Inside San Francisco Real Estate

This is a very important question, as many new developments have sprung up over the years, particularly in parts of the city south of Market Street.  The answer is yes, it is okay to buy in a new development, but keep in mind the following tips:

The area south of the financial district has seen rapid condo inventory growth.

1)  Always bring an agent.  You have to have your agent with you during your first visit to any given sales center if you plan on using one.  Very few developers will allow you to visit alone, and later come back with an agent to represent your best interests.  This is a developer custom that has evolved over the years, because like all sellers, they pay your agent’s commission. Fortunately, having an agent represent your interests costs you nothing.

2)  Why use an agent?  There are countless reasons, but an important one with regard to new developments is that good agents know how soft prices are at each development.  Some make concessions, some are taking low offers (in some cases VERY low offers) and some are throwing in goodies such as hardwoods and appliance packages.  Conversely, some are not making any concessions.  A good agent will know what’s going on at each development and how to get you more for your money.

3)  Above and beyond negotiation, another thing a good agent will do for you is keep you away from developments that are fledgling or are headed for big trouble. There are developments (both new and existing) that I wouldn’t let my clients touch with a ten-foot pole.  Mismanaged HOA’s, annual budget deficits, lots of REO’s, poor construction quality, and law suits are just the tip of the iceberg.  Beware the agent that says all these developments are perfectly good investments.  They’re not.

Four more great tips if you continue reading –>

4)  This is one of the most important points I can make:  Know your hold time! If you’re going to invest in a new development, you’ll want to own your unit for the long haul.  Because new developments tend to have more cookie-cutter properties (and less unique ones), it could take longer for it to appreciate since there are so many other competing units, not just in your building, but also nearby.  When it comes time to sell, it could take longer because you may be competing with these units.  Before jumping in, imagine yourself as the seller.

5)  Because there are many similar units in these new developments, you want to understand fully which are the choice units and stick with those.  If you’re looking at a building with 250 units and there are 10 left, sure, you’ll be able to get a good price on those last few units, but how will you fare when you become the seller?  Will you even be able to sell it?  Falling for a price that is too good to be true can be a big mistake.  If there are no choice units left, you probably want to look elsewhere.

6)  If you buy a place and you’re in an area that is continuing to add new inventory, keep close tabs on the progress of nearby developments. Let’s say you intend to own for 5 years.  Ok, good enough.  Five years goes by and you’re getting ready to sell.  Problem is, next door they’ve just opened the sales center for a brand new building.  Your asking price is similar to what they are offering next door.  Is someone going to want your unit or a brand new, sparkling unit at the new building with the latest and greatest stuff?  Furthermore, if tough times hit the market and both you and the new development next door are forced to drop prices, who do you think can drop more?  You or the developer next door?  Chances are, you’ll be stuck with your place because the developer has deeper pockets and can beat your discount.  What would’ve been the smart thing to do is try to sell your unit a few months prior to the opening of next door’s sales center.  That way you would’ve limited your competition and avoided this debacle.

7)  Understand rental restrictions clearly.  In the event you are forced to rent out your unit (or even if you intend to), know what types of rental restrictions there are in the building before you buy.  Some buildings have caps on how many units can be rented out at any given time.  This is good for the building, as owner-occupants tend to respect and take better care of the property, but this can be tough for someone that needs to rent their unit out NOW.  There could be a waiting list for people wanting rental status.  I always suggest (if there is a waiting list), putting your name on it whether you intend to rent your unit or not.  It can take years to get to #1.  I once owned a high rise condo and when I purchased it, got on the waiting list.  I was #65!!  It took over 3 years for me to move to the top of the list and get the green light to rent my unit.  By the time I moved out I was glad I got on the waiting list when I did.  Always be aware of this– make sure you ask.