Partscounter, Both Buyer and Seller in San Francisco, CA

We have a two unit building in Soma area with protected tenants

Asked by Partscounter, San Francisco, CA Wed Nov 5, 2008

Could we put it up for sale and leave money in escrow to buy them out or is that possible they want fifty thousand per flat, Its a beautiful Victorian Stick with fresh paint

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As has already been said, you can put money into escrow, but the question is will there be a buyer to take that deal. In my experience, money in escrow for tenant buyouts only occurs if you have deal in place with the tenants which provides that they will be moving out after escrow and receive a large payment at that time. If you are proposing to simply put money into escrow as a marketing feature, buyers willing to take the risk of buying with tenants in place will simply want a substantial discount in the sales price.

It should be noted that the presence of protected tenants in a two unit building is particularly negative to a two unit building because if such tenants are evicted for the Ellis Act, owner move-in, renovation, demolition or relative move-in, the condo conversation rights would be destroyed forever. Ordinarily, a two unit building, if owner occupied by two owners for one year, can bypass the condo lottery and move directly toward conversion.

For that reason, if you can't buyout your tenants, this will like cause a great devaluation of your property.

If you are able to voluntarily buyout your tenants, there is a method of creating an enforceable agreement which would force them to move if they later refused. You will need a lawyer to assist you. You can find an article I published on the subject at the link below.

Jeffery Woo, Esq.
Sedgwick, Detert, Moran & Arnold LLP
Complex Rental Property Group
0 votes Thank Flag Link Sun Mar 8, 2009
SOMA is also one of the hardest hit areas in the city right now... so protected tenants with a soft market is really going to impact values right now. That said there are a ton of buyers checking out every property, so priced well, you will be able to sell it. If you don't have the cash to buy out the tenants, your plan to do it in escrow should work. Buyers might hesitate without knowing with 100% certainty that the tenants will actually accept the offer, but you can price that in too. Buyers want "deals" in this market, so you'll have to price accordingly to sell it now. Check out for a price opinion.
Web Reference:
0 votes Thank Flag Link Fri Nov 7, 2008
Dear Partscounter,

Your best bet is to buy them out first, if you can. No one wants to buy a unit, home or income property with protected tenants. You might have some luck if they are paying market rate rents.


0 votes Thank Flag Link Wed Nov 5, 2008
Good Afternoon,

If your tenants are willing to be bought out and you are willing to pay what they want, it is absolutely best to pay the money if you can and deliver the property vacant. The reason for that is that even if you have a buyout agreement, if the tenants are still there after close of escrow the new buyers could potentially have to take the tenants to court if they refuse to live up to their agreement. This will definitely make the property less attractive. My guess is you could even get a short term loan for the buyouts with a pending purchase if you have good credit and equity.

Also, it is imperative that you have an attorney experienced in these matters assist you with the buyout process or you could end up in a lot of trouble. We have been through this a lot with our own properties as well as clients, and would be happy to answer questions or provide attorney referrals with no obligation.

Best Regards,

Lance King/Managing Broker
415.722.5549 Cell
0 votes Thank Flag Link Wed Nov 5, 2008
Yes, you can do that, but a buyer will be concerned that the tenants may not vacate as anticipated. It would be better to get that buyout done first as a condition of closing. It all depends on the price you ask for the building and whether the tenant issue is factored fully into the price.

Shaban Shakoori
Broker/Attorney/Developer/Property Manager
Top 2%, TRI/Coldwell Banker, SF's #1 Office
0 votes Thank Flag Link Wed Nov 5, 2008
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