The San Francisco Condo Market is a NIGHTMARE (Here’s What to Do)

Condo owners in San Francisco are getting hit with soul-crushing expenses and reality checks. Thousands of residents in high-rise buildings are about to be charged hundreds of thousands of dollars and be displaced from their homes to comply with recent fire code changes. And there are a number of other retrofit requirements, inspection mandates, lender mandates, and HOA-related issues that are hammering condo owners across the city right now and dragging down what's already been a stalled resale market over the past several years. And it's not just condo owners in high-rise buildings. Smaller buildings, 2 or 3 unit buildings are being impacted. Apartment buildings are being impacted TICs, co-ops, you name it. This is Austin Klar, your lawyer turned real estate agent in San Francisco and Marin County. And in this video, I'm going over several recent legal changes and practical considerations that are costing homeowners across San Francisco dearly, not only in terms of money, but also significant expense of their time and jeopardizing any chance they have at reselling at maximum value. Some of these things I've experienced firsthand with clients on both the buy side and the sell side. Others I've learned from agents in the community. All of these things you need to know about if you own one of these units or you own one of these buildings or if you're thinking about buying one. Let's get right to the first big-ticket item costing condo owners and multi-unit operators tens, if not hundreds of thousands of dollars, and jeopardizing resale prospects, and that's legally mandated inspections of what are called exterior elevated elements. In 2015, tragedy struck at UC Berkeley in the middle of the night during a birthday party. 6 students died and 7 others were injured after a balcony on which they were standing collapsed. And in response to the event, laws were passed designed to prevent similar occurrences in the future. Under both California law, Pursuant to Senate Bill 326 and Senate Bill 721 and pursuant to San Francisco Housing Code Section 604, owners of multi-unit buildings of at least 3 units or HOAs in buildings of at least 3 units need to obtain inspections of what are called exterior elevated elements. Things like stairways, walkways, balconies, decks, rooftops that are elevated at least 6 feet off the ground need to be inspected for structural integrity. For apartment buildings, the deadline to get these inspections done is January of 2026. For condos, the deadline mine was this past January of 2025, and you have to get them reinspected every certain number of years depending on the law that you're operating under. In San Francisco, it's every 5 years, and you have to recertify your inspection results to the city. And these inspections can't be done by just anybody. They can only be performed by certain licensed qualified inspectors, architects, engineers, etc. And who those inspectors can be depend on whether the building is an apartment building versus a condo building. There are nuances between the applicable laws. When the inspection is done, the inspector has to generate a report identifying any action items that require repair, basically any life safety items, and owners in these buildings, whether it's, you know, an HOA in a condo building or an operator of an apartment building, are mandated to repair those items within a very short timeframe, in some cases as little as a few months. So as you can imagine, because these reports pertain to structural issues, the repair items that are required to be undertaken can be very expensive. And because the timeline mandated for completing those expensive repairs is quite fast. It means that the owners in these buildings or operators of these apartment buildings have to come up with that money ASAP. So for condo owners in, you know, HOA-run buildings, that could mean significant increases all of the sudden in both regular assessments and potentially special assessments if reserves aren't going to be adequate to cover these expenses, which in many cases they're not because these expenses are quite large. So it can potentially cost homeowners or apartment building operators tens, if not hundreds of thousands of dollars in the form of special assessments and potentially increases in regular assessments of hundreds, if not thousands of dollars a month. Okay, so what happens if a building just doesn't comply with their inspection mandates? Well, there are a lot of potential consequences, and some of them can impact resale value. For starters, you're just not complying with applicable law, and to the extent the city finds out about it, they can initiate enforcement proceedings against you, which obviously nobody wants. Beyond legal consequences though, if you're trying to sell the building or sell a unit in a building, it can impact resale value and can impact whether the sale even goes through in the first place. As a seller, if inspections haven't been done, you should expect that buyers are going to account for the potential risk associated with the future inspection and discount the price. They also might have contingencies in their offer for those inspections to get done. So it lowers the chance of you getting a compelling offer or an offer that you might want in a resale. And having those contingencies in place obviously makes closing on that transaction uncertain. And even worse, a lot of lenders are starting to ask HOAs, you know, when a condo is being resold, when they're their underwriting about completion of these inspections. And if they haven't completed these inspections, some lenders are not processing the transaction. They're not issuing loans for units in these buildings. So you're basically potentially weeding out any potential buyer that wants a loan to be able to buy your property. So