12 P.M. PST, August 1, 2016
Contact: Leila Banijamali
San Francisco, California | August 1, 2016
15 Tips for Buying Real Estate in San Francisco
Share these critical tips with anyone whom you know to be purchasing real estate in the competitive San Francisco market:
- ENGAGE AN EXPERIENCED BROKER WITH A DEEP NETWORK. An experienced broker with a deep network will have access to a large number of off-market real estate listings that he or she will present to their own clients first. Buyers working with experienced and networked brokers have access to more inventory than what’s publicly visible on real estate apps or the multiple listing service (MLS). Keep in mind that the commission paid to brokers representing buyers are paid from the seller’s proceeds of sale, not directly from the buyer. In this regard, buyers have nothing to lose when working with a broker. They are also not obligated to pay their broker any amount of money (unless they contract otherwise) at any time, even after the transaction has closed. And if the transaction is not ratified and does not close escrow, the buyers broker will not get any compensation. Read our article on Working with a Lawyer/Broker when Purchasing or Selling Real Estate.
- USE ONLINE TOOLS TO YOUR ADVANTAGE. In either a hot or stagnant market, real estate apps continue to provide buyers with a competitive edge in the acquisition of real estate. Buyers are relying on Trulia to show them properties that are currently for sale that meets their criteria. Real estate agents are relying on sites such as RealScout to send their clients regular updates on properties that may be suitable for clients as those properties hit the market. The dawn of these real estate search apps have empowered buyers with market information that was traditionally only visible to licensed real estate agents. In addition to open search functionality, these apps also provide historical data, neighborhood stats, mortgage estimators, and agent ads/referrals. Yet, despite their ubiquitous nature, these apps, as of this article date, are still unable to close the circle on a real estate transaction for buyers or sellers of real estate. In other words, even after you find a home to purchase, you must prepare and submit your offer outside the apps. You are well-advised to use a real estate broker or lawyer since they are most familiar with state-specific forms, disclosures, and procedures.
- GET PRE-APPROVED FOR A LOAN BEFORE YOU GET SERIOUS ABOUT BUYING. There’s no harm in browsing the market and we encourage our clients to do this on a regular basis. But when things get serious, make sure you consult with a mortgage broker or lender to ensure that you stay focussed on properties that you can actually afford and qualify to buy. In San Francisco, sellers expect buyers to submit a pre-approval letter from a lender along with the purchase agreement and other signed documents. The pre-approval letter is usually 1-2 pages in length on the lender or mortgage broker’s letterhead with information about the pre-approval limit for the named buyer as well as the expiration date for that pre-approval (usually 60-90 days). Obtaining a pre-approval letter to submit with your offer does not mean that you are guaranteed a loan. The actual process to approve a loan is an entirely separate process, which starts after your offer to purchase is accepted. Finally, pre-approval letters communicate to sellers that you are serious about moving forward with an offer and that you have already started the diligence process.
- SEE AS MANY PROPERTIES AS POSSIBLE. It’s impossible to know what a property is worth in the market or to us personally without also seeing as many properties in the area as possible. Every property tells a different story and you’d be surprised at what you didn’t know by attending as many open houses as possible and asking basic questions.
- NOT ALL “FIXERS” ARE FIXABLE. Every investor wants to walk into a goldmine when seeking out real estate to add to their portfolio. Though it may be true that the worst house on the street has the most potential, the worst house may also bestow the biggest headache possible on the buyer. If you’re unsure about the types of problems that a home may have, pay a few hundred dollars for a qualified and vetted inspector to provide you with a detailed opinion. After you obtain the inspector’s report, engage the services of a contractor whom you can trust to walk you through the property and explain the approximate costs, timeline, and payment terms for any desired repairs or renovations. Yelp may be a good source for contractors – read customer reviews very carefully. Your broker should have a direct relationship with many different types of vendors, including contractors, and should make any necessary introductions upon request. When a property is a short-term investment (like a flipper), if the price per square foot of the repair or renovation exceeds the price per square foot that you can sell your property, then it’s time to walk away and consider other properties. There will always be other properties to pursue.
- SCHEDULE YOUR PURCHASE WITH A REALISTIC TIMELINE. Your broker should help you set the timeline for the purchase or sale of your home. This timeline will be cognizant of any contingencies (loan, inspections or otherwise) that will dictate how quickly a ratified purchase agreement will result in close of escrow and usually involve coordination and cooperation between multiple parties. It’s absolutely critical that a buyer and seller of real estate is available to the representing broker(s) for any information or document requests. Missing an important deadline could result in the parties falling out of contract and the property may have to hit the market again (ugh!).
