3731 Fillmore - all 6 TIC's 100% sold

Almost a year ago 3731 Fillmore St, San Francisco, tried to sell some of it's 6 TIC units via auction. That debacle is chronicled here in some fun videos.

The highest bid price for unit #2 (first floor facing the back of the building) was for $410,000. The auctioneers refused to sell it for that price because it didn't meet the reserve bid. Then a few months later #2 closed escrow with a "private sale asterisk" and we may never know what it ultimately sold for. HOWEVER, unit #4, the unit directly above it, just closed escrow a couple of weeks ago for $469,000.

Watch as the market speaks with these transactions:
#1 went into contract on Sept 19, 2009 just as people started hearing about the banking crisis. It sold for a LOFTY $710,000
#5 - the most desirable (IMHO) top floor east facing unit sold in March 2009 for $635,000
#2 - June 2009 sale - undisclosed price, but last asking was $499,000 and you can bet it was below that.
#3 and #6 close on the same day in July 2009 for $530k and $560k respectively.

A badly run action produces $410,000, but arguably for the least desirable unit in the worst possible market. It's "sister" unit (because it faces the same way, with the exact same floor plan) sells for $469,000 nearly a year later. Frankly, that looks to me like the market is flat year over year, but clearly down in a big way since before Sept '09 before the financial crisis became national news.

TIC sales update

The failure of yesterday's TIC auction at 3731 Fillmore Street leads one to ask many questions of its' meaning. Does it mean the highest bid was the true market value of the unit? Does it mean the auction was botched? Does it mean that TIC's are not well suited for auctions? Does it mean that the market is crashing all around us since even the lowest estimates of value prior to the auction were around $450,000, or 10% higher than the highest bid.

I've got my opinions, but I thought it would be constructive to get an update on how TIC's have been trending. In May of 2008 I ran the numbers for all TIC sales per year since 2002, but didn't include 2008.

So here's the update on total TIC sales per year (per the San Francisco MLS)

'02 = 154 sales of any sized TIC
'03 = 269 up 75% year over year
'04 = 395 up 47% y-o-y
'05 = 539 up 37%
'06 = 652 up 21%
'07 = 722 up 11%
'08 = 434 down 40%

Now before we jump to conclusions, condo sales are down 20% from 2069 in 2007 to 1665 in 2008.

Condo sales (per the San Francisco MLS)
'02 = 2119
'03 = 2313 up 9.2%
'04 = 2557 up 10.5%
'05 = 2442 down -4.5%
'06 = 2150 down -12.0%
'07 = 2069 down -3.8%
'08 = 1665 down -19.5%

You can also see by comparing the two charts that TIC sales absolutely exploded, so a bigger drop was probably due. TIC sales are still above the number sold in 2004, whereas condo sales haven't EVER been this slow (well, I'm using the MLS for my reporting and that has three flaws, one it is only Realtor represented sales, two, the current MLS only goes back so far. 1996 reported lower sales, but I'm not convinced that is accurate data. And three, it doesn't include FSBO or sales center sales at new construction buildings).

Single Family homes are down 8% from 2007 to 2008.

'02 = 3100
'03 = 3392 up 9.4%
'04 = 3321 down -2.1%
'05 = 3093 down -6.9%
'06 = 2718 down -12.1%
'07 = 2322 down -14.6%
'08 = 2136 down -8.0%

There may be other reasons that TIC sales have dropped further too. Buildings that have to enter the lottery to convert to condos have bloated that lottery. Only 200 conversions are granted per year. Compare that to the TIC chart above. 200 was great in 2002 and 2003, then half as good in 2004 and in 2007, TIC's sold not only had to compete with 522 more units than could qualify, but all the overage from the prior years. Thus the allure of TIC's an an investment that should increase in value with conversion has greatly decreased.

Winning the lottery probably became less important with the proliferation of fractional lenders and loans in 2007. But now the TIC lender market is contracting, and loans are at least 1% more expensive than comparable Condo loans.

Overall, the meaning of the failure of the auction at 3731 Fillmore to generate a much higher offer probably had more to do with TIC's suitability to auctions, and the confusion that occured leading up to and during the auction. Buyers don't buy when they are confused and ill informed.

Auction part 2 - the painfully slow bidding

This is the middle of 3 videos (How it Started is here, The anti climatic end is here). This one you hear their pitch for why anything up to $710,000 is a great buy since unit #1, the window immediately above the crowd, sold for $710k in October. That really won the crowd over as you can hear.



