Five Things to Avoid When Buying a Condo in San Francisco

Maybe you’re thinking about jumping into the San Francisco real estate market, but you can’t quite afford a single-family home. Or, maybe you’re just looking for an amenity-rich building experience. 

If you’re thinking about buying a condo in San Francisco, I’m going to help you navigate five common pitfalls. 

And while I do, I’m going to walk you through two different condos at two very different price points — a $2.5 million condo in South Beach and a $1.3 million condo in North Beach. This way you can get an idea of what condos are like here in the city.

Pitfall #1: Waiting for Prices to Drop Even Further

Have you ever found yourself saying, “I wish I would have bought five years ago?” Well, now’s your chance.

Let’s talk a little bit about the condo market in San Francisco. The condo prices in SoMa, South Beach, and Downtown have dropped significantly (as of November 2023). Currently, they’re showing that there are around 2014 price levels while the rest of the city is somewhere between 2017 and 2018 price points.

So, that makes it a prime time to buy a condo. Historically, condos have appreciated quite well, especially if you buy in the right area. 

Since the pandemic, condo prices are down about 8%. But, since 2015, they are 9%. If you go back all the way to 2000, they are up over 170%. 

And, we believe that San Francisco is going to revitalize the downtown area. AI is moving in, and that’s going to happen right here. So, we think that prices are going to come up.

Additionally, we’re seeing that with commercial spaces and the vacancy being up about 60%, rents have come down a lot on commercial spaces. This is opening up opportunities for businesses that wouldn’t have otherwise been able to afford to be Downtown, where all the action is.

There is a lot to love about these areas, which feature the best weather in the city. In addition to the weather, you have some picturesque views. Also, it’s extremely convenient to live here, as public transportation is nearby. A lot of the people who buy here also live here, so they can just walk to work or jump on a train. Or, they can jump on the freeway and head to the South Bay.

So what does it cost to live in a condo in these parts of San Francisco? It varies. If you’re buying in a new construction building, the HOA fees alone are going to be anywhere between $1,500 a square foot, all the way up to $2,500 a square foot, depending on the level of finishes and exactly how new it is. Some of the older buildings do cost less and the average price per square foot for last year in SoMa was only $830 a square foot.

$2.5M Condo – Lumina

We are headed over to the Lumina in South Beach. This condo has two bedrooms, and two bathrooms, and is about 1500 square feet. You have 180-degree views, with the highlight being the Bay Bridge. You’ve got views of Alcatraz and Angel Island peeking through these buildings here, and the Salesforce Tower. And you get a cityscape view on the other side. It’s nice to have a little bit of outdoor space. With South Beach being a warmer part of town, you can get outside and use the deck.

One of the big differences between, say, a $1.2 million condo and a $2.5 luxury build like this is about the finishes. In this condo, you have marble countertops, SieMatic cabinetry, and beautiful hardwood floors throughout. 

And, this condo is quiet. The build level is different from the concrete construction, whereas a lot of the low-rise buildings are just allowed to be timber, and there’s not a lot of soundproofing between the floors, windows, and walls. When a building is built with concrete and steel, it reduces any noise transfer between units and you can’t hear your neighbors.

The HOA fee for this condo is about $1300, which is reasonable, as it covers a lot of amenities. For instance, you can have a Pilates instructor come by, there’s a private Pilates studio, several game rooms, several movie rooms, and a kid’s music room. The valet is spectacular, but the best amenity is Woodlands Market downstairs.

Pitfall #2: Not Understanding Fees

Fees in these high-rise buildings can vary a lot. 

Mello-Roos

One of the fees that can catch buyers off guard is the Mello-Roos fee. A Mello-Roos is a designated tax district in California that serves to finance local infrastructure projects or services. This tax is exclusively imposed on residents within the district who directly gain from the project.  So, for instance, with this condo, this tax was passed on to the buyer and was put into place to help develop the area around the condo. Mello-Roos can be about $15,000 –  about $10 per square foot.  

Transfer Tax

Another fee is the transfer tax fee. The transfer tax fee can be an additional $15,000-$20,000 that the buyer takes on.

A lot of these fees can be negotiated down in the contract. Making sure that you have a real estate agent who’s looking out for you, explaining the fees, and helping you negotiate those fees down is important.

HOA Fees

Lastly, the fee that most commonly people think about is going to be the HOA fee. The HOA fee can also range dramatically — anywhere from as low as $350 all the way up to $5,000. 

What makes it vary so much? Well, if you have a fee that’s on the $300 end, what you’re probably looking at is a building where the sellers actually didn’t take into consideration building any sort of reserve. A reserve is the building’s savings account. It’s used to pay for unexpected expenses, such as major repairs or renovations. If a building doesn’t have a reserve, it could mean that the HOA fee will need to be raised in the future. So with something like a $300 HOA fee, you’re probably just looking at covering things like insurance, maybe garbage. And that’s about it.