- UNDERSTAND YOUR MORTGAGE OPTIONS IN ADVANCE. Nowadays, there are many different options for loans, depending on the type of property, your use of the property, and your particular qualifications as a buyer. Visit several different lending institutions, from banks to mortgage brokers, to understand the full spectrum of loan products. Also, before you submit your offer to purchase real estate, find out how much time the lender will need for an appraisal and for close of escrow. The timeline for real estate transactions with loan contingencies are typically driven by the lending institution’s processes. Factors a lender may consider in presenting loan options include, but are not limited to:
- Whether the property is residential vs. commercial;
- Whether you will reside in the home or rent it as investment property;
- Whether the property will be your first home purchase;
- Whether the property will be your primary residence;
- The amount of downpayment that you are able/willing to make;
- Your credit history and loan-to-value (LTV) ration.
- SPEND LOTS OF TIME IN YOUR PROSPECTIVE NEIGHBORHOOD. This one is pretty self-explanatory. Try to drive and walk around your prospective neighborhood. Spend some time on Google Earth and Street View to get an idea of what types of homes and businesses surround your property. The goal is to eliminate the possibility of buying a property that is in close proximity to any “nuisance” businesses with blaring music, fumes, or other problems. You should also know about the extrinsic features of the property that make it so great/unique. Perhaps the property backs onto a stream. Perhaps there’s a nightclub nearby and you can expect drunk and noisy patrons to exit into the streets at 2am every night.
- READ THE PROPERTY DISCLOSURES. In San Francisco, since the market is hot and transactions happen so quickly, it is common for property disclosures to be available at the time a property hits the market. That way, a transactions can proceed from ratification to close of escrow fairly quickly. In addition, making real estate disclosure packets available up front (usually by way of a link to a hosted storage solution) enables sellers to receive offers from buyers that are fully aware of the property condition and, to an extent, the condition and environmental hazards in the area. A buyer that receives a complete disclosure packet in advance of writing an offer is fully aware of potential problems and would submit the offer despite the existence of any disclosed issues. Buyers have an opportunity to withdraw their offers, within a limited period of time, after a seller provides new disclosures. Therefore, it’s better to provide all disclosures up front.
- USE YOUR IMAGINATION. Don’t focus on the small, inexpensive details. For income-producing properties, take a macro approach and try to imagine what the property might become, assuming your investment of capital and time pull through. A broker who is familiar with the market can provide valuable advice and introductions to vendors who can perform needed remodels or renovations. The only limits will be your budget and what the planning department in your jurisdiction permits.
- BE RESPONSIVE TO YOUR AGENT AND PROVIDE CONSTANT FEEDBACK. Agents/brokers perform their best work when clients are responsive and provide feedback on presented properties. Communicate your priority of needs early on in your relationship with your broker so that your broker is fully aware of how to help you achieve your goals.
- DON’T MAX OUT YOUR SAVINGS ON YOUR DOWN PAYMENT. Just because your lender pre-approves you to borrow $1,000,000, you need not borrow the full amount. Take a macro approach to your debt commitments and make sure you set aside enough savings for unforeseeable repairs or renovations. Also, don’t forget about HOA fees in condos and annual property taxes – they add up quickly!!
- SEE PROPERTIES IN PERSON. Photos and maps will never provide you with as complete a perspective as an in-person visit. Although there are a myriad of disclosures and disclaimers when purchasing property, you can never gather enough information about a property to make a measured decision about how/whether to proceed.
- WORK WITH A MICRO-SPECIALIST WHO KNOWS YOUR TARGET AREA WELL. An experienced real estate broker who is in tune with the current market should be able to provide clients with a macro summary of market price. An even better broker will provide an on-the-fly micro evaluation of any given property in a particular district. A broker who knows the area and the micro price differences between properties (i.e. the difference between a $1.5M property and a $1.9M property) will confidently advise and steer investors and buyers in the right direction. Ask about a brokerage’s experience in your particular market. Sellers of properties sometimes carry a misguided notion that their buyers will magically swoop in from overseas with suitcases of cash, itching to make an offer. Consider that your market may be an overwhelmingly local one, with local buyers. Your broker will provide you with this valuable information.
- UNDERSTAND MARKET COMPS FOR A CLEARER PICTURE OF VALUE. Real estate brokers have access to multiple listing service data (MLS) that is generally more accurate and reliable than apps like Trulia, Zillow, and others, which pull their data from MLS records. Ask your broker to provide you with a list of comparable properties that have sold in the area within the last 6 months. If there are too few or no properties, expand the search to the past year, year-and-half, and so on. The average price per square foot of similar properties (the idea being that “similar” is a complete judgment call) should give you an idea of how to properly price your offer or value your home.
Bedrock’s Principal Attorney, Leila Banijamali, is a licensed California real estate broker and she represents investors in the purchase or sale of commercial real estate at Bedrock and residential real estate through her affiliation with Vanguard Properties, San Francisco’s top residential real estate agency in the coveted District 9 (SOMA, Yerba Buena, The Mission, Mission Bay, and South Beach). Contact Leila for a complimentary consultation and investor report.