Condominiums Considered
Condominiums reflect both an entry point into our market as well as a potential destination — from a Diamond Heights studio to a downtown penthouse with amenities galore — both types of condominiums are important bookends of our diverse market. Because condominiums are the most commonly traded property type in San Francisco, it becomes all the more important to examine the ins and outs of buying a condominium.
Traditionally, condos in San Francisco command a higher price per square foot compared to single-family homes, with an average premium of 10-15%. This trend saw an exception in the first half of 2022 when single-family homes temporarily surpassed condos in price per square foot. It was a heady time! Overall, the condo market segment has seen a wild ride since 2019 when it was usual to see 2,500 condominiums sell on the MLS annually. The peak number of condominiums sold in San Francisco was nearly 4,000 in 2021. A year later, in December 2022, San Francisco saw just a little over 2,700 condominiums sell, and for 2023, the number had fallen to just around 1,850 condominiums selling. A host of reasons contributed to these swings that we can discuss with you, suffice to say, condominiums usually outsell houses in San Francisco especially in the east. But if you go towards the middle or western parts of San Francisco and you’ll be hard-pressed to see nearly as many condo sales out in those parts.
As you may have guessed, the condo market in San Francisco is very segmented, offering everything from modest studio units (modern, micro, loft, brick and timber lofts, skyscrapers) in almost all of the eastern, central and southern neighborhoods to the modern, marque penthouse in a skyscraper. Or we could be talking about having two structures on one parcel.
A condominium decision matrix may be an unwieldy one, but when we help our clients find their homes we stress the intangible elements like atmosphere, aesthetics and location alongside looking at HOAs — in all their forms. Take a look below to see what buying a San Francisco condominium can mean.
The Current State of the Market
Condominium sales in San Francisco have varied so much since the Pandemic as work patterns and San Francisco’s uneven recovery has caused many markets to seize up while others thrive.
Forget the condo in Boca or the anonymous, singles-only, low-rise golf-course abodes on the edge of town that you may have associated with condos if you’re not from San Francisco or New York
The 2023 Condo Market Update for San Francisco
How will remote work impact demand and pricing of Bay Area housing?
The shift towards remote work has greatly influenced buyer preferences and led to changes in the housing market in San Francisco. Previously, those who were able to purchase a home in the city may have prioritized commuting to work. Home may have been just a place to sleep. As a result, denser, newer, mid- and high-rise condo buildings located close to downtown/South Beach/Dogpatch were in demand.
Rarely going into the office now means buyers want larger homes in walkable areas near parks, coffee shops, and other amenities instead of amenity-buildings or proximity to downtown, mass transit or freeways. For many, this means choosing a Victorian- or Edwardian-era condominium in the central parts of the city.
Sales data confirms this trend. While there’s been a 15% decline in the total number of condos sold in the first quarter in 2023 compared to 2020, pre-1979 condos actually experienced a slight uptick in median sale price of $9,000 to $1.4 million. Post-1979 condos, however, saw a decrease of approximately $140,000 in median sale price to $1.03 million, while also taking twice as long to sell in 2023 compared to 2020, which also means there’s opportunity out there for more people to buy than before.
Big Picture Items
Before we delve into the details, here are some high level considerations.
What sets a San Francisco condominium apart from condos elsewhere?
In a densely populated place like San Francisco where land is scarce, people were left with few alternatives other than building upwards and more densely than you would ordinarily do in most of the other parts of the country. Condos are the most traded property class in San Francisco and the variety you can encounter, own and buy is incredible. From the modest studio to the penthouse in the sky.
The Pros
• Lower average price point but higher $/sqft
• Collective responsibility and management of building and common areas
• Possibly exempt from Rent Control laws for San Francisco but still subject to eviction control potentially.
