CFAH

A “plugged-in” reader goes to the head of the site for his/her must read comment and insight into building a home in San Francisco. The punch line: “This is possibly one of the hardest places to build on the planet, and another reason property is expensive here. If you are looking to build your dream home, it might be a better idea to build in California instead, using this Custom Home Builder in Oakville. As for San Francisco, if the stars align you might make some money. There’s also lots of chances to loose your shirt.” Our reader’s back of the envelope calculations and commentary (with slight editing for format):
“Having just built a new house, ground up in San Francisco – as unlikely as this sounds. . . . it almost surprises me that house prices are not higher. The cost of construction is shocking. When we do have the big shake. . . . Rebuilding is going to be ridiculous.
Here is some back of envelope math (in part based on my experience).
1. Minimum present cost of a ‘regular’ (ish) lot on a street that you would want a ‘dream home’: $700,000
2. Closing costs: $6000
3. Raw construction cost: 2400 sqft @ 400/ sqft . Yes, construction will cost that, unless you are the contractor, for a ‘moderate’ custom home. Forget what the permit forms say!: $960,000
4. Permit fees/surveys/school fees/wastewater capacity charge/PG&E fees/geo-tech report: $45,000.
5. Architects/ engineers/ specialist fees. Assuming a basic service, no lighting design, minimal interior design, nothing too unusual (i.e. shoring): $96,000
6. Interest on lot during planning (assume 1 year, for a non controversial, ha!, permit): $30,000
7. Interest for construction loan (1 year period): $60,000.
Total cost = $1,897,000
Note: If you have a pretty high credit score, you can probably borrow 80% of construction cost, or 70% of future value (as determined by the bank). So, you will likely need about $375,000 skin into the game. . . . . .
This is before you factor in *risk* that you may never get a demolition permit, that the neighborhood might keep you in appeal purgatory, that construction prices wont go up ’cause of China’, or that you won’t be moving into your dream home for 2-3 years! You will also need 35% down for the lot, unless you buy a house to tear down (but then you may not be allowed to, see above). . . . You will likely have to pay the architect and permit fees out of pocket, though you may be able to roll some of that into the construction loan if the end valuation and loan ratios support the numbers (unlikely). You will also spend a lot of your life working on the project! Your friends may no longer recognize you 😉
This is possibly one of the hardest places to build on the planet, and another reason property is expensive here. If the stars align, you might make some money. There’s also lots of chances to loose your shirt.
Not impossible. Not a picnic! Definitely a unique experience.”
[Editor’s Note: Grade A+ comment. Thanks for sharing and thank you for “plugging in!”]
? Not Just Cool But “Uber Cool” In Sunnyside: Reader Comment [SocketSite]

Comments from Plugged-In Readers

  1. Posted by dissent

    This is why so many do a down to the studs remodel instead of a demolition and rebuild.

  2. Posted by Andy

    There are many costs that are not included in the calculation for construction permit costs, including general conditions, certain finishes, etc. There is always a difference between the construction cost for permit and actual construction cost.
    A way to avoid some risk is to tie up the property and make the sale condition on obtaining demolition permits, and this strategy could be beneficial depending on how you structure the deal. There is the potential to increase your costs by doing this but then you are buying the property at a pre-determined price. Also, if it takes 2-3 years to get that demolition permit, the value of the property may have changed in your favor during that time without some of the carrying costs. Lastly, this strategy provides you an out because conceivably, the property may be more valuable with the demo permit.

  3. Posted by Michael

    “This is why so many do a down to the studs remodel instead of a demolition and rebuild.”
    True, but with a down to the studs remodel you’re still looking at $250+/square foot for the remodel and are confined to the existing envelope. Assuming a remodel can eliminate most of the permit fees (#4), half the architect fees (#5) and half the carrying costs (#6/7) you’re still looking at $1.4M+ in the example above. Reduced the list price on 745 Detroit by transaction fees and you’re actually starting to converge on “replacement cost”.

  4. Posted by Randy

    One cost that is often forgot is the fact that while this is all happening you are paying rent. If you could get this all done in 2-1/2 years you’d be amazing. So add another $100k min. for rent (over the cost of just buying an existing house).

  5. Posted by Usually Named

    The process is also incredibly neighborhood dependent. What’s infuriating is that DBI and Planning all have different standards depending on who’s on your case and which neighborhood you’re in. They’ll even come out and tell you that.
    Boy do I have stories that I’ll be happy to share after we finish our construction — in about 2 years at this rate.
    And now that the FBI has been snooping around DBI — they’re asking for everything confirmed by outside people, so they can point their finger at someone else if something happens. What are we paying these government workers for, anyway? All they want to do is rubberstamp someone else’s call. We can pay someone $10/hr for that.
    And we wonder why we have a $5B+ budget for such a small city.

