Buyer Agency

In the state of California, real estate agency is governed by California Civil Code Section 2079.16. It defines buyer agency as:

A selling agent can, with a Buyer’s consent, agree to act as agent for the Buyer only. In these situations, the agent is not the Seller’s agent, even if by agreement the agent may receive compensation for services rendered, either in full or in part from the Seller. An agent acting only for a Buyer has the following affirmative obligations:

To the Buyer: A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Buyer.

To the Buyer and the Seller:
(a) Diligent exercise of reasonable skill and care in performance of the agent’s duties.
(b) A duty of honest and fair dealing and good faith.
(c) A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the parties.

An agent is not obligated to reveal to either party any confidential information obtained from the other party that does not involve the affirmative duties set forth above.

This definition usually trips people up because the first three words are “A selling agent” which immediately makes people think there is a relationship to the seller. Those of you that graduated from Agency 101 will remember that selling agent refers to the agent that brings the offer, which is the buyer’s agent.

The civil code clearly spells out something that often confuses people about buyer agency, which is this: Even if compensation comes from the seller, the buyer’s agent has the fiduciary duty to the buyer. Not to the seller. 

What is “fiduciary duty?” The fine folks at have a great definition of fiduciary duty:

A fiduciary duty is an obligation to act in the best interest of another party. For instance, a corporation’s board member has a fiduciary duty to the shareholders, a trustee has a fiduciary duty to the trust’s beneficiaries, and an attorney has a fiduciary duty to a client.

A fiduciary obligation exists whenever the relationship with the client involves a special trust, confidence, and reliance on the fiduciary to exercise his discretion or expertise in acting for the client. The fiduciary must knowingly accept that trust and confidence to exercise his expertise and discretion to act on the client’s behalf.

When one person does agree to act for another in a fiduciary relationship, the law forbids the fiduciary from acting in any manner adverse or contrary to the interests of the client, or from acting for his own benefit in relation to the subject matter. The client is entitled to the best efforts of the fiduciary on his behalf and the fiduciary must exercise all of the skill, care and diligence at his disposal when acting on behalf of the client. A person acting in a fiduciary capacity is held to a high standard of honesty and full disclosure in regard to the client and must not obtain a personal benefit at the expense of the client.

So the highest duty in the transaction where I am bound solely by buyer agency  - the duty to exercise my discretion and expertise on behalf of a client who has placed their special trust, confidence, and reliance on me – is only to the buyer in buyer agency. 

That being said, the law does not completely relieve me of any obligations to the seller. I am still bound to:

  1. be honest
  2. deal fairly and in good faith
  3. exercise reasonable skill and care, and
  4. disclose all material facts about the property

to both the buyer and seller. 

So that’s a summary of Buyer Agency. Helpful, or too much legal gibberish?

Remember: Agency is a legal topic. I am not an attorney, nor do I have any plans to become one. If you are seeking legal advice about agency, consult a qualified attorney. If you do not understand the agency relationships in your specific situation, do not rely upon this article to clear things up. Consult an attorney! Whatever you do, don’t just take the blog posts you stumble across from an internet search as the gospel truth.

Pre-Paid Interest Explained

Closing costs. They just seem to add up, and up, and up. One of the items that buyers find on their estimated settlement statement is a line item described as “pre-paid interest.”

Understanding this closing cost gets a lot easier when you remember one important concept: rent is paid in advance, mortgage payments are paid in arrears. For example, if you rent a home, the rent payment you make the 1st day of the month is the cost of renting that home for that month. If you make a March 1 payment, it is to cover the month of March.

If you own a home, the same payment that you make on March 1 would be for the interest that accumulated in February and any principal you are paying down. Mortgage payments look back, rent looks forward, and this is where the pre-paid interest closing cost comes from.

Closing early in the month of March increases pre-paid interest

Take two hypothetical closing dates. One is early in the month – let’s say March 7 (calendar above). The other is late in the month – let’s say March 28 (calendar below).  Both of these homes will have their first mortgage payment due on May 1. The May 1st payment will cover all of the interest that accumulated in the month of April.

Pre-paid interest is the difference between the day when you actually borrowed the funds to buy your home and the interest included in your first mortgage payment. If you close early in the month, you will pre-pay the interest for that entire month, because the first mortgage payment will include the interest for the following month. If you close late in the month, you are only pre-paying several days worth of interest, so the amount is lower.

