The 2-4 World

Fourth Quarter 2004 Comparisons

by Robert Link

This year has started off with some exciting legislation proposed by Supervisors Michaela Alioto-Pier and Bevan Dufty and will dramatically affect the 2-4-unit category. Currently under consideration by a subcommittee, the new legislation will entitle some tenancy-in-common (TIC) owners to bypass the condo lottery on a one-time amnesty provision.

These TIC owners must meet all of the following qualifications:

qualified to have been able to enter the 2005 condo lottery—meaning the unit would need to have been owner-occupied since January 20, 2002 for a 3-4-unit building;
owned their building as tenants-in-common since January 20, 2002; and
100% owner-occupied on January 25, 2005 (although not necessarily before or after that date), and need to apply for conversion within 2005.

Should this legislation become law, it would thin out the existing pool of condo-conversion candidates, thus increasing the odds for future ticket holders. Second, if successful, the amnesty serves as a precedent for possible reenactment at some point in the future.

2 Units
In the duplex market in 2004, there was an increase in sales volume of 154 units over 138 units in the third quarter of 2004. The average sales price of a two-unit building rose to $1,098,662 in the fourth quarter, a 14.5% increase in one quarter. The average sales price per square foot rose to $445, a 13.2% increase over the third quarter.

This is an interesting statistic, considering the traditional seasonality of home buying tends to slow in the last months of the year because of the return-to-school trend and the holiday season. One explanation may be that transactions ratified during the third quarter eventually closed and were then recorded in the fourth quarter, thus bolstering the number of transactions.

Comparing the 2003 and 2004 fourth-quarter data, the average sales price increased from $972,177 in 2003 to $1,180,344 in 2004, representing a robust growth rate of 21% over the year. Volume between the two years remained relatively constant with 135 buildings changing hands in the fourth quarter of 2003 and 154 in the fourth quarter of 2004.

Sales data for 2005 indicates that 60 buildings have changed hands so far at an average of $1,190,665, or $452 per square foot. The difference between average list price and average sales price was $101,000, creating an overbid average of 9.2%. This will be an interesting category to observe this year as we watch the effects of the November condo-conversion legislation on sale prices.

3 Units
The triplex market saw similar increases in the closing quarter of 2004. Volume decreased slightly from 50 buildings sold in the third quarter to 40 in the fourth quarter. This reinforces the traditional slowing of the market. The average sales price increased from $1,157,495 in the third quarter to $1,370,588 in the fourth quarter, reflecting an increase of 15.5%. The average sales price per square foot reached $372.

Comparing the 2003 and 2004 fourth-quarter data, volume decreased from 52 units sold in 2003 to 40 in 2004. The sales-price comparison shows a healthy but moderate annual increase of 13.2% with the average price for the fourth quarter of 2003 at $1,189,880 and the fourth quarter of 2004 at $1,370,588. To date, 22 buildings have changed hands in 2005 at an average sales price of $1,433,177 or $386 per square foot.

4 Units
A similar story as above occurred in the 4-unit market, with a decrease in total volume and an increase in the average sales price and price per square foot. Volume dropped in this category from 38 transactions in the third quarter of 2004 to 24 in the fourth quarter of 2004, indicating a 58% decrease in the number of deals. The average sales price increased from $1,208,495 in the third quarter to $1,357,725 in the fourth quarter. This indicates that although there were fewer deals in the fourth quarter, they were at a higher value, reinforcing the traditional supply and demand economic model.

Comparing the performance of the 2003 and 2004 fourth-quarter data the same trend is evident as before. The inventory constricts, creating fewer deals at higher value. Comparing years, the volume dropped 37.5% from 33 buildings in 2003 to 24 in 2004. The average sales price increased from $1,114,697 in the fourth quarter of 2003 to $1,357,725 in the fourth quarter of 2004, a 17.9% increase. The price per square foot increased from $294 to $369 respectively. The moral of this story is don’t shop for four-plexes in the fourth quarter.

As of February 28, 2005, there have been 13 sales in this category at an average price of $1,300,692, or $375 per square foot. I will summarize this in more detail in the next installment of this column.

The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of SFAA or the San Francisco Apartment Magazine. Robert Link is a real-estate agent with S & L Realty, a family-run property management and real-estate brokerage firm based in San Francisco’s Richmond district. He can be reached at 415-386-3111 or robert@slrealty-sf.com. Copyright © 2005 by the San Francisco Apartment Magazine. All rights reserved.