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**Example** (property 1 fails, but property 2 is satisfied)

Look for $f$ as the blow up of an *ideal sheaf* $\mathscr I$, so $\widetilde X=\mathrm{Proj}_X(\oplus_d \mathscr I^d)$. Then the pre-image of the subscheme $Z\subset X$ defined by the ideal $\mathscr I$ is given by  $\widetilde Z=\mathrm{Proj}_Y(\oplus_d \mathscr{I^d/I^{d+1}})$. Now if $X$ is Cohen-Macaulay and $Z$ is a complete intersection in $X$, (i.e., $\mathscr I$ is generated by a regular sequence), then $\mathscr{I/I^2}$ is locally free and 
$\mathscr{I^d/I^{d+1}}\simeq \mathrm{Sym}^d(\mathscr{I/I^2})$ and hence $\widetilde Z\simeq \mathbb P(\mathscr{I/I^2})$. 

Property #3 is kind of a red herring. The $(-1)$-twist is almost automatic, it comes from the construction of the blow up of $\mathscr I$. 

Finally, here is a simple concrete example:
Let $X$ be a plane (or any smooth surface) and $\mathscr I=(x^2,y^2)$ where $x,y$ are local coordinates at a point. The blow up will be the surface with a pinch point (locally around the interesting singularity defined by $x^2z=y^2$) with the singular line contracted to a point. I think it is relatively easy to check that this satisfies properties #2 and #3. 

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To round things up Mike Roth in the comments below gives a nice example of a blow up along a non-smooth subvariety such that the resulting variety is actually smooth.