Grand Tour

It's time for Sunday Opens! The count of open homes in San Francisco has more than doubled from last week. Many homes that were on the market didn't have open houses because of the Labor Day weekend, and other sellers like to wait to put their homes on the market until after the holiday weekend. September and October tend to be strong months in the San Francisco real estate market, so we are all anxious to see how it will go this year amidst the credit crisis. The consensus I am hearing from the buyers who are visiting my open houses is that they feel it is a good time to buy; they realize that prices haven't dropped in most cases but have leveled and aren't shooting up, at least at the moment. The buyers are out there, and they are looking for deals. I used to say that there are no deals in San Francisco but these days you may be able to find one. Especially if you aren't looking where everybody else is looking, or for the same thing everybody else is looking for.

Anja and I offer something to our clients called the Grand Tour. You tell us what your price range is, and we will take you through the city and show you, in each neighborhood, what you can get for your money. You may find neighborhoods you didn't know existed, or rediscover places you'd been but hadn't yet considered. $700,000 may barely get you a one bedroom condo in a place like Noe Valley, but in Mission Terrace you can get a two bedroom single family home with a garage and a garden! And it's close to Bart! I'm not saying everybody should up and move to Mission Terrace; maybe the one bedroom in Noe is better for you, but it's good to know your options. That way when you make your final decision you know you've made an informed one. Also, when you first set out to look you may think you know what you want, but you may end up with something completely different; sometimes it all comes down to the feeling you get when you walk in the door. Anja had some clients last year who were looking for a fixer in a cozy neighborhood and ended up with a brand new condo on Geary! You just never know.

Ellis Act

The Ellis Act is a state law passed in 1985 that was intended to allow building owners to retire from the landlord business. It is now most often used as a way to "change the use" of a building. It is a lawful way of evicting all of the tenants, and in most cases here in San Francisco those units are then converted into Tenancy In Commons and sold separately as percentage ownership in the entire building. There are many requirements that must be met such as:

1. All tenants must be evicted; not only those who pay the lowest rent.
2. Tenants will receive relocation fees of $4500 per person at a maximum of $13,500 per unit. Elderly and disabled tenants receive an extra $3000 each.
3. Landlords are to give 120 days notice; one year notice for elderly and disabled.
4. The Ellis Act is recorded onto the deed and stays with the building even when ownership is transferred.

In order to prevent landlords from using the Ellis Act as a tool to get higher rents by evicting tenants with low rents and replacing them with tenants paying higher rents, there are rental restrictions placed on a building that has been Ellis Acted. Those restrictions are:

1. No unit in the building can be rented out for the first two years.
2. For the first five years, any unit that is rented out must be rented at the same rate as when the Ellis Act was put in place plus any allowed increases that would have otherwise been allowed under rent control.
3. For ten years after the Ellis Act, the tenant who was evicted has the first right of return should any of the units go back on the rental market. They will pay the same rent that they paid at the time of eviction, plus any allowable increases, provided they have registered for the unit.

Most of the Ellis Acts in San Francisco are for the sale of a building, either as a whole or as separate units. In the case of a sale, the seller would be affected as it lowers the value of the building; some say up to 20%. The buyer is affected because of the rental restrictions. As I said, the Ellis Act stays with the building and so do the restrictions. Aside from the rental restrictions I have mentioned, there is another big one. If you are purchasing a Tenancy in Common and are hoping to one day convert the unit into a condominium, if there was an elderly or disabled person displaced during the Ellis Act you cannot condo convert if the eviction happened after November 16, 2004. My advice when dealing with an Ellis Act is this: If you are considering Ellis Acting a building, call a landlord/tenant attorney. If you are considering purchasing an Ellis Acted building, think about whether or not you might want to rent that unit out in the next ten years. Also, you can look into the eviction and find out if there were any protected tenants (elderly and disabled) displaced. If not, and you just want to owner occupy the property, proceed and enjoy your new home.

Bernal Heights

For the month of September, we are exploring neighborhoods in San Francisco's District 9. The first in the series will be Bernal Heights, otherwise referred to as 9A, which is located on the hill at the southern border of the Inner Mission. The majority of homes in Bernal are single family homes, and it is a very popular neighborhood for young families. It is also an excellent place for dogs as the very top of the hill, Bernal Hill Park, is also a dog run where you can let your pups run freely off leash. The average purchase price here is just under $800,000 and the homes currently on the market range from a small artist's cottage listed at $499K to a luxurious new home designed by architect Craig Steely listed at $2,295,000. The wide range of property types is a direct indication of the diversity this neighborhood has to offer. So what can you get for the average price? Here's one example: 57 Bessie Street is a three bedroom one bathroom home just a block of way from Precita Park, two cafes, an Italian restaraunt, and a market. The home is listed for $849,000 and has been on the market for almost one month now. A month on the market is on the longer side; in this case I believe the problem is that there is no garden, but the house itself has been upgraded nicely and it does come with parking. Just a tip; when a home seems to be sitting on the market longer than the average time, it may be a good time to negotiate a lower price.

Cortland Avenue is the main commercial drag in Bernal Heights and you can find pretty much everything you need there. There are grocery stores, a video store, cafes, restaurants, public library, community center, shops, yoga and Pilate's studios, and much much more. Aside from Precita Park there is also Holly Park which has all new play structures and a nice view of the city. Public transportation in Bernal is limited to buses, but there are a number of them that run throughout the neighborhood. There are three public elementary schools, one Catholic, and one small but popular Montessori preschool. Bernal Heights is a small community in a big city; you get the best of both worlds.

What Can I Afford?