• Desirable inventory in desirable locations (planning and zoning favors more people enjoying a location through raising population density)
• Sophisticated developer and designer focus on this product category because its kind is so common here
• Lifestyle choice: You have full-amenity buildings with door people, gyms, and spas to the bare-boned
• Various legal protections for buyers of newly built condominiums for the first 10 years of a building’s life (right to repair act)
• Lifestyle, part 2 — depending on where, may be perfect for owners who travel, own multiple homes, or ones who don’t want to be bothered with mundane things like mowing the lawn or cleaning the windows
The Cons
• Less independence because of Homeowner Association prerogatives, conflicting personalities, arcane rules and governing HOA documents and bylaws
• Close quarters with neighbors (more sound transmission, less privacy and freedom)
• Shared common areas (lack of yard/parking/storage)
• Risk that other neighbor actions will impact you financially (a remote foreclosure risk)
• Risk of a chilling effect on ability to sell if HOA-wide legal issues arise
• HOA dues and assessments aren’t cheap and you may pay for things you don’t use — also, how much more debt would those amenity fees cover instead?
• Less flexibility to rent to short term (like Airbnb) or to take possession back of your plans change
Starting Details About Condos
Here’s what to look at when considering a condominium in San Francisco — style, number of units, monthly dues, litigation history and eviction control if the property is pre-1979.
What is it that you get with a condominium?
Legally speaking, when you purchase a condominium, you’re usually buying title to a subdivided, three-dimensional space within a “common interest development,” that doesn’t necessarily have to be connected to the ground, but the rules, restrictions and conditions that you agree to abide by when buying a condo do ‘run with the land,’ technically speaking. A condo ‘unit’ can be bought and sold, financed and bequeathed through a will or trust like a single-family house can be. Because of this flexibility and alienability, most lenders will lend on a condo purchase. (Contrasted with a tenancy-in-common purchase which most lenders find incomprehensible and unlendable).
How Much Are the Monthly Dues?
The variation we see in condo inventory also shows up in monthly HOA fees, which usually cover building insurance, trash, water and common area electricity at minimum.
Of course, you get for what you pay for because the more amenities there are the higher the monthly dues will be. Ultra-luxe buildings with lobby attendants, concierge services, valet parking, and more will command higher and higher fees — think the St. Regis, One Steuart Lane, 181 Fremont, the Four Seasons, etc. Amenities can range from morning breakfast, cleaning, and lounges. Most costs are, of course, based on labor costs as having more people working means more money is needed.
Now there are some buildings that have LEED certifications (the Arterra in China Beach) which drive down costs while others may have virtual attendants or part-time ones. Many smaller HOAs — say the 2- to 4-unit buildings — will either not collect regular dues opting for a pay-as-you-go approach — or collect a very low amount waiting to collect a special assessment when a big-ticket items pops up.
The Range of Monthly Association Dues/Fees
Our experience with buying and selling so many condominiums in the City tells us what to expect generally, but inflation has hit this realm too and dues have been going up (and up). Here is what you will likely see out there"
- Pay-as-you-go to $0 to ≈$200/mo per unit for units in 1-2 unit buildings (Victorians, Edwardians, Mid-Century): Dues include garbage, water/sewer, common area electricity, common area insurance; maybe a landscaper. Be alert for big-ticket special assessments as operating account and reserve accounts are usually lower than they ought to be. If there is earthquake insurance, the dues will be at least $700/month.
- $300-$700+/mo per unit for units in 2-4 unit buildings. Includes all the above services, may also include some element of management or accountant. Be alert for (same as above), but also be prepared that things like roof maintenance or plumbing issues which may well be more significant because you straddle the line between smaller and larger buildings whereby certain costs and systems work is just more expensive and/or conditions merit required updates (sprinklers, power service) that are more expensive. Possible lurking special assessments there may be deferred maintenance for fences and exterior stairs (which will cost anywhere from $10K-$40K) One other note: be alert for social dynamics for buildings of this size in decision-making whereby you can have a hold-out or you may have personality clashes.
- $600-$900+/mo per unit in medium (10-25 units) to larger buildings (25 units+). Dues should include water, garbage, common area insurance, common area power but also should include a delineated amount for HOA reserve accounts (long-term savings for replacing aging building systems over time according to a 30-year useful life for most elements). Dues are higher for buildings with elevators (service contracts are expensive, repairs are costly, replacement is very costly). Amenities like gyms, security, janitorial, and attended lobbies are also high cost centers.