you're going to leave yourself, uh, relegate yourself to only cash buyers, substantially shrinking your buyer pool and potentially shrinking the number of offers or the price that you ultimately get. As a buyer, if an inspection hasn't been done and you're still able to move forward with the transaction, you're putting yourself at risk of a potential major special assessment and increase in HOA dues in the future. So it is absolutely critical whether you're thinking of buying a unit in a multi-unit building or buying an apartment building, or if you're selling a unit in a multi-unit building of at least 3 units or more, or you're selling an apartment building, you get these inspections done, or you confirm that the building or the unit is exempt from these inspection requirements. If you don't, you're taking on a ton of risk. There's a lot of nuances to these rules, different timelines and different structures apply under different laws. So it's really important that you talk to a professional about potential exposure. If you're in that situation and need recommendations for inspectors, lawyers, engineers, whatever it might be, reach out to me. I was a lawyer at one of the biggest law firms in the world before getting into real estate, and I've helped numerous people relocate here from all over the country. Happy to provide those resources to you. My contact info is in the description below. Reach out anytime. And if you could do me a huge favor, if you like videos about living in San Francisco, San Francisco lifestyle, current events, new developments, history, or all things San Francisco real estate, subscribe to my channel because I make videos about that stuff every single week. Now back to things you need to know that are impacting thousands of homeowners across the city right now, and the next one is potentially the most financially devastating of all of them. San Francisco recently enacted major changes to their fire code and is applying them retroactively to existing buildings. So complying with these new rules is going to cost homeowners potentially hundreds of thousands of dollars, significant capital investment, and it might displace them from their homes while the work is being done to comply. The biggest headline component of these recent changes requires equipping certain high-rise buildings with automatic fire sprinkler systems in every single room of every single unit. That means demolishing existing walls, installing new water tanks, installing new generators, installing new plumbing, installing new electrical monitoring equipment, making necessary electrical upgrades to accommodate this new equipment, and fitting each space with the required sprinkler system. Owners are required to submit professionally designed sprinkler system drawings in a permit application to the Department of Building protection by 2027, and the sprinkler system and the attendant electrical monitoring system has to be installed by 2035. So obviously doing all of that work is going to be not only incredibly expensive, but also it's going to displace thousands of homeowners out of their current homes while this work is being done. Several major news outlets, the SF Chronicle, SF Standard, etc., have reached out to homeowners in some of these buildings and homeowners associations that govern these buildings to discuss these recent changes, and the current indication is that home— Homeowners —homeowners are facing regular assessment increases. So the monthly dues increases of potentially up to $2,500 a month. And overall, it might require expenditure of several hundred thousand dollars to comply with these changes. Just the permit process alone can cost hundreds of thousands of dollars between the architects and engineers, mechanical, electrical, plumbing, all of that planning work that goes into just permitting this extensive process. And because this work is so invasive, homeowners can't live in their homes while the work is being done. They're going to have to move out They're gonna have to find temporary housing, and they're gonna have to pay rent in what is one of the craziest rental markets we've ever seen to make this work. So the costs here are potentially catastrophic for homeowners. Yes, there are going to be some homeowners who are going to be able to afford this. They might be very wealthy, it might be a drop in the bucket for these folks. But I promise you, from talking to some people firsthand, there are going to be several hundred, if not thousands of people who cannot afford these changes. Senior citizen retirees on fixed incomes that don't have hundreds of thousands of dollars to drop on a dime on these matters. There's a very real chance they might not be able to afford to live in their homes any longer. It's going to force sales of these homes and at depressed prices because any buyer of a unit that has to undergo this work is going to account for all that work that has to be done in their purchase price. I just had this exact thing happen on a unit in Pacific Heights and it went for several hundred thousand dollars less than it otherwise would have because of major assessments that were coming underway. So this is another big one to diligence if you are a buyer looking to buy a unit in a high-rise building. And if you own a unit in one of these buildings, whether you're thinking about selling or not, you need to know about this. And there are a lot of other things beyond the sprinkler system that you need to be cognizant of as well, like fire alarm retrofits, seismic retrofits, etc. There are a ton of other legal changes that have occurred mandating owners to retrofit these older high-rise buildings at their sole expense. And it extends beyond just high-rise buildings. And it stands to reason that future code changes might mandate future retrofit expenses again at the owner's sole expense. You should