Closing late in the month of March reduces pre-paid interest

The early March closing has higher pre-paid interest charges (and thus, higher closing costs) but also a longer time period between the close of escrow and when the first mortgage payment is due (March 7 –> May 1). The late-in-the-month closing has lower pre-paid interest charges, but also a shorter time period between closing and the 1st mortgage payment (March 28 –> May 1).

How is the daily amount actually determined? Regardless of the number of days in the month, closing costs are always based on a 30 day month (including property taxes, HOA dues, etc.). Take the interest paid for a 30 day month, divide by 30, and that is your daily pre-paid interest amount.

If you found this article helpful, be sure to check out our homebuyer’s guide.

Agency 101

Agency in a real estate transaction spells out who the brokers are responsible to. It’s an important (but confusing) topic, so I wanted to take some time to explain it. I’ve written in the past about agency and dual-agency. This article is going to focus on the basics of agency.

Here’s the most important thing I can tell you about agency: Who pays the commission has nothing to do with agency. Yes, in San Francisco the entire real estate commission is normally paid by the seller. The commission is then split between the buyer’s agent and seller’s agent, usually equally although sometimes not. However, just because the commission comes from the seller’s funds does not mean that the buyer’s agent is in any way responsible or owes any duty to the seller.

A Visual Guide to Real Estate Agency

Let’s start by clearing up some confusing terminology:

  • buyer’s agent and the selling agent are the same person. They represent the buyer in a real estate transaction.
  • The seller’s agent is also often referred to as the listing agent. They represent the seller in a real estate transaction
  • People often confuse “selling agent” with “seller’s agent” – don’t be that person! The selling agent is the agent who brought the offer to purchase the home. Unless the deal is being double-popped, the selling agent is a different person than the seller’s agent  (listing agent).
The second most confusing issue is that your legal agent is not your real estate agent.
  • Your legal agent is the brokerage where your personal real estate agent hangs their license.
  • Your real estate agent is – obviously – the person you have daily (hourly?) contact with when finding and purchasing your home.
  • Agency relationships are based upon who your legal agent is, not who your personal real estate agent is.
For example, Britton and I hang our licenses at Zephyr Real Estate. If we meet you and start writing offer’s on your behalf as a buyer’s agent then we are your real estate agents and Zephyr Real Estate is your your legal agent. Why does this matter? Consider these situations:
  • You find a house that you love. It is being sold by Ms. Mona Lisa of Coldwell Banker. In this situation, my relationship to you is governed by buyer agency because Zephyr Real Estate represents the buyer and Coldwell Banker represent the seller.
  • You find another house that you love. It is being sold by Mona Lisa who has now gone to work for Zephyr Real Estate. In this situation, my relationship to you is governed by dual agency because Zephyr Real Estate is the legal agent of both the buyer and the seller. It does not matter if Ms. Mona Lisa and I have ever met. It doesn’t matter if I know the sellers or not. It doesn’t matter if Ms. Mona Lisa is in the same office or a different Zephyr office. Because the legal agent is the same for both sides, it is a dual agency transaction.
  • You find another house that you love. It is being sold by Britton and me. This is (obviously) also dual agency, and this particular type of dual agency is sometimes called double-popping, or being on both sides of a transaction.

California law allows for three types of agency in a real estate transaction: buyer agency, seller agency, and dual agency. I will explore what the duties are for each of these types of agency in the coming days!

Important Disclosure: Agency is a legal topic. I am not an attorney, nor do I have any plans to become one. If you are seeking legal advice about agency, consult a qualified attorney. If you do not understand the agency relationships in your specific situation, do not rely upon this article to clear things up. Consult an attorney! Whatever you do, don’t just take the blog posts you stumble across from an internet search as the gospel truth. 

Mona Lisa image in the above graphic is used under a CC license -

How About That Apple?

105 Midcrest Way in Midtown Terrace was on the market for $799,000 last fall. It received multiple offers (I know this because I represented buyers that were outbid) and closed for $808,000 on September 2, 2011.

105 Midcrest in Midtown Terrace

While I don’t remember the exact details, there were reports on the property that showed some dry rot and water issues – nothing off the charts, but if I recall it had to do with the east wall (the one you can see in the picture) as well as some of the patios that were over living space (also seen in the picture).

The property didn’t show badly, but it was vacant and didn’t show extremely well, either.

105 Midcrest went back on the market this spring, and closed on 3/22/2012 for $1,020,000 which was over the asking price of $999,000.

