Why These San Francisco Homes Are NOT Selling… But Others Are!

San Francisco's housing market has done a complete 180 after spiraling down during the pandemic. It is now one of, if not the single most competitive housing market in the entire country. Inventory is falling at the same time demand is skyrocketing because of lower interest rates, improved city conditions, and people wanting to make a move before the onslaught of IPOs. Some of the biggest IPOs in history take place later this year, and it's causing massive price jumps beyond what we've seen in prior boom cycles and homes selling within 1 to 2 weeks on the market. Yet despite being so competitive, firmly in seller's market territory, there are still homes that sit on the market for months, if not years, with little to no activity, no showings, no disclosures, no offers. This is Austin Klar, your lawyer turned real estate agent in San Francisco. And in this video, I'm breaking down the 5 most common reasons that houses don't sell even in one of the most competitive housing markets in the country. And I'll tell you some of the things that you can do to position yourself best as a seller to take advantage of these current market conditions, maximize the value of your home, and get it sold quickly. Before Before I dive into the issues that cause homes to sit, I wanna level set on how brutal San Francisco's housing market is because of the supply-demand imbalance that we're experiencing right now. As of the start of March, there were 30% fewer homes actively on the market or listed as coming soon. Price reductions have fallen 59% year over year. 77% of homes sold for above their list price in February, and over the past quarter, homes sold for 16% more than they did the same period a year ago. So the jump in pricing for single-family homes is truly staggering. And even for condos, we're seeing big price jumps, 8% over that same period. It's all because we have so many potential buyers right now looking for properties than available properties that are selling. I've got a separate video breaking down how truly abnormal San Francisco's housing market is right now and what it's doing to pricing and what you should expect going forward. I'll link that in the description below. Go check it out if you're interested. Despite how seller-friendly it is, there are still homes that sit on the market and present opportunities to buyers, and it's usually when one or multiple of the issues that I'm going to talk about are present. And the first major reason I want to talk about is unwarranted space. Illegal, non-permitted spaces, whether in single-unit buildings, single-family homes, or multi-unit buildings, can cause properties either not to sell or to sell for less than they otherwise would have if the space was legal, because illegal space, especially in San Francisco, presents insurance issues, lendability issues, and legal issues. So first, the insurance issue. If you have an illegal space in your building, maybe you own a duplex and created an ADU or a granny flat, or you expanded the basement without permits, or you own a single-family home and you finished out the attic without permits. Let's say there's water damage caused from that space, or there's a fire that started in that space. There's a very real possibility that insurance won't kick in to cover the damage if that's the reason, if it was caused in an unwarranted illegal part of the unit or the building. So if that were to happen, you'd potentially be out of pocket millions and millions of $100,000. So it's understandable that prospective buyers might not want to take on that risk. The situation is even more problematic in rental properties like multi-unit buildings. As a legal matter, landlords aren't entitled to collect rent on illegal spaces. So if you're renting out to a tenant an illegal space, technically they could stop paying rent and you wouldn't have grounds to evict them. There are also financing concerns to consider. We see it pretty commonly across San Francisco where someone builds a beautiful new construction home that's a legal duplex,, but it lives like a single family. The owners maybe removed a partition wall, for example, or removed the second kitchen so that the two units are effectively connected and feel more like an actual house than a duplex. This can actually cause appraisal issues. So in a situation where a buyer is financing a deal, it could actually jeopardize the transaction as a whole. There might not even be an opportunity for them to plug an appraisal gap. It might not appraise at all. Other buyers, and I've seen this in my, you know, personal day-to-day interactions with clients, might be too nervous to put an offer in at all when there's a technical legal duplex. duplex, but it lives like a single-family home, or there's an illegal third unit in a duplex, for example. So as a seller, you're potentially limiting your buyer pool to cash buyers and to a little bit more risk-tolerant buyers. And when you have fewer buyers, there's less competition, and that will lead to an overall lower price. And if the city finds out about it, they might actually make you either legalize the space or revert it to it was before it was rendered illegal. There's a big story that just came out in the SF Chronicle about a couple that purchased a single-family home in North Beach that was legally 4-unit building. It just lived like a single family because after it was constructed as a quadruplex, the layout was completely changed to make it more like a house. Somebody complained, so the