Everyone would agree that the most important factor in purchasing a home is money. Whether you are buying purely for investment or because you become emotionally attached to a home and are thinking more of quality of life, it all comes down to money. We are currently in a state of crisis because over the past few years lenders have been passing out loans like candy, and unfortunately not everyone could actually afford the loan they were given. The first broker I worked with used to say, "All you have to do to get a home loan these days is fog a mirror!" It looks like that is changing now, but only because an estimated 2 million adjustable rate mortgages are scheduled to reset this year. Of course not all of these will default, but many borrowers with poor credit who had already pushed their income to debt ratio to the limit will certainly be over their heads. Who's to blame for this problem? Some say the consumer and other say the lender. Of course, both hold some responsibility. The buyer needs to be sure they understand the terms of the loan. READ THE FINE PRINT! You need a loan consultant you trust! I received a phone call a few months ago from a man who needed help trying to figure out if he should sell his home or buy his ex wife out. I did some research into the title and found that he owed more than he did at the time of purchase. This was news to him, and although they weren't in a default position as they could afford to make the payments, he could not afford to sell the home as he owed more than the home would have been worth on the open market. He had a negative amortized loan and had been making the minimum payment each month without realizing that this caused the loan balance to increase over time. He didn't know; wasn't told. Should he have read the documents more carefully? Sure, but I believe that is called predatory lending. English also happened to be his second language.

So how much can you afford? As I mentioned before, banks have tightened requirements. You need to have good credit and a minimum of 10% down, but most importantly you need to decide how much you can comfortably afford to pay each month. Many times people qualify for more than they actually want to pay. Once you have a comfortable monthly payment amount in mind remember that amount needs to include not only the loan payment but also property tax (1.14% in San Francisco) and home owner's insurance (home association dues if you are purchasing a condominium). One other cost to consider when you are going to purchase a home is closing costs. On average, closing costs are 1.5% to 3% of the purchase price. They can be higher if you are paying points (prepaid interest) to lower the interest rate on your loan. Closing costs for the buyer include lender's fees, escrow fees, title insurance, and inspection costs. Closing costs are not taken out of the down payment; they are a separate cost. This is probably the largest purchase you will ever make (aside from your second or third home of course). Take your time. Surround yourself with a good team , don't over extend yourself, relax, and enjoy your new home.

San Francisco's District 9

Part of searching for a home is searching for the right neighborhood, so part of what we will be doing with this blog is featuring a different San Francisco District each month. We will explore the district's subdistricts and neighborhoods and what they all have to offer. We will look at everything from home prices to restaraunts, shops, schools, parks, transportation, etc. Because we are in September, the ninth month of the year, I thought we would begin our district series with District 9 which also happens to be where I live. There are currently 272 active residential listings in District 9. The leader in that group with the largest number of available properties is the South of Market neighborhood as you will see in the breakdown:

Bernal Heights: 31 active listings
Inner Mission: 55 active listings
Mission Bay: 40 active listings
Potrero Hill: 35 active listings
South of Market area: 73 active listings
South Beach: 37 active listings
Central Waterfront: 3 active listings

Stay tuned as we continue to explore District 9 neighborhood by neighborhood throughout the month of September.

Get Busy To Buy In 2007

As we come out of what was a beautiful Labor Day weekend, I feel like it is time to gear up for the rest of the year. If your plan for this year includes buying a home, then I suggest it's time to get the ball rolling. You have probably already been doing some research on the Internet; studies show that is where close to 80% of all home buyers begin their search. The Internet is, of course, amazing. It has everything you need; you can look at available homes in your area, you can get information about neighborhoods, schools, crime statistics in the neighborhood, you can even find where the nearest sex offender lives. Once you've gotten your fill of info via the Internet, you will probably hit a few open houses. You may narrow it down to the neighborhoods you love or only hit those in your price range, or you might just wander in as you pass one on your way to the cafe. Either way, you will begin running into real estate agents, and believe it or not, that's a good thing. When you are in the market to buy, a buyer's agent is one of your best friends. The other best friend is a good mortgage broker. The first part of your search for a home should actually be a search for the right team. Once you have your team in place it is really time to begin the search.

Once your loan consultant helps you determine what you can afford, your real estate agent will help you narrow your search down to the right neighborhoods and the right homes. You may search for a month or two before finding the right home. You may or may not get the first home you make an offer on, and once you do get an offer accepted you will have an escrow time of approximately one month. That brings us to November if all goes well! Like I said, if you see yourself in a new home in 2007, I'll see you next weekend at an open house!

Sunday Opens

What a beautiful weekend we are having! I hope everybody is out and about on this fine Sunday afternoon. It's open house day! Throughout all of San Francisco the count for open homes today is:

109 Single Family Homes
186 Condos
21 2-4 Unit Buildings

That should keep you busy between 2:00pm and 4:00pm! A little piece of advice I have for your open house tour is to go with a list of homes that fits your wants, needs, and budget. It's easy to get distracted out there with all of those signs leading you every which way, but at the end of the day you might realize that you've only seen homes that are way over your budget and although they were probably all lovely homes, you haven't gotten any further in your search. The chronicle has a very complete open home list in their Sunday paper, and if you are working with an agent they can give you a small list of homes each week that fit your profile.

Another interesting statistic for now is the amount of price reductions we have had in the past two weeks. There were 306 price reductions in San Francisco alone; 188 single family homes, 106 condominiums, and 18 multi unit buildings have lowered their prices in the past two weeks. Some of the reductions are nominal; possibly only a gesture, but others are significant price reductions of 10% and sometimes even more. This is a great time for buyers to negotiate, not only on price but also on terms such as contingency time and escrow time. In a market like this buyers finally have some pull and should take advantage of this. I do, however, want to point out one very important distinction: selling prices being lowered does not necessarily mean that home values are depreciating. It probably means that the seller's expectations were too high to begin with and the sales price was inflated. It is only once the house is sold that we can compare that sold price with it's comparables to look at market trends.