As far as I can tell, no work was done to the property with permits between last September and the most recent sale (I checked the online permit and complaint database with DBI). Looking at the pictures from the fall and spring sales, there doesn’t appear to have been any work done on the kitchens or bathrooms, and the carpet and flooring appears to be unchanged as well. It does look like some tidying was done to the yard areas, but that is the only difference I can see.

Did the September buyers get an amazing under-market deal last fall? Given the interest in the property (offer date, multiple offers) it seems hard to say they got a bargain. But given that – as far as I can tell – very little has changed with the property and it sold for $212,000 more after just seven months, what exactly is the lesson learned here? Has the market changed that much or did someone just pay way, way, way too much for a Midtown Terrace home?

What are your thoughts?

I’d Love an Edwardian Loft (NOT)!

Some lofts are beautiful. Conversion lofts, for example, offer some incredibly beautiful living spaces in San Francisco. Unfortunately, there were only so many abandoned warehouses that could be converted, so once developers ran out of historic buildings to convert, they got busy in the 1990′s and early 2000′s building some rather horrendous loft buildings.

Feeling Like an Edwardian... Loft?

Take the loft building pictured above (address not given out on request) which appears to be… an Edwardian loft!

Without wading too deep into the architectural arguments about what makes a Victorian a Victorian, an Edwardian an Ewardian, and so on and so-forth, let’s just roll with the following guide (from SF planning):

Period — Edwardian (1901-1910). Frequently, historic resources in San Francisco are referred to as “Edwardian,” in design and appearance. The term “Edwardian” was created to describe architecture produced in Great Britain and its colonies from 1901 to 1910, with the reign of Edward VII. Edwardian architecture encompasses a number of styles, with five main strands identified: Gothic Revival, Arts and Crafts, Neo-Georgian, Baroque Revival and the Beaux-Arts style. Interpreted in the United States and in San Francisco, the term “Edwardian” is often associated with multi-unit flats or apartment buildings constructed at the beginning of the 20th century.

And why do I object to this… Edwardian Loft?

  • Sorry, but I don’t think lofts were meant to have dentil mouldings.
  • While I’ll allow a bay window is acceptable in a loft, the slanted style of these bay windows just seems sad and half-hearted. While they work in an Italianate victorian, they don’t translate to a loft.
  • The decorative horizontal strips of wood between the window bays are… ugly.
  • Stucco, people, stucco!

So here’s my rather obvious advice: If you want an Edwardian, but an Edwardian. If you want a loft, buy a loft. But there is no such thing as the “best of both worlds” that combines an Edwardian with a loft.


Sometimes the Stupid is So Strong it Burns

Hey – I’ve got a great idea. How about you pay 40% over asking for a San Francisco home so that you can be next to an unpublished, privately run shuttle bus location that could be changed, re-routed, or cancelled at any time? Speculation about the impact shuttle stops have had on property values has been going on since at least 2008, but the meme seems to have recently gone national.

Shuttle Bus Stups from SFCTA Strategic Analysis Report, published 2009.

I’m a big fan of mass transit (particularly for other people), and am glad to see private companies step up to provide it for their employees when local and regional transit agencies can’t (or are unwilling or unable to) meet a legitimate need that benefits the public.

My concern is with the wisdom of making a substantial investment in a property either solely (or primarily) based on proximity to a private service that is un-published and subject to change at any time.

Would you buy a house based solely on it’s proximity to a coffee shop where you have a major crush on the hottie who makes your latte each morning?

Would you buy a house because you love the color of the house three doors down?

Would you buy a house because you love the quality of the fruit and produce sold by an unlicensed street vendor on a nearby corner?

- Me

The legal status of private buses using public stops hasn’t even been figured out (although the SF County Transit Authority did publish – in 2009 – a Strategic Analysis Report looking at the Role of Shuttle Services in San Francisco), and while it is highly unlikely that the city will kick the private shuttles out of the public stops, who is to say that they don’t change which stops may be used? Or start charging fees that cause private companies to eliminate some stops or reconfigure their shuttle routes?

There are no guarantees in life, and it can be argued that public bus stops and muni lines are also subject to change (although I’d argue that the higher the investment in infrastructure, the less likely a change is – for example, a bus stop is a whole lot more likely to be relocated than a muni-light rail line or a BART station).

I don’t mean to sound like the cranky old man yelling at the kids to get off my lawn, but real estate is a substantial investment with significant transaction costs (yes, my commission, but also things like transfer tax, title insurance, escrow fees, insurance, and inspections to name just a few).