- $1,000-$1,500+/mo per unit in larger, full-service buildings (50+ units). Dues should include all the above (reserve contributions is important) plus management. If staff is 24 hours or if there are more elevators, dues increase large buildings with lobby attendants, services, common areas like lounges, party rooms, parking
- $2,000-$3,500+/mo per unit in larger, full-service, luxury buildings. These are the named, branded, full-service concierge buildings with marquee services and amenities, closer to a full-service hotel experience in certain respects.
The Biggest Line Items
What items drive up monthly assessment fees:
- People who provide those services (parking valet attendants, concierge services, door people)
- Earthquake insurance (most HOAs do not have coverage, the ones who do see fees go up significantly)
- Pools/gyms/common area lounges (equipment, labor and extra insurance costs)
Amenities (the fringe benefits like breakfasts, housekeeping, planned events) - Business centers (office space, copiers, computers, supplies)
- Common Heat or Water
- Packaged Internet, cable or phone (Webpass for example)
- Renovations (common area maintenance, improvement, roofs)
- Reserve-building (big HOAs are required to do ‘reserve studies’ which will examine common area elements, materials and systems and their expected life expectancies and replacement costs to arrive to a monthly set-aside assessment to save up for these items)
HOA Membership — Why it’s Mandatory, What to Expect and Why Size Matters.
The biggest externality of buying a condominium isn’t the building per se or the lending aspects of a purchase, but your fellow owners and the HOA as they are literally stacked on top of you, beside you or under you. Let’s take a look at what you can expect.
HOAs generally and what they own
Lots of suburbs or even in some places in the City will have the townhome/zero-lot line condominium development where the Homeowners’ Association will tell you what color you can paint your exterior or that your lawn needs to be mowed. While you may bristle at such authority, by virtue of your purchase you have agreed to be bound by certain documents, rules, conditions under an HOA’s authority.
Buying a condominium also means you’re also buying into that HOA that holds title and authority over the common areas of the development. In an urban setting like San Francisco, common areas usually include the exterior walls, windows (but this could vary), roofs, yards and garages. In larger buildings with more and more units, common areas will include hallways, gym equipment, elevators, and multipurpose rooms and outdoor space like roof decks or pools.
How HOAs are Managed
As for how condo buildings run, the idea of organizing neighboring owners into an HOA is a bit of a nod to collectivism, as owners relinquish some ownership responsibilities of a house (or burdens, depending on your POV) to joint management in exchange for the benefits of pooling resources together when it comes to utility costs, insurance rates and maintenance for example.
How much of your daily experience an HOA will consume is hard to tell unless you’ve lived it but looking at the disclosure documents we get as a buyer will provide a lot of clues. HOAs are governed by a set of codified rules under California’s Civil Code. Most of the rules relate to record-keeping and obligations that HOA board members have when it comes to carrying out their duties on behalf of the owners they represent and for whom they set policy and make decisions.
Do You Have People Skills?
How Involved You Have to Be
Because the HOA has an obligation to maintain ‘common areas’ as well as to promote resident welfare they are granted certain amounts of power to achieve those goals. For large associations, the HOA will have a Board and that board will hire a property management company. Some HOAs will have formal meetings, others won’t. All HOAs are supposed to maintain financial records and provide annual statements among other requirements under applicable California law.
- The Chill (almost to a fault) Model for most 2 to 4 unit buildings, these informally run HOAs are relaxed to the point of neglect as most people are busy with life
- The Neighbor-Partner Model while still being an informally run HOA, this type of HOA is still on top of things usually because of 1 or 2 of the neighbors care about these things; for buildings up to 6 to 10 units
- The Property Management Proxy Model is when the HOA delegates management to private companies who manage daily matters for the building/development while working with HOA board members through a property manager; typically seen for buildings with 5 or more units
- The Student Council Model is where people may debate matters and disagree with each other; for buildings that are big enough where there’s more than 1 person per board member job)
Delving into the Documents: The Governing Docs of an HOA
There are a lot of documents that are involved with condominiums (and even more for co-ops and tenancy-in-common units). We go over the important ones you should examine below. Because thee issues may implicate legal questions you may need to consult with a local attorney qualified in condominium law. We are happy to provide referrals, just ask.
