Condos in San Francisco are being marked down, but the sweet sales prices are just the welcome toast. Get serious about a sale and developers will soon have you buzzed off an intoxicating range of perks, making this one of the best times in recent memory to buy.

Nervous about HOA dues? You could get a few years for free. Need cash for closing costs? Done. Interest rates too damn high? Special financing options can bring those rates down to the coveted 5% range. 

“The most important thing [for buyers] to do is just always ask the questions,” said Lynn Bell, an agent at Christie’s International Real Estate Sereno, who has been leading sales at the Shipyard development in the Bayview. “Sometimes we can do a little more, and sometimes we can’t, so it’s this back-and-forth dance.” 

Right now, condo buyers, especially those in downtown San Francisco, are leading that cha-cha. 

As the market continues a staggered recovery from the pandemic and interest-rate hikes, developers are getting jumpy over repaying construction loans and covering HOA dues for empty units. Many have already cut sale prices — some by more than a quarter — to court buyers. The median sales price of $1.15 million is about the same as it was pre-pandemic, according to new development brokerage Polaris Pacific. If prices were simply keeping up with inflation, they would be at least 20% higher by now. 

Developers can reduce prices only so much before it puts a stink on the property or pisses off other owners. So, deals today often include offering back-end incentives, such as rate buy-downs, closing-cost credits, and design upgrades. These can add up to 10% in value to the buyer without dinging the all-important comparable sales data.

“Buyers are super savvy here in the Bay Area,” Bell said. “They do their research. They look at the comps. They come into the situation, for the most part, knowing what things have traded for.”

And, if they’re especially savvy, they know what goodies they can extract from a developer salivating over a potential sale. 

The buyer has the leverage

What, exactly, seals the deal depends on the buyer’s desires. For example, a multimillionaire in a rush to move in at the bougie 181 Fremont high-rise may want to nab model-unit furnishings. Those at the limits of their purchasing power are more likely to request HOA credits and rate buy-downs: essentially, a discount on interest rates, paid for by the developer either through its banking ties or as cash at closing. 

“The best approach right now is to have a toolbox of offerings which can be used depending on the individual buyer’s needs,” said Krysen Heathwood, who specializes in new sales at Compass, including at 181 Fremont. “One size does not fit all.” 

Paul Zeger, cofounder of Polaris Pacific, represents a range of condo buildings, from Mira’s twisting tower downtown to smaller boutique offerings like the Robert A.M. Stern-designed Crescent Nob Hill. 

What buyers can expect from developer incentives differs dramatically depending on the building’s popularity and unique attributes like a prime location or views, said Zeger. The hottest properties have less pressure to give anything up. Still, “in general, just about everybody out there is negotiating,” he said. 

Christie’s Sereno agent Jenn Davis recalled that during the Great Recession, one developer essentially provided insurance against falling values by offering to pay the difference if a second appraisal a few months later was lower than the first.    

Davis hasn’t heard that offer this time around, but pretty much every other incentive from the last recession is back again: closing-cost credits up to $35,000, 50% off HOA dues for five years, and credits equal to 5% of the purchase price toward design upgrades like flooring, window treatments, and new appliances.

For those paying cash, the incentives are effectively limitless, capped only by what the seller is willing to give. But for buyers with a Fannie Mae- or Freddie Mac-backed loan, there are restrictions; say, a maximum of one year of HOA dues and credits of up to 6% for those putting 20% down. The more the buyer puts down, the more cash back at closing may be approved by the lender.

Developers have been regularly hitting the top of those constraints, and sellers in older buildings have had to lower prices even further to remain competitive with the back-end bargaining and newer units. 

Sellers who purchased years ago are offloading units for below their buy-in price. At 300 Third St., which was built in the 1990s, a property owner who paid nearly $1 million in 2017 sold this year for a 25% discount. At Yerba Buena Lofts, designed in 2001 by Stanley Saitowitz, a one-bedroom, one-bath went for $685,000 in August. The seller had paid $718,000 back in 2005.

Some sellers are offering their own form of perks, providing cash back at sale for rate buy-downs or closing costs and taking it out of their net proceeds. 

“They’re just giving the dollars and saying, ‘Here’s the dollars. Use it the way you want to use it,’” Bell said. 

Gone in a flash

Brokers, as is their wont, say now is the time to act. There are virtually no new condo buildings being built, they argue, meaning less inventory moving forward.

The data backs up this theory. In August 2022, there were about 1,300 new-construction active listings in San Francisco, according to Polaris. That number has dwindled ever since, falling to 753 this year. There are also only about 300 condo units actively under construction in the city. In response, both condo sales and prices are on the rise, according to Compass, which may mean the bottom has come and gone. 

The ultra-competitive rental market also means more San Franciscans are weighing whether the purchase of an entry-level condo is superior to renting, with the added benefit of building equity. 

Still, today’s buyers understand that if their main goal is appreciation, they may be in for the long haul. Bell said she has recently had more traction with buyers when the Shipyard offers a rate buy-down on a 30-year fixed mortgage than shorter-term options. 

“You’ll have somebody in their late 20s, early 30s, and you know that they’re going to move. They just want the security of the [30-year fixed rate],” she said. 

The Shipyard began selling units in 2014 and has faced an uphill battle because of the market downturn and a series of lawsuits alleging contamination at the former Navy shipbuilding site. But the Hillside community of nearly 600 condos and townhomes is now 95% sold, Bell said.

To get deals done, Bell has been offering special financing, HOA dues for up to a year, and contributions toward closing costs. She’s regularly hitting the limits set by lenders for her largely first-time buyers. 

“Negotiation is figuring out the win-win, right? But when it gets to a point where there’s no supply, and there’s demand, then it just automatically pushes the market up,” she said. 

It’s a routine part of the cycle that she has experienced over and over again. “In the last 40 years I’ve been here,” she asked, “how many times have we seen that?”

So, for San Francisco condo buyers, there’s no time like the present.