Make a smart decision. Focus on the fundamentals, and in my opinion shuttle stop proximity isn’t a fundamental. Thoughts?

PS – Bonus points if you can (correctly) answer how to distinguish the Google buses from the Apple buses…


The Red Headed Stepchild of San Francisco

I have absolutely no idea if calling something a red headed stepchild is politically correct in 2012 or not. If it isn’t, my apologies in advance – leave a comment with a politically correct suggestion…

At a company meetup this morning there was an overview of condo conversion, which I’m not going to summarize here other than to say… there are so many special cases and circumstances that instead of giving you some worthless blanket advice I’ll just suggest you get in touch with your specific case. An interesting discussion did come up around “housekeeping units,” though, so I thought I’d share that here today.

The San Francisco housing code is designed to set a minimum level of habitability for safety, and as you might guess it has a definition for almost everything.

One of the interesting definitions is for a “housekeeping unit” which is defined as:

Housekeeping Room/Unit with Cooking Facilities. Housekeeping unit or room containing one guestroom with electric cooking facilities, in existence and legalized by permit prior to 1969 in a residential building built before 1960.

The dates in the definition provide a clue to the origin of the housekeeping unit. In short, these were units added without permit during the population boom that happened after the end of World War II.

World War II changed San Francisco is numerous ways, from the expansion of military bases and shipyards to the impact Japanese internment had on the African American community, but in this case I’m talking about how the end of World War II caused a major influx of people to the city.

As you can see from the chart below, in terms of number of people that moved to the city, the decade between 1940 and 1950 saw the biggest influx of people to San Francisco in the city’s entire history (yes, percentage wise the gold rush totally beat it). You can click on either chart below for a link to an interactive version.

At no other time in SF’s history – that I’m aware of – have we legalized a bunch of illegal units. From time to time, city politicians speak about legalizing all of our existing in-law units, but given objections from city planners and neighborhood groups it never really goes very far.

From a unit standpoint, the Department of Building Inspection doesn’t count housekeeping units towards the total unit count of a building. So, from their perspective a 2-unit building + a housekeeping unit = a 2-unit building. The Planning department, however, uses different math. According to the planning department, a 2-unit building + a housekeeping unit = a 3-unit building. Why does it matter? 

Because a 2 unit building (using planning’s math) can bypass the condo conversion lottery after both units have been owner occupied for one year. 3-unit buildings, on the other hand, must enter the lottery.

So beware… regardless of what an agent says, SF planning won’t allow a 2-unit building + housekeeping unit to bypass the condo conversion lottery.

Red-headed stepchild, indeed!

Bonus link: Video of city inspector discussing legal, illegal, in-law and housekeeping units

Data, Data, Data

In real estate it’s usually all about location, location, location. But to celebrate the release of the city’s open data site we’ve decided to make it all about data, data, data.

With a tip of the hat to Diane Hourany, who blogged about this over at site Z yesterday…

In a nutshell, the city has created a one-stop set for all you data hounds out there. The tool is powered by a company called Socrata, and offers some built-in visualization features like charting and mapping. If you’re a genius of the engineering type, you can – of course – get a feed of the data or download the data or otherwise crunch the digits to your heart’s content. I, sadly, don’t have those mad skills so I kept the training wheels on.

The data available on the site is pretty diverse – ranging from a catalog of all of the public art the city owns (with location coordinates) to crime data. I settled on the data about all of the ballot propositions, starting with 1966 and continuing forward. We’ve voted on a long list of ridiculous things over the past four decades.

A list of all propositions with the letter M that Failed

I started goofing around with the data, and decided to look at if the letter of a ballot proposition had much to do with whether or not it passed.

There were 97 ballot propositions that showed up first on the list with the letter “A” – and of those, 82 passed and 25 failed, meaning that over the past 55 years or so 84% of all propositions named “A” have passed.

There were 34 ballot propositions that showed up with the letter “M” – and of those 17 passed and 17 failed, for a 50% pass rate.

There were only 2 ballot propositions that showed up with the letter “Z” – and they both failed, for a 0% pass rate!

