There’s been a debate going on between agents, clients and market watchers about the off-market/pocket/private listing phenomenon hitting San Francisco’s hot real estate market (which shows signs of holding steady this week).

A pocket listing — also known as an off-market or private listing — is a method of listing a property where it is never publicly distributed. Or it is otherwise embargoed for a period of time. To me, it’s a less-preferred method because you never get mass exposure. But in some cases, that may be a good thing.
There are pros and cons of course. Here are some:

Less Exposure, Fewer Buyers vs. Exclusive Buyers looking for an elite class of properties. Unlike an ordinary listing that is advertised on the MLS, pocket listing are only advertised to select networks. Sometimes no one but an agent’s own client base even. On the one hand, the listing would be advertised agents with active and serious clients. But on the other hand, not every agent would be get an opportunity to consider the property. A seller may miss out on a higher dollar buyer because the MLS listing data is syndicated to a variety of outlets that reach far more people including those who haven’t hired an agent. On the other hand, not having to do open houses, dictating showing terms or maintaining discretion may counsel toward a private listing.

Preparation costs maybe lower, but the ultimate sale price lower. In today’s market, people are willing to pay top dollar for properties in given neighborhoods. But as we know, certain expectations must be met in order for people to justify a high-level of spending. Some folks have that perfect confluence of factors where a buyer recognizes value and is willing to pay for a property regardless. But sometimes, sellers cannot or do not want to make an Investment in painting, repairs, staging, or landscaping. If resources are limited, then allocating them should be done carefully. For example, if you only had $20,000 to spend on preparing property instead of spending for new bathroom, you may just invest in a new paint. Also, tree trimming or landscaping may be more affordable, faster and effective than a new kitchen. After all, unless the seller improved a property when they first occupy it, remodeling for a sale may be a dicy proposition as it may not comport to prevailing buyer taste of the moment.

Exigent Circumstances. There are times where a new job (with its new salary) or the need to buy a new home elsewhere dictate a quick sale. Other issues related to capital gains may make it a wash to improve and sell higher at a later date rather then selling cheaper sooner. After all, if your property gained in value in excess of $250,000 (for single filers) or $500,000 (for joint filers) but only just (say $275,000 and $525,000) respectively but it cost you an extra $15,000 to get that higher amount, it may be worth the time and money savings because any excess capital gains not covered by IRS § 121, will be taxed at nearly 37% in most cases. So why bother when it’ll be taxed.

In the end, a seller and their agent will end up doing doing all the paperwork otherwise required for an on-MLS listing (i.e., preparing required disclosures, pulling necessary reports, and spending the time to fill these documents out completely) so unless it really makes sense for a seller to forgo more money if it were up to me, I’d take the chances on letting the market decide.

On Condos, the Lottery and Tenants In Common: The TIC System as We Know It… or, Knew It

SUPERVISORS TO DEBATE PROPOSED CHANGES THAT COULD FREEZE LOTTERY FOR 10 YEARS, GRANT LIFE-TIME LEASES AND ALLOW OTHERS TO CONVERT ON SET SCHEDULE

“Conditions subject to change” is almost a throw-away, boilerplate phrase you’re likely to see almost everywhere these days thanks to those pesky lawyers (sorry!). From airplane tickets to online shopping, you may suddenly find the ground beneath you changed in a blink of an eye. For those owning certain tenants-in-common home in San Francisco this may be the case come May 7, 2013. That’s when the Board of Supervisors for San Francisco is to vote on proposed changes to the City’s confounding TIC/Condo legislation. The current system is predicated upon the fact that condominium units are mostly exempt from stringent rent control laws while TIC units are not.

TIC 101: The ABCs of Rent Control and Why Condos are Valued More

Recall each and every condo unit will have its own legal title that is universally recognized by buyers and lenders alike; one unit = one title, multiple titles per building. Owners of a TIC unit however are buying a percentage of the entire building with a governing contract agreement defining which owner gets which space; one building = one title, no matter how many units. This applies to the more than 85% of residential buildings in the City originally occupied before 1979.

