Is buying a home in foreclosure a good idea?

I’ve been in the real estate business for 10 years, and even back then — when I’d never heard the term “short sale” and foreclosures were something that happened in far, far away lands — buyers were asking about buying foreclosures as a way to get a smoking deal on a property. They look like good deals, but are they?

Before I get to foreclosures, I’ll explain a little about the steps leading up to foreclosure (auction on the courthouse steps, or the bank repossessing the home) and what happens after as well (sale as an REO).

When a seller falls behind on payments, he or she can explore a short sale. Most of us had never even heard the term “short sale” until the financial world imploded a few years ago, but now, we know them all too well. A short sale happens when the lender or lenders agree to allow the owner to sell for less than is owned on the property. The lenders take a hit, the seller’s credit is damaged (but less, supposedly, than if the house is repossessed), and the buyer may or may not get a better-than-market price, depending on the lender’s bottom line. Calling these sales short definitely doesn’t apply to the amount of time required to get one closed; I had a buyer in contract on one for 6 1/2 months, at which point the lenders decided to foreclose instead. Granted, that was a couple of years ago and most banks have improved their processes since then, but still. Six and a half months to wait for an all-cash offer to be turned down was a major bummer.

If a property makes it all the way through foreclosure (more on that in a second) and ends up as a bank-owned property, the major differences in the process involve disclosures (banks usually refuse to provide any disclosure that isn’t required by state law) and negotiations after inspections (banks usually demand an as-is sale). That said, Matt and I just closed a deal today in which our buyer clients got an FHA loan that required some repairs. The bank made the repairs and also gave our buyers an $8,000 credit for closing costs after we conducted our inspections. Never say never, right?

So, back to foreclosures. This is the step when the house is taken away from the owner, either by a buyer at the auction on the courthouse steps or the bank if no one buys it. This process isn’t for the faint of heart. First off, it’s often impossible to even see the inside of the house prior to bidding. After all, if the owner is cranky that his house is about to be taken from him, why would he let someone in to see it? There are no loans allowed, so the buyer must have cash. There are no inspections — so what you see, or what you don’t see, is what you get — and the new owner takes title subject to any unpaid taxes and penalties.

My two cents: buying a foreclosure isn’t a good idea for a novice buyer or anyone who is risk-averse. There are plenty of regular sales, short sales, and REO sales…leave the foreclosure sales to the investors with wads of cash and nerves of steel.

Homes for Sale in St. Francis Wood

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The other “top 10″ San Francisco Urban Park

The Outer Sunset of San Francisco has a hard time getting the love it deserves. Personally, I blame The New York Times (everything is there fault anyway, right?) although most people like to blame the fog.

Earlier in the week I gave a shout out to Hayes Valley Farm after they were recognized by Sunset Magazine as being one of the top ten urban parks. But the good news doesn’t stop there. San Francisco is so awesome that not one, but two spots in the city were named to their top 10 list.

The other top urban park is La Playa Park which is still under construction as I type.  Running from Judah to Kirkham streets between La Playa and Lower Great Highway streets, the park truly has been a neighborhood effort and collaboration. Take a look at their website, it has a great set of pictures, plans, and updated information about how the park is progressing.

And in case you thought parks were just for fun, the website lists some of the more serious reasons for turning this strip of land into a park:

  • Create a recreation and gathering space, establishing ownership by the local residents, and increasing the sense of community
  • Increase greenery with use of drought-tolerant and native plants
  • Increase landscape permeability; reduce urban runoff in conjunction with the Plant Donʼt Pave Program
  • Educate visitors on importance of native plants in the landscape to provide habitat for pollinators
  • Increase awareness of local water quality issues and how our actions as city residents affect our local watershed and eventually the health of the ocean

Check it out next time you are in the area, and if you are looking for an outdoor project, consider volunteering some time and energy for a great (and helpful) cause.

And Sunset Magazine, thanks for recognizing two awesome spots in San Francisco.

Insurance: boring, but important

Insurance certainly isn’t a sexy topic. It doesn’t fall under the category of “real estate porn,” nor does it fall under the category of “well, it was fun to spend THAT money.” Nope, it’s not fun. But as anyone who has been in a car accident, had a house fire, been burglarized, or had someone slip and fall on their property knows, it’s really, really important.