city found out about it, and the owners have been in a legal battle with the city for years about how to address the issue. They face a very real prospect. The city is going to make them revert it back to a 4-unit building, which would absolutely be devastating for them personally because they have kids. They can't really live in it. Like a family if it's a 4-unit building, and it'll cost millions of dollars to fix it. So you could see why a potential buyer staring down these issues might be worried about putting in an offer or might put in an offer at a much lower number. So what can a seller do about this if faced with these potential issues? It could be as simple as calling for various inspections to sign off on the work. You know, if renovations were done recently, maybe they were done with permits and not finally signed off, and you think the work was done properly, you could call to have them finally inspected and effectively legalized. But if the work was done years ago and potentially done in a poor manner or not consistent with current code, doing that might trigger a huge spend to legalize the space. It might mean ripping out electrical or plumbing, definitely ripping out walls and repainting. There could even be seismic issues, so the cost could be astronomical. Whether to do any legalization work is going to be situation dependent. So really important that you talk to a professional, an agent, and contractors about what might be required. Before you call the city. If you're in that situation and you want to figure out whether legalization makes sense or need contacts with attorneys or, you know, appropriate trades, 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. Be happy to be a resource for you. I'll put my contact info in the description below. Reach out anytime. And if you like videos about San Francisco real estate, lifestyle, current events, new developments, or its incredible history, subscribe to my channel because I make videos about that stuff every single week. Now back to some of the reasons that homes don't sell even in our hypercompetitive market. And the next one on my list is when a property is tenant occupied. You've been a landlord in San Francisco. Rents are finally rising again, but you need to move on to the next chapter of your life and you have to sell this spot before you can buy the next one. But you have a tenant in place. You don't want to float the cost of a vacant unit during the sale process. So you're trying to sell it while the tenant is still there. This is a surefire way to sell your home for less money and for it to take way longer. Showing flexibility is paramount when you're selling a property. You have people flying in from all over the country or driving in from out of town to tour properties. They don't always give your listing agent a lot of notice, and when they do, they have limited showing windows. So you need to make sure you can accommodate them. And when you have a tenant in place, that's really hard to do. Yeah. Or it could be really hard to do. Maybe the tenants have plans so they can't make the property available. Maybe the tenants work from home during the week, so they don't want you showing it at all during business hours. So pretty much the entire week is out the window unless you want to show the property at nighttime. But who really wants to do that? Showing things at night could be useful for particular properties, but for the most part, you want to showcase natural light. You want to showcase views. Really hard to do that in the evening. Or maybe they're just not cooperative and they're limiting showings to just once a week because it's otherwise too disruptive for them. So it hurts showing flexibility substantially, and you risk losing out on potential buyers who might want to see it but simply can't arrange a time to do it, and then they fall by the wayside. There are also buyers that won't even look at tenant-occupied property because of fear that they won't be able to get the tenant out of the space. San Francisco rental rules are very strict when an owner can move into a property that is tenant-occupied. Those rules are very strict. You have to get lawyers involved. It's very onerous. That's even the case with month-to-month leases. Where a tenant has promised in their lease agreement that they will vacate if requested. A lot of buyers simply don't want to deal with tenants, so if they see tenant-occupied space, they just write it off. And even if you are lucky enough to be able to get buyers in the door, the place probably isn't going to show as well as it otherwise would if it was a vacant space. Tenants aren't always the most cleanly. Maybe they have kids or pets and maybe there's a little bit of a smell, or the furniture they have doesn't quite, you know, show the space in an ideal manner. There's too much stuff everywhere. There are a number of reasons why it might not present optimally with tenants in place. So there are a lot of downsides to keeping tenants in place. I also think it will end up costing you more to try and sell the property with tenants in the space than the amount that you would lose on rent by having the tenants vacate during the pendency of the sale. So if you are able to get the tenants out, then I 10 outta 10 recommend doing that. You definitely need to consult with lawyers on how to go about doing that. Because again, San Francisco's rent rules and eviction rules are very strict. There's a very specific process you have to go through. So don't try and go about it on your own. But if you're