Tenancies in common, AKA TICs, were once billed as panacea for the sickness that is SF real estate prices. First of all, properties of this classification have traditionally been less expensive than non TIC options. And because the buyers would pool resources, their collective buying power rose: banks that approved TIC loans, for instance, would take the highest credit rating from all the buyers in the deal, as well as the highest income. This most qualified person or group would then sort of "represent" the whole group, though others in the group might not enjoy the same great credit or income, thus making a larger purchase a possibility when before, it wouldn't have been.
The disadvantage to that arrangement should be obvious. If you are the strongest buyer, you stand to have your credit destroyed by someone in your owner group who cannot buy his or her part of the mortgage. You see, if you want to keep your unit in the shared building, you and the remaining solvent tenants have to pick up the slack-- and that means paying for that other person's defaulted portion of the loan or you all default. If you can't meet the increased payment, well... bye-bye pretty credit score; hello foreclosure.
Along came then yet more medicine for the aforementioned sickness: the fractional loan. This would allow buyers to buy only their portion of the loan: instead of a mortgage for an entire building, the buyer would pay for only his/her unit. If someone else in the building then defaulted, the bank would only repossess that one unit. Problem solved.
But then, national meltdown. The market as a whole took ill, and all banks suddenly started actually reading loan applications.
As a result, neither TICs not the fractional loan has turned out to be much of a cure for what ails hopeful first time buyers in this city. In fact, with stricter terms on loans these days, buyers are hard pressed to find a bank that offers fractional loans at all. Attorney Andy Sirkin, long renowned as the "go to" expert on all things TIC, writes
The number of banks offering fractional financing for tenants in common groups has dropped from approximately 10 a year ago to only three or four today. As of this writing, only Sterling Bank has a comprehensive TIC lending program for purchases and refinances that is available to the general public. Several other lenders, including Bank of Marin, Circle Bank, and NCB, are honoring past commitments to provide purchase money financing for particular buildings, and considering new commitments for clients with existing banking relationships or particularly attractive projects.
Consequently, without competition to offer these or even a traditional TIC loan, banks have also made the terms harder than ever to accept:
- interest rates of 1.5-2% higher than comparable programs for condominiums
- underwriting guidelines that restrict availability to the strongest borrowers
- loan-to-value ratios are limited to 65-75%
Not surprisingly, TICs are today doing poorly on the market. San Francisco Realtor Luba Muzichenko tabulates all the sales data in SF for 2009 on her blog. There you see that in 2009, 2160 single-family homes sold; 1726 condos sold, but only 406 TICs sold. Further, the days on the market for TICs was also the most protracted of the three: single family homes: 42; condos: 61; TICs: 70. As for value, single-family homes enjoyed a median of $748K ; condos a median of $670K; the lowly TIC $540K.
Of course, $540K is still over half a million dollars, even with all the headache and heartache TICs involve (this blog hasn't addressed the lottery system for condo conversion, for instance. It hasn't either touched on the fine delicacy needed to "get along" with a group of buyers who have to collectively decide on everything related to the building. Yech!). So while these homes are still less expensive then their condo or single-family peers, they aren't really the panacea we hopeful first time buyers thought they might be. In fact, they look a little more like the Kool-Aid San Franciscans should have always known better than to drink.