There were quite a few anecdotes indicating these guys really didn't know the San Francisco TIC market. One of the "dudes" (the auctioneers - there were about 4 of them with assorted other characters who seemed like groupies) was telling a Buyer how 6 unit TIC's were great because you could convert them to Condos... he said it like it was a piece of cake. Someone nearby jumped in and explained the lottery, and the "dude" seemed to back down.

At the end of the auction another "dude" said the City of San Francisco would have no choice but to green light all current TIC buildings to Condos conversion to generate revenue. Between the two comments, you had to wonder what else they were telling uneducated Buyers that they might believe. Is that what they told the Buyer of unit #1? (update/correction - the auctioneers only got involved recently AFTER the sale of #1 was long over, so they obviously didn't influence that sale) I sure hope not, but something has to explain why they'd pay $710,000 when the "free market", eg a rag tag group of bidders and spectators, says these units are only worth $410,000. (update, #1 sold with a parking spot, and they had Buyer representation by an agent with a South San Francisco address and a San Mateo web site - knowledge is power, local knowledge especially, and they didn't hire a local, and doubtful the agent had any TIC experience which is critical).

The other item they admitted to getting wrong was telling Buyers, in the days leading up to the auction, that Bank of Marin would do 10% down loans. The truth.... which they glossed over... is that they require 25% down unless you have a credit score of 740 or greater in which case you can get away with 20% down.

The auction story - How it started

With a Lender pre-approval letter or proof of sufficient cash for a cash purchase you got to sign up as a bidder and get a piece of paper with a hand written number on it to waive if you agreed to the next price.

This video is the auctioneer explaining that there is a "reserve" bid price (minimum they will accept giving them the right to reject any under-reserve offer), and that if you're not the highest bidder you probably won't find out what the reserve price was.



Approximately 75 people were there, many admittedly to watch the show. About 20 to 25 people got approved to bid. The 75 Buyers, tire kickers and agents toured the property, while the sign ups happened in the dining room of unit #2. Around 1:30pm they called everyone outside to explain how the auction was going to work.

The comedy of errors started early on, around 1pm, when one of the several members of the auctioneer group (the "dudes") said they would be auctioning all 5 of the remaining units off. Soon after another said that was a mistake and it would only be unit #2.

In walks Tim Brown of Brown & Co, and while I was on the street and can't verify, I believe they all got together and decided to auction the middle two units as well as #2. The confusion didn't help, and given the relatively small crowd, offering up 3 units wasn't wise. (update, Brown & Co. denies being involved with the auction. I don't doubt that since it was another business handling it, and Brown & Co would not have made the mistakes these guys made. They also claim to be against it, another easy thing to believe.)

You can see from the above video how things started. In addition there was an question and answer period explaining who the Lender was, what rate they were offering and now much down payment you needed. Apparently they had been telling potential bidders they could come in with as little as 10% cash.

There was so much confusion, and there were so many Buyers who were not represented by experienced TIC agents, that they pretty much crushed their chances of getting decent bids from the outset. Not that a TIC in a 6-unit building is a candidate for auctions, especially those on 4 to 5 days notice. This is no Single Family Home in the Sunset as the auctioneers found out the hard way.

By the way, among the many mistakes leading to confusion, they listed this TIC in the MLS as a Condo (update: corrected today, Feb 25th, the day after the auction, when it was withdrawn from the MLS). I'm not sure how many bidders showed up expecting their pre-approval letters to really mean something, and their hard won 5% interest rates to help them afford more, but if they did, 6.5% paying 1 point and having to put down 20% to 25% certainly would have been all the deal killer they needed. I just double checked the MLS again and no where does it mention anything about TIC's, fractional loans, or anything else.

How it started? Not well. It didn't end well either.

Auction results of 3731 Fillmore - not what they expected

Disappointment on all sides, and frankly this was a comedy of errors. Starting with an error of mine - mistakenly writing that the $710,000 October sale was for Unit #6 or the top floor western facing unit. It was actually #1, the first floor eastern facing unit. I just assumed that only the most desirable unit in the building could possibly sell for $710k. Instead, #1, which is probably the 2nd or 3rd least desirable unit got $710k. Something doesn't add up... but I'll get to that later.