successful, you'll have a lot higher chance of selling your property for more money and a lot more quickly. But if it's tenant occupied, it's probably not going to sell, or it's not going to sell as fast as you want, or for the amount of money that you really want. The third reason homes don't sell in its Sort of related is just poor presentation. There are some obvious things that probably come to mind, things like not repainting a unit or not staging a unit. Obviously those things matter a lot and definitely fall into this category, but there are other things that I think you need to be thinking about when you're thinking through the listing preparation process. And when you don't think about those things, homes don't sell. They linger with little activity. For example, not taking care of potential insurability issues upfront. Insurance companies Don't like outdated electrical systems, HVAC, water heaters, roof, the wrong type of plumbing. There are a number of things that homeowners insurance companies look at that if go unaddressed, they might not issue a homeowner's insurance policy on the property at all, or they'll issue an insurance policy that's contingent on those things being remedied. So since pretty much anyone who buys a home is gonna want homeowner's insurance, they're gonna want to protect probably their largest single asset, it's likely that those issues are going to become your problem. If they can't get insurance because of these issues, they're either not going to buy it or they're going to buy it for less, accounting for the cost of fixing those issues. Another part of prep is just making simple additions that you know are going to move the needle and that most buyers are going to ask for or want. If your place doesn't have parking, for example, think about prepaying for a 1-year lease for a parking spot in a garage relatively close by. If your place doesn't have in-unit laundry, think about installing installing in-unit laundry, or at a minimum, asking the HOA for permission, getting their approval to do it, and providing buyers with bids from, you know, reputable contractors who can do the work so that it's as easy as possible for them to do once they move in. This is especially worth it when a property is in a really nice neighborhood and is, you know, priced a little on the high side. If you're trying to sell a property for $2.5 to $3 million, you know, table stakes for any buyer is going to be in-unit laundry, most likely. So if you're trying to sell something for that price and you don't have that, you're probably not going to be successful, or it'll take you a really long time to find that needle in a haystack buyer at $2.5 or $3 million who doesn't care about having laundry in their unit. So if you want the most action on your home and you want it sold quickly, you got to think about addressing these issues too, aside from the basic like paint, floors, lighting type issues. The next reason a house doesn't sell is the layout isn't optimal. What do I mean by optimal? Well, at the price points we deal with in San Francisco, multimillion dollar properties, there are a few, you know, basic things that most buyers aren't going to be willing to compromise on. For example, not having a true en suite bathroom, like a true primary suite. Another one is not having at least 3 bedrooms and 2 bathrooms on one level. That's especially an issue for parents with young children. They want to be able to tend to their, you know, infants or toddlers in the middle of the night if there's an issue. Don't want to have to be lugging things around up and down stairs to make that happen. Another one, having a kitchen that's on the opposite side of your living and dining space, or having bedrooms that are below your main living spaces kind of subterranean. Like, all of these aren't necessarily deal breakers. It's going to be, you know, balanced against other, you know, property features, light, scale, location, finishes, all these other things that are going to be weighed and balanced by potential buyers. But when I have conversations with new buyer clients, most of them, you know, want a lot of these things on a regular basis. And unfortunately, these aren't necessarily things that you can fix as a seller, or it might not make sense to fix as somebody thinking of selling because of the cost. Fixing this kind of stuff involves architectural work, potentially engineering work, so it can really add up. Might you generate a return on your investment if you do some of these things? It's possible, but it might not be enough to warrant like the time and the headache involved in doing that level of work in preparation for listing. Also, some of these projects are too major to be doing while you're living at the property. So if you do want to undertake them, you might have to move out and move out sooner than you otherwise would want to. So may not be something that you can change about this, but at least something worth discussing with your potential agent when you're talking about what your property could sell for and what things you might want to do in order to maximize price and, you know, get offers quickly. The last major reason I see as to why properties don't sell has to do with homeowners associations, not necessarily like the cost of HOA dues, although that can be a factor. It's more about how the HOA operates. And the first big thing is when HOAs don't have adequate reserves. If you're in a large condo building and there isn't an adequate reserve reserve account sufficient to cover anticipated upcoming