also know that the city isn't the only entity that is pushing for these retrofits. Insurance companies are as well. So whether or not a city is mandating a particular repair item or retrofit, insurance companies might. They might mandate these things as a condition of coverage. So if you go to renew an existing policy, there might be things that they require you to do that they weren't requiring before. Or if a new buyer wants to get a policy on a unit that they're looking at, these things might need to be put in place in order to close on that transaction. So when you're looking at buying a condo, whether it's in a high-rise building or not, you need to get familiar with their books. You need to get familiar with the HOA matters. You need to understand what is potentially coming down the line so that you can be prepared and determine whether or not it's even a good investment for you. The next issue I want to talk about is something that really isn't within any particular person's control, but it's a very important issue and it can impact resale value, not just in high-rise buildings, in any condo building. And that's lender restrictions that are based on occupancy. Many condo buyers in San Francisco rely on conventional loans, which are loans that are then resold to Fannie Mae and Freddie Mac. Both of these agencies have certain requirements in place for deeming a condo warrantable or deeming a building warrantable, i.e., lendable. For most conventional loans, that usually means that a minimum number of units or a minimum percentage of units have to be owner-occupied, and there's a maximum number of units that can be investor-occupied or investor-owned, I should say, renter-occupied. The requirements make sense to a certain extent. Owner occupants and investor owners can have different incentives when it comes to building maintenance, right? An investor wants to maximize profit month to month from renting out a unit, whereas an owner-occupier is more likely incentivized to be more proactive with building maintenance and upkeep to a higher standard. They're not focused squarely on cash flow. They want a certain standard of living. They want to preserve their investment for the future when they go to resell the unit. So it makes sense if a building is predominantly investor-owned and renter-occupied that there might be less ongoing maintenance done to upkeep the building. And that means a greater risk that down the line the building might not be worth as much, which in in theory could put the loan in jeopardy if there was ever default. Banks want to protect themselves to make sure that the unit and, you know, the owner's share of the building, which is the bank's collateral on the loan, have the most value possible. So in many cases, they will not lend to buildings where these thresholds are crossed. So how do you check for that? In connection with any resale in an HOA-managed building, so condo buildings, TICs, co-ops, all of them are going to provide an HOA financial disclosure, which will tell you how many owner-occupied versus renter-occupied units there. And that information, if someone's getting a loan, is going to go to the bank. So you can do the math. And if there's a potential concern, you can run it by the bank beforehand to make sure there are no issues. Or if you do know there are issues, then you don't need to proceed with, you know, spending more time on that property anymore. As a seller, again, in those instances, you're reducing your potential buyer pool to solely cash buyers. So it can impact resale value and the target buyer pool down the line. How do you control for that? That's kind of an open legal question. I've seen some CC&Rs that actually have have rental restrictions in them where, you know, the total number of units that can be rented in the building is set at some maximum number so as not to cross that threshold. And there's sort of like a waiting list of people who want to rent out their building, but no telling when that's going to happen. It depends when a current, you know, renter-occupied building turns over, an owner moves back in, then somebody can move off the waitlist. Whether those restrictions are enforceable, again, is an open question, but I've seen that in several buildings. Aside from that, there's really no way to control for it. You know, at least in smaller buildings, you might be able to have conversations with the neighbors see, you know, how long they intend to be there. You know, if they're the type that might rent their unit out in the future, you might be able to get at least some sense of whether that's going to become an issue in the future. But there's really no true way to guard against it. You know, people change their minds in the future all the time. So again, just want to make sure you're aware of it and something you check for if you are getting a loan on one of these properties. Another thing that you need to plan for and be aware of just as a general matter is that HOA fees almost always go up. I know it might sound obvious, but I promise a lot of people don't plan for this and can really bite you if you don't. Think about what HOA fees go towards. It's building utilities, building maintenance. Maybe there's a security guard or a doorman, or there's a pool you have to maintain or a gym you have to maintain. And the biggest one might be building insurance. These costs aren't stagnant, right? Just like everything else, there's inflation. Costs rise every year. And the regular assessments that an HOA charges, part of that goes to paying for these things. So as the cost of these things rise over time, so too does the need to increase regular assessments. So if you're buying into a TIC or a condo building or a co-op building, you need to factor this potential increase going forward. Obviously you can't predict the amount of the increase, but you can make