How It Works Practically

Let me discuss how it works. When you buy a TIC there’s only one legal title for the entire building. This is unlike a single-family home or condo where each unit has its own title. Instead, the reason why you live in Unit 1,2 or 3 is because of a contract agreement you buy when you purchase. You are purchasing a percentage of that single title. In SF people want to convert for two main reasons: (A) it brings the unit out of the rent controlled pool, and, (B) each unit would therefore gain its own individual title. Once that’s achieved, any bank will lend on it, the owner can do anything he or she wants like take an equity line of credit out, or will it to someone — whatever their heart’s desire. The important thing is that your potential buyer pool has now expanded. After all, only 2 banks currently lend on TIC purchases (Sterling and NCB) and their rates are higher (.075 – 1 percent) and down payments are higher (20% minimum, sometimes more), and financing is never fixed beyond 7 years. Because of the City’s pro-tenant bent and the desire to keep housing affordable, the city greatly restricts the numbers of buildings that can convert to 200 buildings a year. Currently, only 2-unit buildings that are occupied by different owners are allowed to skip over the condo lottery. Otherwise it’s the condo lottery. (Think you can skip over it just because you have 2 units but rent one out? Nope, even if you were a 2-unit building and rented out one unit, you’d still have to enter the lottery). One commentator estimates: if you bought in a 6-unit building that is otherwise condo-conversion eligible, it would be 2030 before you could convert.

To even get into the lottery owners have to meet requirements relating to how long an owner must live at a property before entering (three years) and what ratio there is between owner-occupied units vs. ones tenants rent and disqualifying past building evictions — even ones that may have taken place years ago between completely different people. The lottery takes place in January or February of a given year. Here’s a rough scenario for you:

• Let’s assume Bob, Mary and John buy in a 3-unit building in 2005, 2010, and 2012 respectively. They all owner-occupy (for 3-units you need just one owner, for 4 it’s 2, for 5 and 6 it’s 3). Here, because Bob first occupied in 2005, the building can enter the lottery in 2008.  They enter the condo lottery and they lose each year — 5 times they lose. But each time they loose, it means that their chances increase the next year because they get more tickets in the lottery and may be elevated into a luckier pool of lottery entrants. BUT, if Bob sells his unit then everyone else left takes a hit downwards in time. Therefore, the number of tickets and 3-year residency requirement is then judged by the next senior owner — Mary. Because Mary only bought in 2010, she hasn’t met the 3-year requirement yet for 2013, but she will in 2014. And when Mary does qualify the number of lottery tickets is reduced/reset back to year 1. Bye-bye special pool and 5 years of dashed hoopes. So instead of getting the number of tickets a 6th year entrant would, the building gets the 1st year allocation. 

Enter Scott’s Idea…

Let’s admit it: that system is complicated and leaves too much to chance, right? Well, to combat this weird-sense with some common sense, in late 2012 Supervisor Scott Wiener originally proposed a resolution that would allow a limited number of TIC owners to pay a fee to bypass the lottery. But this being San Francisco, the original idea has been drastically rewritten. Drastically so. The revised legislation passed the Land Use Committee and will be up for a Supervisor vote on May 7, 2013.

The salient points of what the changes are as of April 28, 2013:

• 5- and 6-unit buildings will be unable to convert after a 10 year freeze of the condo lottery;
• certain tenants in TICs may be given a life-time lease (yes, life time – not the channel, but the number of years); and,
• there will be a conversion schedule for buildings otherwise eligible for conversion as of April 15, 2013.

Whats does this mean? Well if you bought in a 6-unit or 5-unit building that would otherwise be eligible to convert into condos in the first place I’d be peeved. Really peeved. While those who bought in such buildings weren’t about to win soon, they still had the hope they could change one day. (Yes, I’ve heard stories of buildings winning way, way early, but for the most part don’t count on it). For 3- and 4-unit buildings it would be dicier if the legislation passes especially if the building is being occupied by all new owners starting after April 15, 2013. If the legislation passes (which it may well do) this could drastically impact prices downwards for new TICs coming online and for those buildings who did not meet owner-occupancy minimums.  On the other hand, if the building was eligible to convert on April 15, 2013 (certain owner occupancy minimum times and ratios must be met along with a ‘clean’ eviction history) prices could go up because a date certain for conversion could be established.

Learn More from the TIC Guru

There’s lot’s more to process, so read more about it from THE guy who widely started using the TIC legal device 20 years ago Andy Sirkin:

http://www.andysirkin.com/HTMLArticle.cfm?Article=219

Your Egg-tradinary Holiday Weekend Open House Guide

Your agent, returned safe and sound, tan and is ready to go.

Happy Holiday Weekend Real Estate Fans.