There are different kinds of insurance needed for single-family homes and condominiums, and yet another type for unit buildings.

Today we’ll focus on the insurance required for condo units (this is different from what’s required for TICs; stay tuned for that entry in the future). In years past, lenders that were making loans on condo units asked for a copy of the homeowner’s association master insurance policy, and that was it. They usually wanted the master policy to have liability coverage for up to $1 million, so if, for example, someone was injured on HOA property the master policy would cover any damages. Today, most lenders ask for liability coverage of $2 million.

The HOA policy covers the rebuilding of the “shell” of the building — the framing, exterior walls, roof, foundation, windows (usually), unfinished floors, and unfinished walls. So what happens, you ask, when your condo building burns down and you need to rebuild the whole thing, including your cabinets, light fixtures, bathtubs, etc.?

Enter what’s called the HO-6 policy, which is your best friend if you have (and who doesn’t?) floor coverings, plumbing fixtures, appliances, and other stuff not covered by the HOA policy and there’s major damage to your building. The HO-6 policy hasn’t been required by lenders for very long, just a couple of years, but it definitely makes sense to have one even if you buy your place with cash. Otherwise, you would be on the hook for rebuilding your condo from the unfinished walls in — and replacing all of your personal property as well — if your place suffers major damage.

If you’re in the market for a condo plan to shop for an HO-6 policy while you’re in escrow. And here’s to hoping you never need to use it.

Kids… Flee San Francisco

This is no surprise to anyone who lives in San Francisco, and certainly no surprise to anyone with children in San Francisco, but the just released 2010 census data shows a net decrease of about 5,000 children living in the city.

The accepted narrative is that families with children leave the city because of the cost of housing and the quality of schools. And as the father of a young child, I’ll be the first to agree that housing is expensive and that public school quality is wildly inconsistent, with the application and districting process (although recently and gradually improving) so byzantine and arbitrary that even the most organized parents eventually feel like pulling their hair out and collapsing in a pile of tears.

That said, it is politically incorrect in San Francisco to discuss the role that “quality of life” plays in driving children and their families from our city. In particular, the city’s chronic inability to make meaningful change with our homeless population, many of whom suffer from mental illness, alcoholism, or other issues that make their presence even more challenging.

Speaking for myself, I don’t want to have to trip over a passed out homeless person while walking my daughter into a coffee shop or restaurant. I don’t want to explain why someone is defecating in a public place. I don’t want to worry about my family being attacked on muni by a deranged individual. I want to be able to take her to a park or playground without having to worry about cleaning up garbage left behind by a homeless encampment.

And given how much my little slice of heaven costs me each month in property taxes and mortgage, I feel all the more strongly about these things. I know that the solution to the problem of chronic homelessness is not an easy one, and I’m certainly not an advocate of round ‘em up and lock ‘em away. But, unfortunately in my experience, too many of our elected leaders either feel that homelessness is a valid and acceptable life choice or they lack the political will to make meaningful change.

If San Francisco wants to be home to children, it needs to be a place where children can be safely at home in public.

Hayes Valley Farm: A Top Urban Park

Hayes Valley Farm is a spot in Hayes Valley that is near and dear to my heart since my daughter spends time there on a regular basis with one of her after school programs. She has brought home a few vegetables that she helped to grow at the farm, and we’ve enjoyed them as a part of our dinner. I grew up suburban – not urban – so it makes me glad to see her participate in a program that helps her understand food comes from farms, not supermarkets.

Sunset Magazine recently published their list of the “Top 10 Urban Parks” in America, and I’m thrilled to say that two parks in San Francisco made the list.  As  you might have guessed by now, one of the winners on Sunset’s list is Hayes Valley Farm! From their article, the describe it as:

Plunked down on what used to be a freeway off-ramp,Hayes Valley Farm is the urban equivalent of the back-to-the-earth experience you used to have to drive to. Just a block from a strip of boutiques, city farmers are growing kale, snap peas, and beets. Drop by to learn composting or take a yoga class. Free yoga; soil classes from $25; 450 Laguna St.

