo market in depth on my blog since 2008. And my colleague, Mark Wiener, has logged plenty of years in the mortgage business. He’ll be able to jumpstart your search with the fundamental, current information you’ll need to know about condo loans.

Our workshop will be happening on Thursday, April 11th from 6:30-8:00PM at 1400 Van Ness at Bush. Plenty of metered parking (which I think is free after 6:00) and we’ll also have some food & drink. What else could be better (besides happy hour, but you don’t get the condo info at a bar).

Please RSVP as soon as you can, so we can save you a seat!
Eileen Bermingham
415.823.4656
ebermingham@zephyrsf.com

Yours Truly, Quoted on KQED About TIC Legislation

The San Francisco Board of Supervisors Land Use and Economic Development Committee was scheduled to vote today on legislation that will potentially allow some TIC homeowners to bypass the condo lottery and pay a one-time fee to complete their unit’s conversion. As is typical with any legislation that affects homeowners and tenants, the issue is controversial.

And the vote has been delayed by a month, as Supervisor Mark Farrell reportedly wants additional time to talk with tenants’ rights groups.

I am, of course, a homeownership advocate (and former renter). And there are two sides to every issue. But I’m thinking that there’s something to this TIC legislation that should be able to work. In a city where two-thirds of all residents are renters—and property taxes help subsidize many things here—the Board of Supervisors should take a balanced view of the condo conversion issue and update its position so we don’t have a bunch of homeowners languishing in the lottery.

Check out the story (with link to the original audio broadcast) here: “San Francisco Struggles With Decision That Could Help Some Homeowners—And Hurt Renters.”

Know Your Home Insurance Basics

When you’re in the midst of buying a house in San Francisco, there’s a lot going on. One of the key escrow activities is nailing down your insurance policy and provider. So it’s important to know what you’ll be looking for in terms of coverage level and annual cost.

Here are the main items for comparison that should be standard in your home insurance coverage:
1. Dwelling Replacement: This is the amount the insurance company will cover if your home is damaged or lost due to fire or hurricane. (You need separate policies for earthquake/flood insurance). The coverage is based on square footage, location, and other factors such as attached/detached garage, fireplaces, etc. You essentially want sufficient coverage so that if you had to rebuild your house, the insurance would pay for that. Insurance companies have their own formulas for calculating replacement cost, and it’s important to note that the number is not based on the market value of the property. It does not include the value of the land.

2. Personal Property: This portion covers personal items and household contents due to theft, fire, vandalism or other perils outlined. It’s advisable to take an inventory of all your belongings so you have an idea regarding how much coverage you’ll need. Better yet, have receipts, photos or other proof of ownership for these items in case you need that information.

3. Loss of Use: This is coverage that provides for your living expenses in case you have to relocate due to a claim while your house is being repaired. Standard policies usually provide coverage for about 20% of the dwelling coverage.

4. Personal Liability: In the event that someone has an accident on your property, you’ll want coverage against lawsuits. A standard policy typically covers $100,000 for each liability claim occurrence. If you have anything on the property that might increase risk in some way (i.e., a pool) you might want additional coverage.

5. Medical Payments: This helps cover the cost of medical payments for which you might be held responsible if someone gets hurt on the property, but doesn’t want to sue you.

An important tip: Don’t go with the least expensive policy you can find. Because if you compare coverage side by side among the providers you survey, you may find that you’re falling short on necessary coverage when you’re trying to save a few bucks.

What The Heck is HO-6 Condo Insurance?

Condo buyers will typically be told shortly after going into contract that their lender requires them to purchase HO-6 insurance. Otherwise known as hazard or individual unit coverage, HO-6 insurance provides personal property and liability coverage for whatever happens within your unit’s walls.

Yes, a portion of your monthly HOA dues does pay for building insurance. But that building policy doesn’t cover anything that might happen inside your unit.

HO-6 coverage costs anywhere between $400-$600 annually, and will end up being part of your closing costs. The provider will typically need to know what year the building was constructed; the number of stories and units in the property; unit square footage and roof type. Your agent can get you started by giving you all these details so you know what to respond when asked by the insurance agent.

Which Neighborhoods Have the Best Weather?

If you’re new to San Francisco, then it’s important to be aware that our city has a variety of microclimates. One minute you can be driving around with the top down, sweating, and the next you’re turning on the seat warmers. If you’re considering purchasing a home here and are particularly weather sensitive, it’s important to know which neighborhoods tend to have the most favorable climates.

Of course, San Francisco has citywide fog and wind no matter where you go. But some areas have longer periods of time during a given day when the sun shines and the wind is at a minimum. So here’s a quick rundown:

Bernal Heights. Make a good garden space a priority in Bernal, because you’ll be able to spend a lot of time enjoying it. And the Cortland retail strip is usually pretty hoppin’ because you can wander in and out of the shops and restaurants and not have to keep zipping and unzipping your jacket.