Document Review
When considering an HOA, we will help you review the usual array of documents related to a condominium. Some of them are recorded with the county and are official documents linked to the parcel itself. The most important are the CC&Rs — the covenants, conditions and restrictions — which is a set of lawyer-drafted documents that spell out the major aspects of the property and development. These documents are usually linked and/or contained within the preliminary title report seller agents provide. In addition to those documents, we should receive others related to an HOA’s financials and recent matters.
What CC&Rs Contain
Here are topics CC&R documents will cover. Most CC&R docs will be organized roughly in the same way,
- Which parts of the building belong to the HOA and individual owners (i.e., what a ’unit’ is)
Parking, storage, decks/patios, exclusive use - HOA officer elections, decision-making, if there are weighted voting/procedures
- Insurance requirements, management fees
- How HOA money is raised, spent and managed (dues and assessments)
- Pet policies (usually 2 pet limit, weight limit, certain dog breeds prohibited)
- The ability to lease a unit/short-term rental (usually 30 days or longer)
- How remodeling and repairs are supposed to be done
- What happens if the building/development is destroyed
- Quiet hours/carpet coverage requirements for sound transmission minimization
- Allowed signage, prohibition of onsite car repairs, garage sales, hanging laundry outside,
Other Relevant Docs
Here are topics CC&R documents will cover. Most CC&R docs will be organized roughly in the same way. The amount of documents we get as buyer agents and would-be buyers will vary from just a bare 20-40 pages to times where we get hundreds and hundreds. Here is the range from the bare minimum that’s required to times when we get bucketloads more.
- CC&Rs (and any amendments)
- Bylaws and/or House Rules (see more below)
- The Condo Map of units, parking, common areas, exclusive use areas (patios, decks)
- HOA Financial Certification Form (a standard one showing owner-occupied vs. tenant, HOA bank account balances, current assessments, planned assessments, move-in/out fees, if any owners are in arrears, if one owner owns more than one unit)
- The HOA’s insurance policy
- HOA bank statements (reserve and operating)
- One year of HOA meeting minutes (or explanations of recent business)
- Management contact
- Projected budget (for larger HOAs)
- Reserve Study (study of projected component useful life and replacement of those)
Primary documents for any planned projects/repairs - House Rules (for such things like quiet hours, garbage take-out/take-in duties, remodeling procedures, move-in/move-out procedures/fees)
Other Condo Questions
In our years of working with buyers and sellers of condominiums we’ve learned a lot of the nuances of the San Francisco condominium market.
Can I buy another unit in the building?
What if there are only two units? In the case of just a pair of units: lenders usually hate this scenario but can do it. You have to expect you to put down at least 40% of the purchase price for the other unit and have a good amount of HOA reserves built up. And before you ask why you’d want to buy both (or all) of the units in a building consider that many folks will buy both units in a building and use it as a single-family house/compound/residence.
What type of insurance do you need for a condo?
Every owner should purchase an HO-6 Condominium Homeowners Policy — a ‘walls-ins’ policy — to insure their own installed fixtures, personal property, loss of use with additional living expenses and/or loss of income and rental income. Coverage should track any lost assessment dues and cover the building’s overall policy deductible and, most importantly, insure for personal liability. For a decent summary, take a read about what HO-6 ‘walls-in‘ insurance is and how it relates to a ”Master” policy of insurance for the entire HOA when buying in a condominium building here. If you're getting a mortgage, a lender will require you to keep this type of policy in place during the duration of your ownership.
The insurance market changed radically when California’s largest insurer, State Farm, stopped writing new lines of business causing a once-routine part of a purchase to become a rather complicated nail-biter. There is more to say about this elsewhere on the site but suffice to say, ping us if this is a concern.
