VOTE NO ON PROPOSITION G

ADVISORY RE: POSSIBLE NEW TRANSFER TAX (“PROPOSITION G”/NOVEMBER 2014 BALLOT)

Local law presently imposes a transfer tax on real property sales based upon the value of the property transferred. Generally, the value is equal to the total purchase/sales price.

A proposition to impose an additional transfer tax which would be applicable to residential properties containing from 2 to 30 units, including single family homes with 1 or more “in-law” units and tenancy in common interests, is on the November 2014 San Francisco ballot, “Proposition G.” If passed, it would increase the total transfer tax for transfers occurring after December 31, 2014 (the specified “effective date” in the proposition is January 1, 2015) regardless of whether the underlying purchase and sale agreement was entered into by the parties beforehand. Its proposed added tax would be as follows:

* For a sale during the 1st year of ownership: 24% of total gross sales price;
* For a sale during the 2nd year of ownership: 22% of total gross sales price;
* For a sale during the 3rd year of ownership: 20% of total gross sales price;
* For a sale during the 4th year of ownership: 18% of total gross sales price; and,
* For a sale during the 5th year of ownership: 14% of total gross sales price.

Properties held for 5 years or more prior to resale would not be subject to this additional tax.

If enacted, there would be few exemptions from this additional transfer tax. These exceptions include: the sale of a property within 1 year of the death of an owner of a 20% interest; the sale of units which are “new construction,” as defined in the proposal; the sale by an owner of record of at least a 10% interest of a property who has occupied the property for at least 1 year prior to the sale as the owner’s principal place of residence, as defined in the proposal; or, the property is being sold at a loss under certain circumstances defined in the proposal.

Buyers and Sellers must be aware, and therefore must assume all risks, that should Proposition G pass, they will be subject to its additional tax provisions. It is therefore recommended that Buyers and Sellers review the text of Proposition G and consult with a qualified real estate attorney if they have any questions or need any advice. Buyers should, in particular, consider whether Proposition G might impact their later plans for the ownership, use and later sale of the property. Sellers who acquired a property after January 1, 2010 should consider the effect that Proposition G would have on their transfer tax liability for any transfer occurring on or after January 1, 2015. Click here for the full text of Proposition G.

Feel free to give me a call if you have additional questions.

Strong Economy Keeps Bay Area Home Prices Climbing, Bucking U.S. Trend

Real estate analysts expect the rise in home prices to slow down over the next two years as U.S. housing markets return to a state of equilibrium, but the Bay Area may prove to be an exception.

Gold coinsIn a recent survey by Reuters, real estate analysts predicted that U.S. home prices would rise 7.5 percent this year and then slow to 4 percent gains by 2016 — a sharp decline from the double-digit increases reported last year.

The 31 analysts surveyed by Reuters said price increases would slow in the coming months because of strict lending standards, slow wage growth, and a lack of first-time buyers. But while lending standards have indeed tightened in the Bay Area in recent years, income growth remains strong and first-time buyers continue to keep our real estate markets active.

While the rest of the country struggles with a lackluster economic recovery, the Bay Area is charging ahead with explosive growth in tech-related jobs and continued expansion of tourism and export-related businesses. In fact, three counties in the region are, statistically, at full employment, with others close behind.

Tech-industry hiring, meanwhile, has raised the average take-home pay in the region and encouraged a steady stream of young first-time buyers, helping to push home prices even higher.

California home prices jumped 15.6 percent in April year over year, according to a CoreLogic report released earlier this week, while other regions of the country saw more moderate growth. And the forecast calls for more of the same.

The U.S. housing market “is improving slowly, which is good,” Mark Goldman, a real estate expert at San Diego State University, told Reuters. “It should be measured. We don’t want to go back to stupid money,” Goldman said, a reference to the beginning of the Great Recession, when subprime lending helped push home prices to unsustainable heights.

Now, he said, “we are seeing a state of equilibrium. I don’t see any symptoms that would cause housing prices to go up or down significantly.”