The website for Hayes Valley Farm, which lists all of their upcoming programs, activities, and opportunities to be involved can be found at www.hayesvalleyfarm.com.

Congratulations to all of the fine folks at Hayes Valley Farm who managed to turn an oddly configured plot of former freeway into a rich and wonderful neighborhood resource. Current “drop-in” volunteer hours are every Sunday, Wednesday, and Thursday from 12:00pm – 5:00pm.

And after an exhausting day of urban farming, be sure to take advantage of all of the great spots in Hayes Valley to grab a bite to eat, have a cup of coffee, or just enjoy watching the people wander past.

Housing master plan approved for SF

It only took three drafts, 13 community meetings, 35 workshops and five public hearings. After all that, over two and a half years, the San Francisco Planning Commission approved the city’s housing master plan, commonly called the Housing Element. Last night’s vote was unanimous in support of the five-year plan.

What’s the point of the Housing Element?

The State of California Housing Element law, enacted in 1969, mandates that local governments adequately plan to meet the existing and projected housing needs of all economic segments of the community. The law acknowledges that, in order for the private market to adequately address housing needs and demand, local governments must adopt land use plans and regulatory systems which provide opportunities for, and do not unduly constrain, housing development.

The Element is a non-binding document that provides policy guidance for the city’s development. By state law, it must be updated every five years to accomodate population growth and environmental goals. 

According to the plan, San Francisco needs to find room for 31,000 new living units in the next seven years. I’m pretty sure San Francisco hasn’t gotten any bigger in the last five years, so it’s not shocking to read that the overall goals in this version are: build dense dwellings near transit, allow for western neighborhoods to become a bit more densely developed, and allow for more community input in the planning process.

Believe it or not, even in this built-up city with seemingly no empty land left, there are enough infill spaces available for almost 40,000 new housing units, provided that some zoning changes are made to allow for denser development, increased height limits, and decreased parking requirements. And that’s the kicker: people like their neighborhoods and some folks are very vocally opposed to any changes that would make change the character of their neighborhood.

While articles about the plan on SFGate.com focus on density, over at the San Francisco Bay Guardian the focus is on affordable housing — in fact, to meet the need for below-market rate housing, 60 percent of the 31,000 units needed would be reserved for moderate-, low-, and very-low-income residents.

So, we need more places to live, and a lot of it has to be economically accessible to residents who earn significantly less than the median income. Short a massive infusion of public money – which is a fiscal impossibility in this economic climate – the goal of building nearly 19,000 affordable units seems very unlikely.

Real Estate Times Deathwatch, continued…

The continuing irrelevance of print media advertising for real estate marketing is something that I’ve mentioned before. In particular, I give our local glossy mag a pretty hard time, so I figured I’d take a look at the most recent issue (Mar 17 – 30) to see how they are doing. By all accounts, as we are in peak real estate selling season in San Francisco (February – June, then September – October) so the magazine should be at its healthiest, heaviest fighting weight right now. Unfortunately for them, the latest issue clocks in at an underwhelming 48 pages (not including front cover, inside front cover, inside rear cover, and rear cover).

Real Estate Times, looking pretty anorexic

As you can see from the image above, the Real Estate Times San Francisco is looking just as anorexic and haggard as the January issue, but the continued weight loss is all the more shocking given that this is peak season for real estate advertising.

Perhaps even more ominous for this all glossy production is that they dedicate a full page of advertising to explaining all of the online websites that will feature your advertising if you shell out the bucks for a page in their publication. Which seems to me to really undercut their messaging that print is an expensive and utterly necessary part of a successful property marketing campaign.

As you may have guessed, I strongly disagree – and here’s one more reason why: demographics. If I’m going to shell out the kind of dollars that Real Estate Times San Francisco wants for a full page ad, I could run a much more targeted campaign on facebook, google adwords, display ads, or pretty much any online advertising space. Advertising in print leaves me up to the mercy of the fates – I have no idea who is going to pick up a copy and read it. But online I can target my dollars in a very, very, very specific way and have incredible data to analyze during and after the campaign.