Do Condos Hold Market Value?
The past few years have been difficult for some condominiums in certain parts of San Francisco. Most condominium values in the South of Market, Mission Bay, Financial District and South Beach have declined steeply since the Pandemic changed work patterns and wrought havoc on San Francisco’s commercial estate office market as no one wanted to or needed to commute downtown. The area‘s worsening street conditions too have not helped. But for condominiums in central core, walkable neighborhoods, the story is different.
By Neighborhoods
The Condo Cert Doc & the Lender Form(s)
As the most traded property type in the City with as much variety as San Francisco is able to muster, condominium homeowner associations come in all shapes and sizes. The range of management styles, financials and adherence to applicable laws and regulations governing HOAs in California (the Davis-Stirring Act) goes from informal, pay-as-you-go 2-unit, 2-member HOAs, to ones where there’s a Board, a management company, on-site vendors, contractors and amenities management with dues going into the thousands every month.
The great equalizer among all these possibilities comes with buyers wanting to buy with a mortgage. Every lender will send a questionnaire the HOA that manages the HOA in which you’re interested. Mortgage underwriters review the unit you want to buy along with the HOA too so they can assess the risks to the borrower and the soundness of the mortgage should they ever have to become an unwitting HOA member.
Ownership Information
- Ownership Questions
- Commercial units, if any. If so, what percentage of the HOA does the commercial space comprise?
- If any single owner owns more than 1unit.
- If any owners are behind or delinquent with their dues
- Ratio of owners versus renters onsite
How the HOA is Managed
- HOA Administration
- Smaller HOAs tend to be run informally
- Larger HOAs will have HOA Boards and management
- How money is handled (budgets, financial statements)
- How decisions are made (minutes needed)
- Who has authority to sign checks, disburse funds
- Records kept (record keeping)
- How regularly budget and administration documents are issued to members
- Building-wide insurance policies (copies of which need to be given)
- If there is a separate reserve account (and reserve study)
Dues and Assessments
- How much, due when
- Transfer fees
- Planned increases, special assessments (planned, coming and past)
- What dues cover and documentation (budgets, account statements)
Risk Management/Litigation
Any current, past or anticipated (especially for buildings less than 10 years old)
Any notices of violations, warnings to residents, received by HOA
Special Topic: New Condo Buildings
There’s nothing more exciting than to know you’re going to get brand-new construction. The most common way people get that new house smell in San Francisco is actually by getting their fix of the new condo smell.
Most developments take at least 5 to 10 years to go from initial planning application to when first sales can take place because of the monstrous and onerous permitting and approval system in San Francisco. If you wonder why San Francisco builds so few new housing units it’s because of this process. The benefits developers can realize from a San Francisco project are oftentimes years away. The uncertainty of when the approval process is completed impacts borrowing and holding costs gradually eating away at any margins the developer hoped to make.
But back to you. New developments will have their own quasi-in-house real estate brokers managing the sales there. Lenders will be limited to a handful until the building is 50 percent sold (it’s all about creditor seniority and how contractor liens can take precedence over mortgage holders). Buyers will have to pay transfer tax (usually a seller cost in San Francisco) unless these are part of a negotiated concession (which started happening in 2023 for new building sales in certain parts of San Francisco).
If you get in early enough, you can pick finishes and we can ask for design center credits too.
And when it comes to brand-new construction, the disclosures we get from the developers-turned-sellers will be different because, well, it’s brand new.
You will not have the typical seller who’s lived onsite answering questions, nor will you typically have any inspection reports either. You will see a lot of disclosures talking about new construction, who pays transfer taxes and you may even see a custom contract in larger developments instead of the form contract we use in San Francisco or the statewide form contract.
Although not technically part of the pre-sale disclosure materials, you should get a binder or collection of instruction books, specification sheets and other information relating to the materials, finishes and appliances used. If you’re the first owner of a newly built home, you will also get information about a 1-year fit and finish warranty whereby almost everything is covered.
