The 2-4 World

by Erika Burke

The third quarter of 2006 saw an increase in the sales of 2-4-unit properties in San Francisco. There were 173 transfers for this quarter, 14 more than the prior quarter. Of those, 133 sold for over $1 million. The average sales price was $1,329,748, down by $16,738, or 1.24%. The total volume in sales was $230,046,413, an increase of 7.45% from the prior quarter. Pacific Union/GMAC Real Estate had the largest number of multiunit listings and dollar volume in the city during this quarter, followed by Zephyr Real Estate; these two companies had a combined 15% of market share.

Notable Sales
Ian Berke of Berke Real Estate sold 2 units at 1662-64 Union St., and garnered the highest percentage of sales price over asking price. The property sold for $2,150,000, or 20% over asking. This may show that listing low is the way to go. The sale was positioned to promote its handsome flats, which are in good repair and have a solid location for fast track conversion. Berke reports that the five initial offers were well over the asking price and the top three were countered, which resulted in the final sales price. To the surprise of the agent and seller, this property, which has commercial zoning, attracted developers with the thought of putting up condominiums in the future, hence the hefty competition.

2-Unit Sales Activity

Sue Bowie of Prudential California Realty ranked highest in sales last quarter with the transfer of four 2-unit properties: 219-2191/2 29th St., 45-47 28th St., 1562-64 Church St. and 2049 Oak St. Bowie says that beyondtraditional marketing and advertising, she can attribute her success in the current market to accurate pricing, enthusiasm, overall flexibility and concentrated followthrough. Her 21 years as a top-producing agent gives her the advantage of personal networking with other agents to attract buyers. Bowie’s many achievements must also be due to her stellar reputation, commitment to her profession and ranking as the fifth-most-producing agent in San Francisco last year.

Kudos to Barbara Friedman from Hill & Co. for selling 804-06 22nd St. after 237 days on the market. Friedman reported a “perfect storm” of marketing liabilities: a mixed-use designation, a serious fixer upper in one of the two flats, a brick foundation requiring structural work, an existing commercial lease not close to expiration, special financing for a mixed-use property, and an out-of-town seller. Friedman said there was enough activity to avoid withdrawal from the market; she received an offer during the first week and four more offers followed. It finally sold, after a price reduction, for $999,000.

The “Greatest Curb Appeal” award goes to Leanna Mossi of McGuire Real Estate for 1631-33 Beach St. Although Mossi was not the building’s architect or contractor, she brought this Mediterranean vision to market featuring tiled and adorned roofing in the front, intricate wrought-iron balconies and fencing, Spanish-tiled stairways, complimentary landscaping, many arched windows with ornate scroll work and the overall sumptuous appearance of a Spanish courtyard villa. Well-placed exterior architectural details go a long way in any market.

Two Units
Two-unit sales took the lead during this quarter with a 61% market share of 2-4-unit sales. The average sales price for a 2-unit property was $1,290,794 (an increase of $5,879), an average of $645,397 per unit and the highest individual per-unit price for 2-4 unit sales. The total dollar volume was $139,246,550 (up 11.72% from the prior quarter). The average market time was 53 days, 11 days longer than the last quarter. The sales price was 2.43% over the listing price, on average, a reduction of 1.95% from last quarter.

Sale Price

The bulk of 2-unit sales activity was in the following areas: Noe Valley (12), Inner Mission (9), Bernal Heights (7), Eureka Valley (6), Central Richmond and Outer Sunset (5 each). Notably, the highest average sale price was in Russian Hill ($2,687,500), while Visitacion Valley brought the lowest average sales price ($907,500).

The reason behind the popularity of 2-unit transfers is obvious. Even at $1 million or above, a first-time buyer can afford home ownership when sharing the cost for the purchase of a 2-unit building with a tenancy-in-common (TIC) partner, and will expect a fast-track condo conversion after owner-occupying the units for one consecutive year.

