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October 25, 2014

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In San Francisco real estate, $1 million won’t buy much

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Jeff Chiu / AP

George Limperis, a realtor with Paragon Real Estate Group, walks in the backyard of a property in the Noe Valley neighborhood in San Francisco, Wednesday, July 30, 2014. In the souped-up world of San Francisco real estate, where the median selling price for homes and condominiums hit seven figures for the first time last month, the cool million that would fetch a mansion on a few acres elsewhere will now barely cover the cost of an 800-square foot starter home that needs work and may or may not include private parking.

SAN FRANCISCO — San Francisco Association of Realtors President Betty Taisch has two words of advice for anyone who wants to live here and thinks $1 million will buy them their dream house: think again.

In the souped-up world of San Francisco real estate, where the median selling price for houses and condominiums last month hit seven figures for the first time, the cool million that would fetch a mansion on a few acres elsewhere will now barely cover the cost of an 800-square foot starter home that needs work and may or may not include private parking.

Taisch, a veteran broker who is used to managing her clients' expectations, has experienced first-hand the heartbreak and hair-pulling inherent to house-hunting in what she considers one of the world's "most desirable, fabulous cities." She put her professional skills to work this summer on behalf of her adult son and his family, who had outgrown their one-bedroom apartment. After three unsuccessful offers, they ended up paying $913,000 for a two-bedroom, one-bath house with an outdated kitchen, a yard that can charitably be called overgrown, and a big basement that Taisch counts as its most attractive feature.

"It certainly is a milestone. It's like, 'Wow!'''," she said of the city's new million-dollar median. "Everybody thinks San Francisco is all Pacific Heights Victorians, and it's not. There are many areas of the city that are just normal, single-family homes that are small and not posh at all."

The technology's industry's rapid growth coupled with 49-square-mile San Francisco's constrained supply of housing is a big part of the story behind the city's ascension to a rarified real estate bracket already occupied by New York City, but Silicon Valley wealth also is stoking the market in the greater San Francisco Bay Area, according to Andrew LePage, an analyst with CoreLogic DataQuick, a real estate research firm in Irvine, California.

Between April and June, the Bay Area saw a record number of homes and condos going for $1 million and above, and they accounted for one-quarter of all sales in the region, CoreLogic DataQuick said in a report released Thursday. During the same three-month period, six of the Bay Area's nine counties set records for the number of homes and condos selling for over $2 million, as did California as a whole, the report said.

"The robust tech economy and the overall economy mean the Bay Area has been doing better than most for years now," LePage said. "It already was expensive, and a lot of these high-end markets weren't hammered as hard during the downturn because they weren't exposed to subprime mortgages, so they had less ground to recover in the first place."

George Limperis, an agent with Paragon Real Estate Group in San Francisco, agrees that freshly minted technology millionaires who can afford to bid up a property until they win it with an all-cash offer are helping to drive up demand. But unlike during the city's first tech boom in the late 1990s, the buyers prepared to lay down more than $1 million on a fixer-upper in a neighborhood within walking distance of shops and restaurants also include Asian investors and retirees from other major cities who already are accustomed to skyscraper prices for shoebox dwellings, Limperis said.

"It feels like a very different city than it certainly did even 15 years ago. There is money coming from so many places now," he said. "So many of these buyers today, they have lived in London, they have lived in Hong Kong, they have lived in New York, and to them these prices are parallel. We can't compare San Francisco with median housing prices even elsewhere in California because this is an international level we are dealing with."

Limperis this month represented the sellers of a 1,200-square-foot, two-bedroom home "in poor condition" that had been in their family for generations. Located on a commercial street in San Francisco's Noe Valley neighborhood, an area prized for its modest Victorians, the home was listed for a little under $1.2 million. By the end of its first week on the market, 10 people had submitted all-cash offers. The house sold for $1.8 million to a developer who plans to convert it into condos.

"Everyone is aghast at what these things sell for, but as long as the economy keeps going it like it does, these numbers do make sense," Limperis said.

Being prepared to go well over a home's asking price and willing to sacrifice style or a second bathroom are some of the pointers that Kelly Kang, a colleague of Limperis' at Paragon, gives to buyers.

Kang just represented a young couple with a child who were interested in a 756-square-foot, two-bedroom, one-bath row house built in 1950 in a newly hot neighborhood near a park and public transit that was listed at a little more than $1 million after having sold for $710,000 five years ago. The couple offered $1.2 million and wrote a "love letter" about the house explaining why it was just right for their family. They got the house.

"People that want to stay in San Francisco really love the city, so what they are buying is the city more than the property," Kang said.

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