The 2-4 World
by Robert Link
The 2-unit sector of the San Francisco real-estate market continues to be a darling among buyers and agents alike. In the third quarter of last year, 149 transactions took place. The average listing price was $1,235,303, and the average sale was $1,323,459, indicating a typical overbid of just over 7%. The price per sq. ft. in this category was $497. This is not far behind the average price per sq. ft. paid for two-bedroom condominiums in the same period, which came in at $642.
There was a fairly wide range in the high-low sales prices in this quarter. The lowest-priced transaction sold at the asking price of $625,000 in District 10. The transaction with the highest sales price occurred at the top of Telegraph Hill, where a stunning 5,000 sq. ft. building with postcard views sold at $4.55 million.
In the third quarter of last year, two buildings sold in excess of $4 million and eight buildings sold over $2 million. The aggregate sales volume for 2-unit buildings in this quarter alone was $197,195,414. That’s almost a quarter-billion dollars or $18 million in real-estate commissions (based on a 5% commission rate). If you were wondering why every third person you meet is either a mortgage broker or real-estate agent, now you know.
The fourth quarter of 2005 showed historically traditional statistics on all fronts, including sales volume and average sales prices. Both of these stats traditionally trend downward in the last quarter of the year due to the seasonality of the sales market, which affects, for the most part, all property categories.
Inventory across the board was very thin in July and August and then, just after Labor Day weekend, there was a flood of listings everyday until the third week of November. During October and November, I remember reading the San Francisco Association of Realtors (SFAR) “hot” list, which showcases the listing activity of the last 24 hours, and seeing in excess of 100 new listings. This is offset by the closings per day, which give you the net new listings in the market. At one point in the fall season, inventory had risen so high that the broker’s tour sheet was 55 pages long. To give some perspective, the tour sheet had been about 40 pages during the height of the sales season in midspring.
Back to the subject at hand: volume decreased in this category from 149 in the third quarter to 136 in the fourth, representing a 9.6 % decrease. The average days on the market remained constant at 39 days, indicating a constant demand between quarters and also showing that properties did not sit idle on the market.
Average listing prices pulled back in this period, and sales prices followed proportionately. The average list price receded 7.8% to $1,146, 243, and the eventual sales price dipped 10.4% from the preceding quarter to $1,199,296. In my opinion, this occurred in part because of the reduced number of “trophy” properties sold last quarter; there were a total of two transactions that closed over $2 million. The average price per sq. ft. was proportionately affected but still came in at $483, a modest 2.9% decrease from the third quarter.
3-Unit Buildings
This category fared well in the third quarter last year; sales volume reached 60 transactions, with the average listing price at $1.42 million and the average sale occurring at a slight premium (5.7%) or $1.501 million. Clearly, there was strong demand in this sector, including an average marketing period of 51 days from listing to close. The average sales price per sq. ft. paid in the quarter was $410, lagging behind 2-unit buildings by about 17% in rough price per sq. ft. valuation.
Seven buildings sold for over $2 million in this period, and only one sold for over $3 million. The majority of offerings were sold in a range that is consistent with the stated average. Total sales volume for the quarter came in at $90,103,892. Of the 60 transactions in this period, 40 occurred in districts 5, 6 and 9, which past data has shown us to be where higher concentrations of TIC formations and Ellis Act evictions have occurred. For more information on the SFAR district breakdown, please refer to www.slrealty-sf.com/sfmap.html.
In the fourth quarter, volume went down to 42 transactions, a 30% reduction from the previous quarter. The average listing price edged slightly downward to $1,386,357. Sales prices followed in step at $1,394,654, a 7.7% decrease from the third quarter. The average price per sq. ft was $392. Collectively, triplex sales accounted for a total dollar volume of $58,575,500 in the final quarter last year. A total of 3 of 42 transactions were completed over the $2 million mark. The 5, 6 and 9 district cluster accounted for 29 of 42 transactions. The highest sale occurred at 1065 Montgomery St., again in Telegraph Hill, coming in at $2.895 million, which sold just slightly under asking. This vacant 3,700 sq. ft. corner building had it all, including the views, to take the top spot this quarter.
In October, another noteworthy sale happened at 3631-3635 23rd St., at the Noe/Mission border. I think just about all the agents in the city had this one show up on their radar. This property was a large Edwardian with three-bedroom-plus flats. Two would be delivered vacant, and one was tenant occupied (with a rent of $2,000 per month). The asking price was $990,000. It eventually curried 41 offers and sold for $1.805 million, an overbid amount of 82%. Frankly, I’m not sure how this pencils out, unless it’s a longer-term hold or owner user.
Some say that if you grossly underprice a listing, you may leave money on the table. This transaction should certainly dispel that notion. One thing’s for sure, underpricing to such a degree definitely spins a lot of wheels in this industry for agents and buyers alike.
4-Unit Buildings
Sales in this sector stayed constant between the last two quarters of 2005. Volume of 4-unit buildings in the third quarter was 31, compared to 28 in the fourth. Average square footage of the 59 buildings sampled over the two quarters was 3,500 sq. ft., implying that most 4-unit buildings feature one-bedroom apartments/flats. These transactions resulted in a total dollar volume of $43,400,600 in the third quarter and $43,335,500 in the fourth.
The average listing price in the third quarter was $1,331,577, resulting in an average sales price of $1,400,019 or $416 per sq. ft., an overbid amount of roughly 5%. Of the 31 buildings sold in this quarter, only four sold under asking price, and then not by much. Three of the buildings in the sample sold for over $2 million.
In the last quarter of 2005, the average listing price was $1.489 million, a 10% increase over the data from the previous quarter. The average sales price was $1,547,696 or $445 per sq. ft., a 9.5% increase from the previous quarter’s sales price. Of the 28 buildings sold last quarter, nine sold under asking and only four sold for over $2 million, each in a unique district. The highest sale occurred in Bernal Heights where a completely remodeled 4,000 sq. ft. building sold for $2.748 million as a TIC. In the realm of TICs, the first building in San Francisco with individual financing closed in mid-September. It will be interesting to watch how this new financing product will affect sales of units in the 2-4-unit sector in the coming year.
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 © 2006 by the San Francisco Apartment Magazine. All rights reserved.