expenses, it means the HOA is probably going to have to levy special assessments on owners. And depending on the issue and the age of the building, those assessments could be huge. Buildings that have had to retrofit fire alarm systems have levied 5-figure special assessments on owners. Buildings that have, you know, levied assessments for like fire sprinkler systems or seismic retrofit systems have had to levy special assessments that are 6 figures on owners. So when those things are potentially forthcoming, it could cause properties to linger, not get action. And another consequence of minimal reserves is increasing HOA dues in order to refill reserves. Even when a big expense isn't immediately forthcoming, I've seen HOAs choose to increase dues just to replenish reserves to plan for the potential future. When buyers see significant HOA fee increases, especially over short periods of time, or they see the prospect of major assessments down the line, it either scares them off or it makes them want to offer you less money for your unit. Now, in smaller buildings, having minimal reserves is more common. Closely held HOAs are often informally managed. Sometimes there's not even like a standard monthly HOA fee that gets paid. You know, the owners just agree to pay for expenses as they come due, and if anything big comes up, you know, they'll address it. That's not necessarily a bad thing. It's like living in a single-family home. When stuff comes up, you address it. There's not an HOA that you pay into or something like that for a single family. The problem is, is that in these informally held HOAs, in these small buildings especially, you need the approval of your neighbor in order to do anything. And if you have a co-owner that isn't cooperative or that has different incentives than you, maybe because they're a landlord renting the unit out and they want to spend as little as possible and isn't living there, and you're an owner-occupier who wants things done right and done right now, it's not always easy getting that approval. And in those situations, maintenance falls by the wayside and your building gets devalued. I've had this happen before on one of my listings. I was selling a condo in Cal Hollow. Beautiful unit, but the building had a good amount of deferred maintenance because the other co-owner was not an owner-occupier. They were renting it out. So they were an investor type. And it was really difficult over a period of many years of ownership to get them to address issues that arose.. So when it came time to sell, the unit sold for a lot less than it otherwise would've because there were retaining wall issues, there were electrical issues, there were structural issues, there were a number of issues, sewer issues, plumbing issues that had to get addressed that simply weren't. So the buyer took all that on and offered less as a result. So if you're in that situation, you just need to make sure that you're staying on top of those issues and addressing them as they arise. Construction costs tend to go up as time goes on. So if you wait 3 years to fix a problem,, it's gonna be more expensive later on than if you just did it right now. Taking care of things as they arise, not putting them off. One, it's gonna be less expensive, and when you do go to sell, it will help you sell a lot more quickly and for more money. Buyers will see that you are active in maintaining the building. It'll make them feel more comfortable. All of these things are as much about maximizing value of your property as they are about maximizing the potential buyer pool. Having more people interested, willing and capable of transacting Creates more competition and more demand yields higher prices. That's basic economics. A lot of sellers see money going out without thinking through the potential impact on money coming back. And I get it, it can be difficult to put defined figures around ROI or what it means for improving buyer interest, but you should really rely on the experience of people who tour hundreds, if not thousands of properties every year with dozens and dozens of clients who get feedback on multiple listings every year from dozens and dozens of buyers. Everyone wins when your house sells fast faster and for more money. Of course, not everything is going to be worth doing. You really need to have a plan and strategize about the things you do and don't do if you're preparing your house to sell. If you want to go over your specific situation and things you're thinking about addressing in preparation for sale, reach out to me. I've lived in San Francisco for over 13 years and I've helped numerous people buy and sell homes in the city, relocate here from all over the country. I'd be happy to be a resource for you. I'll drop my contact info in the description below. Reach out anytime. And if you like videos about San Francisco real estate, current events, its incredible history, new developments, subscribe to my channel because I make videos about that stuff every single week. And if you want the biggest news headlines in San Francisco every single week delivered to your inbox, I've got a weekly newsletter that does just that. I'll put the link to subscribe in the description below. Would love to see you on there. And one last thing before you go, if you wanna learn more about why San Francisco's housing market is so competitive and so abnormal right now, got a separate video on that. The link to that is also in the description. Go check it out if you're interested. I hope you enjoyed the video and I'll see you in the next one.