The numbers still continue to surprise us with ratified transactions and final sales figures that closed this and last week among my fellow Vanguard agents. While sales data figures are strong, don’t feel too disconcerted if you’re a buyer as interest rates fall back down to the 3.5% neighborhood after a brief spike. Also, while many houses are selling over list prices take note that some are selling at or slightly under —yes, under— list price. So there is opportunity out there.

Trends This Week:

For Sunset and Richmond homes, simply add 15% to the list price no matter what, where and for how much to get your final closing price.

Looking at the sales figures from the MLS for homes closing this week, a swath of homes out in the Outer Richmond and Sunset closed this past week and no matter which house nor what original list price there was, nearly all of the homes nevertheless close an average of 15% over the asking price with a range from 8% to 27% in some cases where the property trust sale was subject to court supervision.

Fixers are expensive in San Francisco

One 4-unit fixer at 1812 Lyon Street listed for $1.6M sold for $1.9M — for a fixer! The trend is prevalent throughout the city (see Stories of the Week below)

You will have to pay at least $1M for a single family home in the Mission and Inner Mission.

One preemptive offer for a home my colleagues were going to put on the market on San Bruno Avenue near 26th Street on a ‘so-so’ block with 1200+ sqft. pushed well beyond the suggested list price of $879,000 to enter into contract at more than $1M with a backup too. Essentially, $800 per square foot is now the price of admission.

It’s a lighter week: There are a trio of smaller homes in Bernal on the market this week. Nothing new in District 1, few new in District 2.

Stories of the Week

Here is a sampling of some last week’s happenings
128 Laidley, a single-family home viewed by most as a fixer listed at $1.299M received multiple offers and is in contact for 20% over the list price with an all-cash, short-close offer.
23rd floor condo at The Infinity, a South Beach chic condo with 2 bedrooms and 2 baths at 1150+ sq ft, got 13 offers — including some all-cash offers — but the winning offer, which will be financed thanks to the buyer’s in-depth pre-qualification with Citibank, beat out an all-cash offer with a 10-day close. Listed at $999,000 the property is in contract for at least 16% over its list price.
232 Ellsworth, some of you may remember the pre-market opportunity for a detached home just three up from Corltand in the sunnier part of Bernal Heights with 4 bedrooms, garage, small yard and cute upgrades that was going to be on the market for $1.198M. Well after two weeks and no open houses the sellers accepted an offer for just a little over $1.2M for the property.
350 Broderick, 4th floor, one bedroom, one bath listed at $599K. This condo was cute and nice. But after only 1 open house the property solicited 8 offers with the accepted offer touching the $650K region to make this 14-day close the highest sale price for a one bedroom ever in the development. The listing agent said that he would have gotten 20 offers but for potential buyers self-selecting themselves out of the running by not submitting an offer.
400 block of Noe at 18th Street, the vacant, 2-unit fixer with location and potential listed at $899K received 20 offers and most likely is in contract over its asking price.

From this week’s Sunday NYTimes:

Many of the safety issues of yesterday’s kitchens are gone. No one in my family is likely to tumble into an open hearth. But new kitchens pose a more subtle danger to our health by doubling as a comfortable social, entertainment and eating hub. Retail marketers have long known that when tempting food is within close range of our eyes or nose, we tend to eat more of it. In our new kitchens, it’s just too darn easy to get to addictive snacks and calorie-rich drinks.

See more at the NYTimes Sunday Review

From Curbed SF: Remember when we were in a recession and no development projects were seeing the light of day? Yeah, well, apparently the clouds have lifted, because the citys been cranking out Environmental Reviews over at the Planning Department. We thought wed take a minute to check on some of the projects that are cookin in the oven. Some of these have been approved and some havent, but all are in the early stages of development and havent broken ground yet that we know of – tipsters, correct us if were wrong. All of which means we wont actually see them complete for years to come, of course. SOMA and Market-Octavia seem to be the hottest spots for upcoming new projects

via Behold, the Citys Upcoming Developments Waiting to Break Ground – Curbed Maps – Curbed SF.

The first day of spring typically signals the high season for open houses and home sales.The season seems to have arrived early in some places where homebuying is already frenzied, and in many markets, the pendulum has swung from an excess of homes on the market a few years ago to a shortage.

via For Some Ready To Buy, A Good Home Is Hard To Find : NPR.

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