The Mission. Bernal’s neighbor is the Mission, which also shares in the weather fun. The nice part about the Mission is that the dining scene has exploded, so there are tons of restaurant options, as well as unique shops along Valencia and throughout the neighborhood. If your commute involves walking to BART at either 16th/24th and Mission, your morning and evening strolls won’t force you to confront driving winds.

Noe Valley. I live in the part of Noe that’s defined as “Upper Noe”—the area bordered by Guerrero, Cesar Chavez, 30th Street, and up as far as Diamond. For the most part, you can avoid the high winds in Noe, but it does depend on how into the “valley” part you are. Most days when I walk my dogs in the late afternoon, I’m wearing sunglasses and have a light jacket on. However, up there in Diamond Heights, the fog hangs thick. And when I drive down, say, Clipper, from Portola in the Twin Peaks area, I typically experience a transition from no sun and heavy fog to sun. There’s a notable difference every time.

South Beach. Located right off The Bay, South Beach is blessed with lots of sun most of the time. This is conducive to a very desirable, urban lifestyle that involves walks to the Ferry Building, runs along the Embarcadero, and Giants games.

South of Market. The blocks are long in SoMa, but that’s okay because if you’re running, biking or walking, you’re not being blown into traffic. The neighborhood is always developing, and it’s definitely the most urban area in this list. But having good weather is key to enjoying those shared rooftop decks that pervade SoMa living.

Mission Bay. Constantly in development, Mission Bay has amenities like Mission Creek Park, the ballpark, and outdoor dining. Developers have taken advantage of the on-the-Bay setting by incorporating as many deeded outdoor spaces as they can in condo complexes.

Potrero Hill/Dogpatch. Potrero is a well-established neighborhood offering a mix of residential and industrial properties, and Dogpatch (a.k.a. the Central Waterfront) has truly been transformed over the past decade into a hub for local businesses, restaurants, wine bars and the like. The T Muni line connects Dogpatch to downtown, and the freeways are extremely convenient to access.

1031 Exchange: Great Way to Defer Paying Taxes After Selling

I recently attended a seminar on 1031 exchanges, as I frequently work with buyers and sellers who own rental properties in one capacity or another. The Internal Revenue Code Section 1031 allows investors to reinvest proceeds from the sale of one investment property into another similar property while deferring capital gains that would otherwise be due on the sale.

A 1031 exchange is an excellent option to have if you’re looking to move up to a bigger and better property down the line, and want to build your wealth in the process.

However, you need to be aware of the fundamentals before you can reap the benefits. Here are the four simple guidelines for exchanges, as per the Asset Exchange Company in San Francisco:

1. The properties involved must be held for “productive use in trade, business or investment” and must be like-kind. You can sell your four rental units on Haight Street and reinvest the proceeds into a six-unit rental property on Lake Street. But you can’t sell that Haight building and go buy a single-family house for yourself.

2. You have to complete the exchange in 180 days. The timeline begins when you close escrow on your “relinquished” property. There are no exceptions to this timeline.

3. You must identify your next property purchase within 45 days. After you close escrow on your relinquished property, you have 45 days to identify your replacement property. You have to identify all properties in writing, with a clear description. And there are two IRS rules for identifying replacement property. The first is the Three Property Rule, which allows for identification of any three properties, anywhere in the United States. The second is the 200% Rule, which is an option for identifying more than three properties. With this rule, you can identify four or more properties, but their combined value can’t exceed 200% of the property sold.

4. To defer 100% of the capital gains tax liability, you must meet two requirements. The first is that you have to reinvest all the cash that was generated from the sale of your relinquished property. And the new property must be equal or greater in value to the property sold. So you can’t use part of the money, or transfer any or all of the money into your own bank account. Once you touch it, you knock out the ability to do the exchange.

As you can imagine, these four points are the tip of the iceberg. There are all sorts of buying and selling situations, and it’s important to consult with a 1031 exchange consultant, as well as your CPA and attorney before making any moves. I have a great team in place if you’d like to explore your options, so feel free to contact me at 415.823.4656 / ebermingham@zephyrsf.com.

Should You Buy Earthquake Insurance?

I’m often asked about earthquake insurance—do most homeowners in San Francisco have it? Do the majority of condo buildings have an earthquake policy?

Only about 12-15% of California homeowners have earthquake insurance, and I believe that ratio drops further in The Bay Area and San Francisco. The reason behind this is that earthquake insurance is very expensive. In a condo building, it doubles your homeowners association dues (HOAs). Additionally, most policies come with a 10-15% deductible. This means the damage to the building would have to be pretty severe in order for you to use your coverage.