Three Units
During the third quarter, 41 3-unit properties changed hands, 4 more than last quarter, for a total dollar volume of $62,565,863, or 27.19% of 2-4-unit sales. We saw an upswing in dollar volume of 19.5%. Average sales price was 1.29% over asking, which was 1.31% less than last quarter. Up by a whopping $164,375, the average sales price was $1,525,753. This made for an average of $508,584 per unit, which is 26% less than the cost per unit of a 2-unit property. Leading the number of 3-unit sales by area were the North Panhandle (4), the Marina and Inner Mission (3 each). Three-unit buildings spent an average of 69 days on the market.

Though 3-units seem to stay on the market a little longer, it is wise to inform prospective buyers of the savings-per-unit advantage. Though the statistics show a fairly accurate pricing strategy for 3 units, it seems worthwhile to expect a longer sales period if the result is this kind of increase in average price.

Four Units
During the third quarter, 23 4-unit properties were transferred, 2 less than last quarter. Total dollar volume was at $29,214,000, a sizeable 26.26% drop. This sector represents 12.69% of 2-4-unit sales and shows the shortest average sales period—44 days. The average sales price is about one-half of one percent below asking, a decrease of .08% from last quarter, which indicates the asking prices for 4-units may be inflated. The average sales price was $1,270,174, down 23%. On the positive side, this sector has 49.19% less cost per unit than a 2-unit building, making 4-unit buildings a good investment for a discerning buyer at $317,513 per unit. The Haight Ashbury and Inner Mission transferred three each, followed by the Sunset and South of Market with two each.

Four-unit-building owners have a tremendous market advantage in sales time and cost per unit, which equates to marketability. Though not the top in market share of overall sales, these buildings are still powerful commodities and appear to have plenty of room for growth in terms of increasing their 2-4-unit market share.

Transactions

The Big Picture
Overall, we are seeing a consistent 2-4-unit market in San Francisco. Both the dollar and sales volumes for 2-unit sales have risen this quarter. We saw increases in 3-unit dollar volume and average sales price with a longer marketing period, which seem favorable since this sector is bearing proverbial fruit. Four-unit sales saw a momentous drop in sales volume and average sales price, though these buildings are moving significantly faster than they had previously. It appears that the stats for 4-unit properties have actually averaged the market, or we would have seen a significant increase overall.

In summary, 2-4-units are staying on the market nine days longer and the average list price vs. sale price has come down by 2.41%, yet still an average of 1.77% over asking. There is no alarming change overall, statistically, which should be taken as encouragement.

In San Francisco as a whole, the largest number of multiunit transfers occurred in the Inner Mission and Noe Valley, with 15 transfers each. All Sunset neighborhoods showed the highest number of transfers at 20. The remaining districts remained stable (up or down by 1 or 2), with declining sales in Hayes Valley, Alamo Square and the North Panhandle going from 21 down to 13 transfers. Some areas show more multiunit offerings by virtue of the fact that more 2-4 units were built in those areas.

Eleven neighborhoods showed overbid averages from 6.13% to as high as 20.15% over initial asking price. Nine neighborhoods saw sales under asking by 1% or 2%, which can indicate asking prices that may be higher than buyers are willing to pay. Since the marketwide underbids have not changed appreciably, consumer confidence for multiunit purchases may not be as low as widely reported in the press. Most of the real-estate-related articles deal with nationwide statistics of single-family homes and rarely address our unique San Francisco market. Conversely, the national reports only strengthen the income property market, as rents increase when home sales decline; this makes upside rents more possible, thereby promoting multiunit sales. We are seeing increased inventory, yet the actual sales in San Francisco, across the market, have remained steady over the last two years.

Addressing seasonal sales is always a concern. Do sales fluctuate by season? Is it true that sales drop significantly during the holidays? Don’t let Scrooge-like thinking spoil your investment or sales plans. Buyers looking during the holiday season are serious, just like sellers who market during that time. So, price right and negotiate accordingly. Move ahead with confidence and tune in for my next quarter report, where I’ll fully address seasonal sales.

The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of SFAA or SF Apartment Magazine. Erika Burke is a realtor with a 25-year background in sales and marketing. She specializes in the sale of San Francisco multiunit properties with Zephyr Real Estate and can be reached at 415-279-1135 or erikaburke@zephyrsf.com. Copyright © 2006 by SF Apartment Magazine. All rights reserved.