What does this mean? Clearly it means that I have way too much time on my hands this evening! Or, my other theory is that voters get sick of voting on ballot propositions. This is my theory because this is how I feel about ballot measures. I kind of figure the role of government is to, um, figure these things out, make an educated policy decision,  implement it, see if it works, and revise as necessary. If you’ve got a couple big questions for me, I’m open for that. Or, if the citizens are pissed you haven’t asked us about a couple big questions, I’m down with that. But get past 5 or 10 items and I get really cranky and annoyed, wondering what exactly I’m paying for down at city hall. Initiatives that have been placed on the ballot by a couple of supervisors that can’t get the issue passed at the Board of Supervisors draw my ire in particular…

My only regret is that I can’t go back in time and test my theory by putting a recall initiative for Chris Daly on the ballot labeled as item A!

Regardless of how wrong or right my theory is, go out and take some data for a spin!


Why Do We Even Need a Sheriff?

The San Francisco Sheriff has been getting a lot of press lately. Sadly, it isn’t for anything awesome. Unless you consider smacking your wife around in front of your 2 year old child to be awesome, which we don’t. Since Sheriff Ross has plead guilty to a misdemeanor, I guess the department’s new motto could be “Do the crime, avoid the time.”

But all this hoopla about the Sheriff has gotten me to wondering… “Why Exactly Do We Even Have a Sheriff?” I understand that plenty of San Franciscans have a uniform fetish, but seeing as we already have a police department, couldn’t we perhaps consolidate, or something? In that spirit, I visited the department’s website in an attempt to find out what they do, only to discover that according to the department’s website, our current sheriff is:

Our Current Sheriff, According to the Sheriff Department's Website on March 13, 2012

From which we can learn that when the Sheriff is preoccupied with defending himself on domestic abuse charges, no one in the department really feels like updating the department’s website. Which is unfortunate, if their webmaster had a sense of humor they could have used his booking photo…

So now that we’ve discovered that the sheriff’s deparment is too embarrassed to admit that Ross Mirkarimi is indeed the Sheriff, I’ve also discovered that the Sheriff’s department does actually have some responsibilities. They include:

Running the Jail(s): So, ok, here’s the thing. According to their website, SF has six jails that the Sheriff is responsible for. But jails #1, #2, #3, and #4 are all in the same building, so quite frankly it feels to me like someone’s trying to fluff their resume. Jail #5 and #6 are in San Bruno, but on the contact page jail #6 has been “closed until further notice” and shared the same address as jail #5 (although a different PO Box). So I’m sorry Sheriff Hennessey, er Sheriff Mirkarimi, but by my count you run two jails.

They guard stuff: Specifically, city hall and the courts.

Arresting Parolees: Why the police can’t just do this is beyond me…

Doing what they are told to do by the Civil Courts, for example: Receiving monies due the prevailing parties of civil law suits, then disbursing funds as directed by court order. Attaching, maintaining custody of and selling personal and real property. Collecting fees in advance for services performed by the Sheriff’s Department. Serving civil bench warrants, subpoenas and other court papers. Performing evictions and garnishments. Providing assistance to evictees.

While I’m excited to know that the Sheriff department really does do stuff, I still don’t understand why we can’t just merge it with the police department. Anyone out there care to explain?

Most. Amazing. SF Maps Ever!

Happy Saturday, everyone! Via the Google Lat Long Blog comes mention of an amazing resource – a set of high resolution 1937 San Francisco maps. You can easily spend hours (at least, I have) comparing San Francisco present to San Francisco past.

I took the time to make a quick mashup of the Twin Peaks/Clarendon Heights/Midtown Terrace areas shown in a 1938 picture and compared it to how things look from above in 2012.


I was actually a bit surprised to see how built out Clarendon Heights was in 1938. I had picked that area knowing that Midtown Terrace development didn’t begin until the 1950s, and most of Twin Peaks was developed after that (1960s and 1970s for the most part). While this before and now comparison shows how much development has happened in this particular area of San Francisco, some of the other maps are awesome for taking a look at historic structures (like Kezar stadium) that are no longer around. 

It is also interesting to note the vacant lots in developing neighborhoods (Bernal Heights, I’m thinking of you). Anyway, hope you enjoy the short video. Do yourself a favor and click on over to the map collection, the images can be downloaded (in high-res if you sign up for a free account). What awesome things stand out to you in these pictures? I know you were worried that you might have to spend your weekend doing productive chores (dishes, lawn mowing, painting, etc.), hopefully I’ve just helped fill it up with something a lot more enjoyable. :-)

The David Ramsey map collection is pretty impressive, and the addition of these 1937/1938 San Francisco aerial photos makes it even more awesome in my book!

And hey, as long as you’re here, go ahead and take a moment and see what’s for sale in Clarendon Heights or Midtown Terrace!