  6. Posted by zzzzzzzz

    Question here. If a house has a down-to-the studs remodel, as opposed to being demolished and rebuilt–is it still reassessed under Prop 13? If it retains its original Prop 13 base assessment, that might provide another incentive for the remodel option.

  7. Posted by tipster

    True, but with a down to the studs remodel you’re still looking at $250+/square foot for the remodel and are confined to the existing envelope. Assuming a remodel can eliminate most of the permit fees (#4), half the architect fees (#5) and half the carrying costs (#6/7) you’re still looking at $1.4M+ in the example above. Reduced the list price on 745 Detroit by transaction fees and you’re actually starting to converge on “replacement cost”.
    First, would you do a to-the-studs remodel of the entire square footage? The hallways, bedrooms and living room?
    Even if you did, not all remodeling jobs will pay at resale. Most return only a fraction of their cost at resale. And doing a remodel that is far outside the norm for a neighborhood is always going to return the smallest fraction of the cost.

  8. Posted by Dan

    In my neighborhood, I’ve noticed not so much “down to the studs” remodels, but instead, entirely new homes built within the footprint of the old home. The front door and/or front facade has been left on until late in the building process, in some cases. Since some demolition permits have been denied, I assume that homeowners don’t want that risk, or that the old footprint takes up more of the property than is allowed by current zoning.

  9. Posted by [prime]

    Once again, it’s all about location, location, location.
    Most people are about to remodel and expand their homes. If you spend $300/sqft creating an extra 1,000sqft for $300,000, and your neighborhood is selling for $800/sqft, you instantly make about $500,000 when you go and resell. That is the beauty of homeownership that renting does not allow. Furthermore, you only pay property tax on $300,000 in improvements or less, instead of the new $800,000 in value created.
    Thanks Socket site for pointing this big bonus for homeowners, and please do not delete this post.
    [Editor’s Note: Start adding some value (rather than being consistently belligerent) and we’ll stop removing your comments.]

  10. Posted by Someone

    I’m at the end of 2.5 years remodel/expansion project, and the numbers above are certainly quite accurate.
    Construction costs soared a lot in the past few years, the initial bids in late ’04 were dramatically lower than what I ended up paying. Permits did take longer than expected due to problematic neighbor.
    I can’t really break out the difference in the cost of the new const .vs. the renovation to the studs in the existing one. I’m not convinced that they are so far apart as 250 .vs. 400.
    At the end I’ll get 3300 sqft house, after starting with 1500, and I estimate construction costs at $850K. I was able to save a lot of money on architects and engineering time by doing a lot of the details design on our own, but it was important to us as we plan on living there.
    The risk factors mentioned by the original poster are very real and I have seen many projects delayed for years.
    Once you touch the exterior which involves section 311, you are looking at least 2 years for the project.
    This is the main reason why the largish homes in Noe Valley that used to cost $2M just 3 years ago are now costing $2.6M-2.8M

  11. Posted by jeemster

    “What’s infuriating is that DBI and Planning all have different standards depending on who’s on your case and which neighborhood you’re in. They’ll even come out and tell you that.”
    DBI does not have different standards depending on where the building is built. It doesnt matter if you live in Forest Hill or SOMA, if it gets through Planning, you just have to conform to the SF Building Code.
    “What are we paying these government workers for, anyway? All they want to do is rubberstamp someone else’s call. We can pay someone $10/hr for that.”
    A lot of the delay is due to Architects and Engineers failure to conform to the SFBC. They say “yes” to the client, when in fact they do know its non conforming and will not pass plan check. Architects and Engineers are too scared say “no” and lose a sale. How do I know? I approve their plans. =) It is not just a rubberstamp job. Thats like saying a computer programmer is just a fancy typist.
    “And we wonder why we have a $5B+ budget for such a small city.”
    Lastly DBI is its own agency and derives its income SOLEY from permit fees. All the other agencies like Planning, DPW, PUC, DPT MUNI etc… suck money from the General Fund.

  12. Posted by Prime

    Thanks for keeping my post! Honestly, most people don’t do a complete remodel/re-build. As families or needs or income grows, there tends to be remodels and build-outs, bit by bit. The person spending $1.9 mil for a gut, is ok, b/c at the end of the day, he spent $1.9 million!
    Expansion and remodelling really is a big key which I forgot about. I asked a person if he was thinking about upgrading his Burlingame house the other weekend since his stock options have soared last year. He said, I would, but i’d have to pay a 100% premium for what i want. Instead, i’ll just expand the house and $250/sqft and save on property taxes and moving costs. He mentioned Burlingame is going for around $600-700/sqft, so it behooves him to just expand and save 50-70%.
    Hence, lesson learned is to also look for property with expansion potential. It’s not that hard, if you’re not blocking a neighbors view or something b/c the county realizes there’s a housing shortage, and one way is to expand your own house.

