Q & A: Are 3BRs Valued Better Than 2BRs In SF?

Q: Are you seeing value in the larger homes (e.g. greater than 2brs) than 2br condos under $1.5M? We can probably come up with $2.5M with the help of parents, if you think it has better value of owning 3BR+ properties than 2BR under $1.5M.

A: It is obviously a question for a lucky buyer who has a flexible budget, and I honestly cannot answer this question with simple yes or no, as there are many personal moving parts incl. the lifestyle of the buyer, marital/family status etc.

However I thought it is definitely worth comparing the market date of 2BRs with 3BRs to better understand this competitive market with ever-tighter inventory.

Below are the stats of 2BR and 3BR condos sold from June 1 2014 to May 10 2015. I picked 2 most popular neighborhoods as an example: Pacific Heights/Marina/Nob Hill/Russian Hill vs South Beach/Yerba Buena.

One clear difference between 2 and 3 bedroom condos was the % of listed price received. In both neighborhoods, 3BRs were sold closer to the listing price than 2BRs, meaning that competition seems to be less for over $2M properties. In Pacific Heights/Russian Hill neighborhood, 2BR units were sold an average of 7% higher than the asking price, when 3BR units were sold 5% higher. In South Beach/Yerba Buena areas, 3BR condos were sold even less than the asking price.

The number of inventory is another big difference. In Pacific Heights/Russian Hill, the number of available 3BRs(85 sales) was exactly half of the inventory of 2BR units(170 sales), and in South Beach/Yerba Buena, it was only 12% of the 2BR's inventory(3BR: 18 sales, 2BR: 145 Sales). You can also see that days that an average 3BR condo stays on the market are significantly higher (52 days) than a 2BR(34 days), as the average purchase price goes higher than $2.6M.

Average $/sqft for 3BR for 3BRs in Pac Heights/Russian Hill is 2% less expensive, however in South Beach/Yerba Buena, 3BRs are 7% more expensive due to the significantly tight inventory of 3BR units and 3BR in this neighborhoods are mostly on a penthouse level. One of the reasons why there is so low 3BRs inventory in South Beach/Yerba Buena is because the demand for larger units is pretty low. Buyers who would look for a 3BR homes such as families with children tend to prefer neighborhoods such as Pacific Heights or Noe Valley, so builders rarely build 3BR units in these neighborhoods.

On a side note, if you're a young family with a school-age child in SF, availability of daycares or schools is something you obviously need to think about. In South Beach areas for example, you will have very limited options of facilities and schools compared to family-oriented neighborhoods such as Noe Valley, Clarendon Heights or Pacific/Presidio Heights. In SF, schools are not automatically assigned, rather placed by the lottery based on your preference submitted. You are allowed to apply to any schools in SF, but you will still be given a priority if you live in an attendance zone.

Since SF school assignment system is pretty unpredictable, you should also consider a possibility of sending your child to a private school in case you are not admitted to the school of your preference. In that case, the tuition which goes upto $40,000 or more a year, can be an additional cost to own a property in SF as in other parts of the country, you are pretty much guaranteed to be accepted to your neighborhood schools.

Hope my answer was helpful to you and please feel free to contact me if you have any further questions regarding real estate in SF.