The emphasis on new construction disclosures, at least in California, focuses on the risk/potential of construction defects that aren’t readily apparent when you buy something at first. Given the right amount of time, improper construction, design or a latent defect can manifest themselves into leading to problems that need to be repaired later. The typical defects that could beset new construction homes usually involve water intrusion where water leaks into living space from decks, windows, roofing and/or flashing leading to water damage, mold or other problems that could lead to serious issues if not repaired. If these issues happen within the first 10 years of construction, the developer and contractors are responsible to remedy the defects.
Special Topic: Condo Litigation (Construction Defect)
Construction defect litigation and issues are almost a foregone conclusion with new construction in San Francisco. This is why many developers keep a completed building for the first decade if possible, so they deal with tenants instead of upset owners who paid six figures to own the condominium if there are defect issues occur.
Is there a rampant outbreak of poor-quality construction? Are architects, developers and inspectors being negligent? No, we are not talking a construction crisis or conspiracy of lawyers, but many of the root causes of defective conditions are not intentional but mistake-based for larger-scale development projects. Herding cats may have easier when comparing what coordination, work and skill it must take to complete a modern building from a patch earth.
Conditions are usually okay for the first few years (but see 555 Fulton where the model units were already leaking during the initial sales period). When more people move in is when you get issues related to sound-proofing. When a property has gone through a dry period and then is suddenly deluged with atmospheric rivers as happened in 2022 to 2023, you will see previously dry places blister, swell or sweat after a rain, which can happen at seams near the ceiling, windows or decks. Water intrusion is the most common issue we come across in San Francisco with noise and deficient air conditioning being next.
We warn our clients that as you draw into years 5 and 6 but more so as you get closer to 10, everyone in the HOA and the HOA itself will start getting mail and letters from lawyers asking if you’ve encountered unexpected issues (if you’re working with Kevin and Jonathan you will have expected something on some level as you’re prepared and know what can happen). These are like those personal injury lawyer ads you’ll see. But you can’t directly sue the developers and contractors from the get go. No, no, no — California has a system setup to deal with construction defect issues in condominium developments that must be followed.
Usually known its legislative name, S.B. 800, is system that manages how potential defect is ascertained and, when determined to be an actionable construction defect, how responsibility is determined and how a solution’s cost is to be allocated by the vendors who worked on the project. The developer does have a right to repair the issues, hence the Right to Repair Act, or at least understand what needs to be done and how they will have to contribute.
S.B. 800 gives homeowner associations the standing to pursue claims and complaints from member owners with developers and contractors under a system S.B. 800 creates whereby a developer/contractor are given the right to repair defects before the HOA is given the right to sue for damages and repairs. After lodging a complaint to the developer, the parties usually try to work a solution via mediation. If S.B. 800’s processes fail and the defect go unrepaired and no solution is reached, the HOA can then sue the developer, contractors, subcontractors and even the architects directly.
Apart from having an outstanding defective issue that can get worse the longer the issue(s) remain open, the chilling effect any pre-legal and actual legal proceedings (including pre-claim mediation) can have on resales is profound. Lenders are unlikely to lend on any building/development with a whiff of ligation in the air out of fears that a lender’s first credit lien position for any mortgage it would issue would take a back seat to any potential court awarded damage obligation that has to be satisfied before you get to the loans — at least that’s an easy way to think of it because the real reasons are more nuanced and complex that you can ask about if necessary.
Once any lawsuits are settled and repair/remediation is complete, will lenders once again loan on a building/development. Oftentimes, once lawsuits are settled you’ll see a large number of listings come out as owners who would have otherwise sold but for the lawsuit(s) can once again sell.
Yes, there are certain lenders who can lend during the pendency of any litigation for a condo building, but those types of mortgages will usually require a larger cash down payment or some other concession; otherwise, homeowners can sell during construction defect litigation but usually only to a limited number of cash-heavy if not all-cash buyers.
Not a Golf Community
San Francisco condominium ownership can be as confusing to read than a golf scoring sheet where scoring negative is the win. Ask Kevin+Jonathan about buying, selling and living in San Francisco's condominium homes.