Now, what do you get for a $5,000 fee? You would get white-glove concierge service. They’ll call you by your name when you walk in, making you feel really special. If you have groceries delivered, they would go put them into your refrigerator. They will take care of your dry cleaning. They will wash your car. You’d get a lot of amenities.

It’s important to factor in the fees when you’re budgeting for a condo. You should also make sure that you understand the fees before you make an offer.

$1.3M Condo – North Waterfront 

Now I’m going to talk about a very different price point. This two-bedroom, two-bath condo is on the North Waterfront side of San Francisco. This building was built in 1993, so it’s a little bit older than the Lumina. 

It’s been nicely updated by the current owner. There are newer hardwood floors, a newer kitchen, and a newer bath. Interestingly enough, the HOA dues are the same amount as the Lumina condo ($1300). Here we have a nice suite. You have a little tiny balcony here, with very different views from the Lumina. You’ve got an open floor plan concept, which is very popular. 

So, back to HOA fees. The bigger the building is, the more you get for that fee because you’re pooling your money. In this building, there are just about 100 units (versus about 650 at the Lumina). So in the Lumina, you’re getting a lot more in terms of amenities. However, here you are getting earthquake insurance, which, believe it or not, in San Francisco is pretty rare. 

Unlike some buildings that have lower HOA fees, this building has great reserves, which means that if something comes up for maintenance, you’re probably not getting a special assessment.

So, with this condo, when comparing it to the Lumina condo, we’re looking at a price point difference of over $1,000,000.

Pitfall #3: Not Understanding the Contract and the Disclosures

The difference between buying into a new development building and a regular condo or single-family home in San Francisco is that the contract is written by the developer for the developer. That’s what happened with the Mello-Roos tax we talked about earlier — the developer just decided to pass it on in their contract.

And, sometimes disclosure packages are huge. We’re talking about 500-600 pages. You’re going to want to work with a qualified professional to help you sift through it, to understand the various things in the contract that might come up.

Also, keep in mind that a lot of these older buildings (like some of the buildings that were built in the early 1900s), may have maintenance coming due, and so even though they might have HOA fees that are in the $1000 range, they will have a $20,000 special assessment to do major projects on the building. These are the kinds of things that you want to look out for in the disclosure package.

Pitfall #4: Noise Issues

There’s a difference in construction in terms of when it was built and how it was built that’s going to affect noise substantially.

If you’re looking at a condo that was built in the early 1900s, then maybe you want to be on the top floor so that you don’t have somebody walking over you. There’s going to be more noise transfer issues in buildings like that.

However, if you’re looking at a concrete and steel building where the floors between are concrete and the windows are really solid, noise isn’t going to be that much of an issue.

Depending on where your location is, you’re going to have different noise issues. For example, you might be living next to a bar or a nightclub, or you might be living on a busy street. It’s important to be aware of the potential noise issues before you buy a condo.

Pitfall #5 – Timing During a Downturn 

The condo market has been hit much harder than the single-family home market in the last two downturns. 

If you want to sell when there’s a downturn, and you just bought in the last couple of years, you could find yourself in a place where you’re losing money. That can be very painful, and it can also make you want to stay longer than necessary.

Single-family homes do appreciate better than condos, and it’s just one simple rule of supply and demand that makes that happen. San Francisco’s only a seven by seven-mile area, and there’s not a lot of land left. So the supply isn’t going to increase, and the demand will only continue to grow. 

As I mentioned earlier, the appreciation for condos has been good long term, but in the short term, if you end up wanting to move sooner, you might find yourself not having the flexibility that you wish you had.

Opportunities and Benefits of Buying a Condo

There’s a tremendous ability to get lower prices right now and negotiate all kinds of things. Earlier this year we got a client into a contract on a place that was priced at $5.6 million, and we got it for her for $4.2 million. I can’t promise you that big of a gap, but we have multiple stories where we’ve been able to negotiate stellar deals. I think it’s a great time to get in at an already low price and try to get it even lower.

A lot of the buyers that we’re working with right now are first-time buyers because they don’t have to give up a low-interest mortgage to buy a new place. If you don’t currently own a house, you’re able to step into the market with lower interest rates than you would have been able to a year ago. 

The average cost of rent in San Francisco is around $4000-$5000 a month for a very average, small two-bedroom. If you’re paying $5,000 a month in rent, that’s $60,000 a year, which, in five years, adds up to $300,000. You could put this equity into a home of your own. 

If you want to think about investing in your mortgage instead of somebody else’s, we’d love to be a sounding board for you. And, if you’d like to find out more about what it’s like to live in the South Beach area, the North Beach area, or any area in San Francisco, please watch our neighborhood vlogs to learn more.