SF home sellers use creative financing to close deals

To hold ground against economic headwinds — including rising interest rates, an erratic stock market and tech layoffs — San Francisco sellers who aren’t pulling their homes from the market are getting creative in an attempt to close deals.

The strategies focus on bringing down buyers’ monthly payments, agents say, with seller financing at lower than bank-offered interest rates just one of several possible options. Single-family home sellers are also offering credits of up to 1 percent of the purchase price to help buyers buy down loan rates or cover closing costs, according to Compass agent Michael Bellings. That amounts to about $16,000 cash back to the buyer for a median-priced $1.6 million three-bedroom, two-bath San Francisco home.

Also, sellers are willing to accept loans that have “7,000 hoops we’re jumping through,” like those backed by the VA or with downpayment assistance provided by the Mayor’s Office of Housing. There’s also an increasing number of conditions to close, which would have ruled out buyers when the market was hot earlier this year, Bellings said.

“The ones that are selling right now have more contingencies than ever and longer escrows than ever,” he said. “Of course, sellers would love all-cash, seven days, but they just want a buyer and can’t be picky.”

Sellers would like to get their deals done this year, but if they don’t sell most will delist for the holidays and bring the property back on in the spring, Bellings explained. He expects about a third of current sellers will rent their homes out instead of relisting, with condo sellers more likely to go the rental route.

Bellings said he’s been struck by how aggressive condo developers have been recently, as that market has seen prices fall by more than 15 percent in the last year. Some have offered special financing through partnerships with lenders, or 5 percent commissions to buyers’ agents, Bellings said.

Paul Zeger of Polaris Pacific said that condo sellers are focused on making monthly payments affordable in ways that are often personalized to the particular buyer’s situation.

“Is the issue downpayment? We can help with that. Don’t make enough money? OK, we’ll buy the rate down. Just scared to pay this much a month? OK, we’ll pay your HOAs for a year,” he said. “ It’s not a one-size-fits-all situation. Everyone’s financial situation is just a little bit different.”

But at the end of the day, these incentives don’t move product like a substantial price chop, he said. He has seen some “more challenged areas” downtown drop the price by upwards of 20 percent, selling condos at prices not seen since 2014. And when one developer starts offering a deal, it often spreads quickly to others in the neighborhood, Zeger said, likening the drop in prices to a holiday sale.

“If Macy’s is having a sale with 20 percent off, you can count on the fact that Nordstrom’s will be doing the same thing,” he said.

Despite the image of condos as a starter home for a younger buyer, Zeger has seen many older suburban buyers using the lower asking prices and developer incentive packages to pick up a pied a terre in the city. Some of them can pay all-cash to get even better deals and avoid interest rates altogether, a tactic he has seen from younger buyers getting help from their parents. Even those whose purchasing power has been severely impacted by interest rate increases seem ready to move forward compared to the time when rates first started climbing in the spring, due in part to price reductions and seller incentives.

“The second quarter was lousy,” he said at the end of November. “In the third, we started to see some action, and in Q4 we are already seeing more activity than in all of Q3.”