  13. Posted by Edward

    A simple regression analysis will show that the price/sqft of a house in SF drops quickly as the number of sqft increases. As such, the marginal value of “another 300” sqft is LESS THAN the average price/sqft of property in your neighborhood. This is due to (a) land value, (b) lot value, and (c) that there is less competition and interest in large homes. Places this is NOT true include New York, Tokyo, Hong Kong, London, etc., where large units are scarse relative to demand.

  14. Posted by Usually Named

    Jeemster,
    What you state is just what’s on paper. But the problem is that there are people who are interpreting the building code, and with a code as screwed up and as complex as our federal tax code, there are conflicts within that thick stack of paper that can go either way.
    Furthermore, these engineers in DBI can go out of their way and ask for additional things do be done when it might be borderline to do so. If you’re in Sunset or Richmond, you won’t have to do as many things as if you were in, say Cow Hollow or Pac Heights. It’s been admitted to me by people who work there.
    If you work there Jeemster, you should know this as much as anyone else.

  15. Posted by jeemster

    just so you know, im an enginner also and ive reviewed plans for buildings in the richmond and cow hollow. the difference is usually the scope of work in these districts. the richmond usually involve rooms down and horizontal additions while places like the marina and cow hollow involve excavation and garage additions. also the architects typically employed by someone in the richmond is usually not the same as in cow hollow. even in the same district a garage addition will differ in scope and complexity depending how deep the excavation and how far they want to extend the garage under the building. buildings with three or more units require the fire department to review which usually much longer than arch or engr review. trust me every building is different and each designer is different. as for code interpretation… thats why we have a code expert as our new director. trust me there will be drastic changes ahead. =)
    ps: typed via treo

  16. Posted by Salarywoman

    Jeemster,
    We do say “no”, but our clients just don’t believe us. Or else they want to fight. Variances, in particular, are a source of great confusion. But so are many of the provisions of the umpteen codes we now must build by. Many successful people have gotten to where they are by challenging conventional thought and breaking perceived rules. It’s hard to convince them that this time it’s different.
    The increasing amount of regulation is definitely one of the reasons housing costs in the bay area have soared. Since I started practice the number of sheets in a typical drawing set have more than quadrupled, as has the height of the stack of regulations I have to conform to. It’s one reason why, when the bubble bursts, there will be less deflation than some think.

  17. Posted by Jeemster

    Salarywoman, there are no Variances (Administrative Bulletins are different) in the Building Code. Variances are a Planning Dept. issue. I think thats where the confusion and frustration starts. Planning is moving to 1650 Mission so that might help out in separating the two departments.

  18. Posted by david

    Planning Fees doubled last year and are, I believe far out of line with what DBI charges, especially for small, OTC permits.
    Oh and don’t forget that Historic Preservation has become a HUGELY important factor in Planning Department review. They are just catching up with a years old mandate by state legislation called CEQA, that can significantly limit what you can do to a property in any area with a block of nice, period homes, basically anything north of Market. Any additional floors that you want to add have to be set back far enough from the street to not be visible from the opposite side of the street. If you’re a corner property, you’re really in trouble, although they understand the impossible situation you’re in and apply a slightly more realistic interpretation of the historic guidelines. This is THE biggest issue for expansion proposals in this city.

  19. Posted by MM

    RE: Silly DBI/Planning Rules
    Hypothetical question: If I were rich, what would happen if I were to buy one of these “historic” properties, like a rotting Victorian, and just knock it down by myself? How much power does the City hold over one person from exercising his/her property rights?

  20. Posted by Usually Named

    MM: The city can red tag you and prevent you from building anything on site.
    This communist state is all about taking away property rights.

  21. Posted by Dan

    “This communist state is all about taking away property rights.”
    It’s not communism to expect developers to obey the law. Would we really want no zoning and no historic preservation?
    When I last lived in LA, 16-20 years ago, I lived in a neighborhood where most of the gracious 1920’s-1940’s small apartment buildings had been torn down in the 1970’s and 1980’s for block-long stucco condo monstrosities, in which the first floor of each building was the garage. Instead of walking past gardens, lawns, and small buildings set back from the street, as had been possible only a few years before, a walk through the neighborhood (and yes, I walked to work when I lived in LA) consisted of walking past parking garage after parking garage at street level.
    Are we Bolsheviks for not wanting that fate for our San Francisco neighborhoods?

  22. Posted by Usually Named

    No. It’s not about having no zoning or historic preservation, Dan. It’s about having balance. Your attempt to use the other extreme is a red herring debate tactic.
    But I guess it comes down to this. If San Franciscans want to live in a Disneyfied, ossified city full of Victorians — many of them run down because it’s too expensive to refurbish, then don’t complain about how expensive it is to live here. As many studies have shown, the more complex and oppressive the planning (and building) code, the more expensive the housing.
    Just because it’s old, doesn’t mean it’s worth preserving. The problem with using laws and code is that you have to use broad brushes like age of building.