Starting with the punch line first... the auction ended badly as seen and heard in this video which is the end of the auction (earlier episodes to come)



Listen for the male voice saying "any other terms that you're going to change on us" and then a "thank you", which he said sarcastically, and then waved and walked away angrily. Another "buyer" followed him also visibly unhappy with the process. That was in response to an announcement from the auctioneer that instead of selling one unit each to the top 3 bidders, the highest bid was so low, that he would now only speak to that one bidder.

Unfortunately there was a confidential "reserve" bid, which I suspect was close to $500,000. So with the highest bid at $410,000, the auctioneers changed their tune, but that was consistent with not meeting the reserve bid. The above video starts with that change.... something he could have explained better, that it was due to not meeting the reserve.

What happens next is anyone's guess.

Another auction: 1BR Marina TIC apartment

Note the Video walk through below.

Listing price in the MLS was $298,888. 5 and 1/2 hours later is was dropped by $3,000 to $295,888. This morning, only 1 day later, it was dropped another $2,000.

Why such tiny drops you ask?

If you like, start the video walk through and read more below:



So why the price drops? Because price drops are re-emailed to Buyers who have been set up on email alerts for new and changed listings that meet their search criteria. Check out www.Automated-HomeFinder.com if you'd like to set up your own search, or speak to your Realtor who will do it for you. Other sites like CleanOffer and SF-MLS-Search.com also re-email new listings or price changes. So the strategy is to get it noticed by everyone with an active search in the area.

Any why so many drops so fast? Because they are planning to have an auction outside the property on Tuesday at 1pm which is a mere 6 days after entering it into the MLS.

I'll post yet another video because while there I notice that 4 of the 5 other apartment doors were open. So my guess is that after the auction they will bring on the other 4 apartments. Apparently back in Sept/Oct 2008 unit #6 (correction, it was unit #1, a 1st floor western facing unit) in the building sold for $710,000. They are marketing parking separately, so that might have included parking (update, they definitely did include parking per the above) whereas the $294k price on #2 does not include parking.

To speculate even more, I'll guess that the auction is designed to determine the true market value of these TIC units. #2 is probably the least desirable in the building, although not a bad apartment at all. #6 (#1 I meant) almost definitely set the high price because it went into contract before the financial crisis became national news. The auction of #2 without parking is likely to set the bottom price. Then all other units may then be brought to market with prices in between.

I haven't spoken to the listing agent, so the above is guesswork. I saw Brown & Co open house signs in the building, so who knows, maybe the Auction agent and Brown & Co are working together in some fashion.

Auction date and time: Tuesday February 24th at 1pm outside the building. See you there. And if you're interested in making an offer and are unrepresented by another Realtor, drop me a line at info AT sfishome DOT com

Auctioned San Francisco property

I'm looking for more details on this story.... something I've always wanted a Seller of mine to take me up on... to auction their property. Well, someone did it this week... so far I'm just piecing the VERY interesting details together.

1206 32nd Ave was listed in the San Francisco MLS on Feb 6th, only 5 days ago, for $349,000. Two days later they priced dropped a mere $112 (not $112,000... ONLY one hundred twelve dollars) to $348,000. Most likely a clever ploy to get the listing re-emailed to everyone on an Listings email alert.

The MLS remarks read "Auctioned to highest bidder at the property Feb. 9th 4pm. Starting bid $349k" and in the agent-only remarks it read "Must sell by Monday February 9th 4pm. Auctioned to highest bidder at the property Feb. 9th 4pm." AND it read "Starting bid $349k Bring a pre-approval letter and blank CAR contract."

I just read on Trulia that 300 people showed up at the appointed time (2 days ago) and 135 were pre-approved. I have NOT heard about how the auction went... was it wild, tame, inside, outside, did it go straight up like a rocket, or slowly go up. But I did hear that it allegedly sold for $775,000.

I will not be able to verify that until it Closes Escrow and shows up in the MLS again as "Sold", but if it's true, that is $629 per SqFt which is the TOP of what last year's price per SqFt was in the area... and those FEW homes tended to be in much better condition. Of course a recent nearby sale went for $840,000, but that home was listed as being 400 SqFt larger with an extra bedroom and 1/4 bath.

But it sure looks like this home sold for it's maximum market value... not it's minimum. So if you are a Seller, this is an option worth a serious discussion. Call or email and we can discuss details of how this can work for your home. Full contact info at www.SFisHOME.com or email INFO at SFisHOME dot COM