What do you look for when evaluating how well a property will hold up against an earthquake? Take note of its overall construction material (i.e., wood-framed buildings tend to hold up better against ground shaking). Review the hazard report rating (i.e., is the building located in a Zone A–the most susceptible to an earthquake, or a Zone D/E, which would have a better chance in an earthquake). And consult a general contractor about how seismically sound the property may be (i.e., foundation bolted, etc). If a property was built before 1906 (year of the big earthquake) and it’s still standing, that’s a good indication that it’s been constructed well.

I have sold many condos in San Francisco over the past decade, and maybe one or two condo buildings I’ve sold actually had earthquake insurance. Ironically, the buildings with earthquake insurance tend to be harder sells, because the HOA dues are prohibitively expensive for buyers. If you’re buying within a building that doesn’t have earthquake insurance, the HOA would have to decide whether to obtain that coverage. It’s not available on individual units.

If you’re interested in more information, contact your favorite insurance rep and inquire about the specifics for earthquake coverage.

Watch for Dog Breed Restrictions in Condo Buildings

It used to be that condo associations limited their pet restrictions to two pets per household. Then some buildings started throwing in weight restrictions. These days, it’s become commonplace to ban certain dog breeds.

This is particularly true in new-construction buildings, where you can expect CC&Rs to specifically state that Pit Bills, Presa Canarias, Rottweilers, Doberman Pinschers, Mastiffs or any other fighting breed cannot live in the building. There are also sometimes more restrictive weight limits for dogs (i.e., only 100 pounds combined for two dogs per unit).

With older condo developments, you’re probably good to go if you own one of the aforementioned breeds, unless there is a weight restriction or the particular HOA has amended its CC&Rs to ban the breeds. So before you write your offer on that nice 2BR condo in Pacific Heights, check to see if you’ll be able to bring your dog along.

All Local Worlds Collide on BlockAvenue


A new Web site called BlockAvenue.com combines “geo data” and user opinion to create an online guide that helps people understand neighborhoods, local trends, and new happenings.

The site “leverages more than 50 million data points” for the location of your choice, such as crime, transportation, restaurants, shops, school and social activity. It then mashes it up with a “proprietary social layer” (i.e., comments from users) to provide a BlockScore that will tell you how good the location actually is. Because as we all know, neighborhoods do change on a block-by-block basis in major cities, and San Francisco is no exception.

I gave BlockAvenue a whirl by typing in “Valencia and 24th, san francisco, ca.” The next page was a map of the area, showing various icons representing local businesses and amenities, as well as boxes with corresponding details for each. So along with McDonald’s, Valencia Farmer’s Market and the Mission Cultural Center, I was able to locate a sex offender on Mission Street and a ZipCar pod. I was also able to mouse over the various categories, and could check boxes if I only wanted to see crime data or just check out restaurants.

BlockAvenue seems like a good way to get to know a city on a neighborhood level. There aren’t many user comments yet, but that takes time. I’d recommend using the site, particularly if you’re deciding which neighborhoods might be a fit for you as you search for a home.

The Facts Behind Credit Reports & Loans

This time of year often sees prospective home buyers start to lay some groundwork for a home purchase in the following year. And based on many such individuals contacting me about potential house hunts this month, I’m guessing it wouldn’t hurt to put up a few posts about the many aspects behind getting your loan preapproval.

I recently ran a post about the reasons lenders need to pull credit reports when completing loan preapprovals. In keeping with that reality, I thought I’d share some tips from my colleagues at Guarantee Mortgage about how credit report details factor in to your loan preapproval. Because the more buyers understand about the process, the more confident they can be about making decisions along the way.

Each of the credit bureaus report address history, number of credit inquiries in the last 120 days and discrepancies related to social security numbers or name variations. Lenders then review what the bureaus report and compare them to the info you provide in your loan application. So it’s important to know what’s important to a lender, and you won’t get tripped up:

Note your address history. If an address is reported within the last two years that isn’t listed on your loan application, then an underwriter may request a written explanation to connect the address to your living history. Be prepared to provide that documentation if need be.

Be aware of your credit inquiries. When there are credit inquiries reported, lenders ask that a borrower explain the details behind the inquiry, as well as whether any new credit was obtained. If there were new accounts opened, but not listed on the credit report, then the report needs to be updated so the new account is shown. Your credit score could be impacted by this process.

Name variations will need to be clarified. This is common to see for married couples or for those who have moved to the United States from another country. Lenders will typically ask a borrower to sign an “also known as” statement at closing to address this.

Have your credit checked early in the preapproval process. The bottom line is that you should allow a lender to run a credit check as one of the first steps in your loan preapproval process. It’s key to understand what issues may exist, how you can resolve them, and ultimately, how you can avoid a lot of stress in your house hunt.

[Above tips provided courtesy of Guarantee Mortgage.]