  23. Posted by Usually Named

    And one more thing — yes it is being bolshevik by trying to subvert individual rights for the ill-defined collective good.
    Why should someone who may not even drive by your house, let alone live near it have the right to tell you how your house should look?

  24. Posted by Dan

    “If San Franciscans want to live in a Disneyfied, ossified city full of Victorians — many of them run down because it’s too expensive to refurbish…”
    San Franciscans do want to live in a city of Victorians. But they’re not too expensive to refurbish, obviously, because they are being fixed up everywhere in the City. It’s possible to preserve existing neighborhoods of Victorians, while also developing modern, high-density housing downtown.
    The mass destruction of Victorians was allowed in one section of the City– the Western Addition–but the grim results have ensured it would not happen again.

  25. Posted by Usually Named

    “San Franciscans do want to live in a city of Victorians”
    Actually, it’s an increasingly elderly, vocal minority want to live in a city full of Victorians. The ones who want to keep everything the same. They probably are already homeowners, too.
    If what you said was 100% true, then the highrises in SoMA would be faux-Victorian. Because EVERYONE wants to live in a city full of Victorians. Not.

  26. Posted by Anonymous

    “Raw construction cost: 2400 sqft @ 400/ sqft”
    The only explanation for this number is that San Francisco construction is controlled by a cartel. I used to own a house on the peninsula and then moved to San Francisco. Can anyone explain to me why a new roof in San Francisco is twice as expensive as 20 miles South on the peninsula? I guess I know the answer.

  27. Posted by jag

    Good discussion! I’m sensitive to the loss of SIGNIFICANT Victorians, but in some cases the planning dept’s Historic resource evaluation staff are using the “resource” designation indiscriminately. I’m the architect for a new building to replace an unoccupied building with obvious signs of multiple structural failures I have independent structural reports citing risks for a sudden collapse. A historical report by a conservative arch. historian found that the building did not meet any of the criteria for historical significance. The historical Planning dept. review staff disregarded both reports and cited the 1908 association with the rebuilding effort and the construction method for the building which may show the influence of a noted San Diego architect as the only reasons for declaring the building a historic resource. There is no evidence of the connection between the San Diego architect and the project. The process to attempt to overrule the finding of one staff member will cost more than $39k in fees and $45k in expert reports and take 15 months. One reviewer of both historical reports referred to the Planning staff member’s report as “incompetent”. The city needs to invest in a list updated every 10 years of all historic resources in the city. Buyers will then know if they are purchasing an untouchable building. At present a fee is collected to assess the potential historic significance of any alteration for any building older than 50 years if a staff member thinks it may be historical. The fee is approx. $10,000.00. Multiply that by the number of permits altering 80-100yr old buildings.

  28. Posted by SF Contractor

    I’m an SF Contractor who makes his living by doing these terrible expansions. It’s difficult and ridiculously expensive as everyone else has said. The primary costs for me are:
    Neighbors, Planning, Design.
    Neighbors are constantly interfering not only during the planning process but during construction. Constant aggravations for everything from excessive noise (I use nail guns so I finish faster and they require a compressor you morons) to the location of meters and other necessary utility cruft. I have to spend time and occasionally attorney fees to keep the idiots at bay while I attempt to run a legitimate business.
    Planning can be a great friend if you know how to ask but they are crippled by the mentioned heavy conformance to CEQA and a series of mandated delays (i.e. 311 and EIR processes) that only increase carrying costs and practically invite your neighbors to force ridiculous mutations of your building envelope to suit their (often unfounded) fears and desires. We have institutionalized the rights of the established homeowner over the new entrant to a community. Precisely the kind of elitism we all publicly decry. Without these delays I could reduce the cost of each project by nearly $100K in financing alone.
    Design is the worst because every time DBI decides to kick something back out I pay a fortune to have the architect and structural engineer rework their flawed drawings and usually lose 3-4 weeks at a minimum. Each time DBI says they want a change (BTW their own process is in flux so everyone asks for something different) it costs me roughly $10K in design and 20K in carrying costs. I disagree with some posters who claim DBI has a consistent process. I find their application and interpretation of the codes is inconsistent at best and the plan checkers’ own understanding of their roles and duties to very widely.
    On top of everything mentioned my suppliers have been increasing their prices by 10-15% per year so don’t f-ing tell me inflation is steady at some pitiful 4%.
    Bottom line is it takes $1M to do a decent project anymore and the land is almost the same so I most homes on the market for under $2M are a bargain unless China and India stop growing.
    The sooner you can make your planned expansion, the cheaper it will seem in retrospect.

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