sure that you at least budget conservatively for a certain level of increases on a sustained basis into the future. If the HOAs in a building that you're looking at already feel kind of high, well, what's going to happen if they go up 5%, 10%, 15% over the next 3 to 5 years? Then it might become unsustainable for you and it might force you to have to sell at a number that you might not otherwise be willing to sell for. And if you've seen that there's been a recent large increase in HOA assessments, you should figure out why. Dig into the HOA paperwork that I talked about earlier and see if you can figure out where this new money is going. Is it to pay for something where the cost has already gone up, like a new insurance policy, for example? Could be a number of things, but figure it out. You can talk to the HOA representatives, you can talk to the current owner, you can look at their budgets, you can really dig into all this stuff. And the last thing I want to talk about in this video is the risks associated with buying into an informally run HOA. People love the idea of buying into boutique condo buildings closely held 2 or 3 unit buildings. They often have some of the most charm, like these old Victorian and Edwardian buildings that were converted into 2 or 3 unit buildings at some point in the past. They're beautiful buildings, but there are some risks associated with buying into them that aren't present in buildings that are professionally managed. And aside from the charm, HOAs in these types of buildings tend to be lower, not only because they're smaller, but because they don't have really any amenities. So the expenses on a monthly basis are just lower. And people like these kind of owner-managed or informally managed HOAs because they feel like they they have more control. They have direct say in the matter as opposed to a board that oversees everything. But the problem with these closely held buildings when they're owner managed is that in order to get anything done, the owners or a majority of the owners have to agree. And you can't always get the other owners to agree to something, even if that thing really needs to be done. You might not get along with your other owners. It might be pulling teeth to get anybody to do anything. So it can actually lead to some disrepair and, you know, poor maintenance into the future. And it can actually, impact value, resale value of the property down the line. I sold a condo in Cow Hollow in early 2025. It was a gorgeous unit, had tall ceilings, it had old school San Francisco details, beautiful moldings, ceiling medallions, big bay windows. It was an awesome unit in an unbeatable location around the corner from Union Street, and it sold for probably $300,000 to $400,000 below what it otherwise would have because there were some big ticket items that hadn't been updated. And one of the owners was an investor owner who refused to make necessary changes to the building. The retaining wall was leaning cleaning, and he wasn't convinced that there was any problem with it. The sewer needed to be replaced, and he was refusing to do it. The back deck needed to be replaced, and he was refusing to do anything about it. The building needed to be repainted, and he was refusing to do anything about it. There were a lot of issues that needed to be fixed with the overall building, even though the unit itself was awesome. Prospective buyers actually got in touch with the other owner to talk about the prospect of doing some of those repairs if they were to buy the unit. It was a 2-unit building, so there's no majority. They both have to agree to do something or it's not getting done. And based on what I was told from prospective buyers who talked to the owner, those conversations did not go well and they didn't get the right, you know, feel from this other owner that they were going to undertake these necessary repairs. So because they didn't want to deal with that owner relationship, they didn't want to, you know, deal with that other owner and have to agree on everything or, you know, talk to that owner about everything that they need to do with the condo building in the future, they elected not to buy the unit. And that ended up costing the seller, my seller, dearly when she went to sell the condo. So small HOAs can be great if everybody gets along, but people don't always get along. People don't always agree. And in those instances, it can be really, really terrible for, you know, value of the unit and the building as a whole. Well, there you have it. Those are some of the biggest risks I think you need to be aware of if you're buying into multi-unit buildings in San Francisco right now, whether it's condos and high-rise buildings, low-rise buildings, or TICs or co-ops or apartment buildings, whatever it is, you need to be thinking about these things. You need to be diligencing them with your agent. If you're thinking about buying or selling one of these types of properties and want to understand what you're going to do to best prepare yourself, reach out to me. I've lived in San Francisco for over 13 years, and I've helped numerous people relocate from all over the country. Be happy to be a resource for you. My contact info's in the description below. Reach out anytime. And remember, if you like videos about life in San Francisco, current events, new developments, San Francisco history, or all things San Francisco real estate, subscribe to my channel because I make videos about that stuff every single week. And before you go, if you wanna learn about all the incredible things that are happening in the city right now that are bolstering San Francisco's comeback and that are impacting our local real estate market, I've got several videos on those topics. I'll link them in the description below. Go check 'em out. I hope you enjoyed the video, and I'll see you in the next one. Bye.