Before the November election, some Los Angeles real estate agents advised their clients to be prepared to sell their homes before the proposed mansion tax, Measure ULA, won at the polls.
It passed with a solid 58 percent approval from voters and L.A. agents and home sellers are trying to figure out how to deal with it. The measure was intended to raise more than $1 billion to house the homeless by levying a tax of 4 percent for homes priced at $5 million or above and 5.5 percent for sales over the $10 million threshold.
With more than 90 days before the transfer tax goes into effect on April 1, many agents are advising clients to sell homes, said Anthony Marguleas, founder of Amalfi Estates brokerage, headquartered in Pacific Palisades. Just don’t expect a spike in sales for Los Angeles luxury homes before April Fool’s Day, he forecasts.
The real estate market is slowing down in Los Angeles and the rest of the nation. The deceleration comes at the same time as a traditional quiet period of the holidays, Marguleas said. He is advising his clients that there may not be enough time to avoid the upcoming tax in the spring. After the bonanza year of 2021, the market is moving much more slowly.
“If you’re able to come on the market, we’re recommending it,” Marguleas said. “Even if you move super fast, the likelihood of getting a property on the market, getting it sold, then closing escrow, is unlikely.”
Marguleas estimated that Pacific Palisades and Brentwood represented 44 percent of Los Angeles homes sales over $5 million last year.
Stephen Shapiro, co-founder of the Beverly Hills luxe boutique Westside Estate Agency, has been recommending his staff have discussions with their sellers about the tax. They are not telling L.A. clients to move quickly to market. They are advising that if a luxury home completes a sale before April 1, it will avoid the ULA transfer tax.
However, even after the election, the transfer tax still hasn’t registered on a lot of people’s radars, he said.
“This is a sleeping giant. Many people are surprised at how much they are going to pay the city,” Shapiro said.
The money is significant; a transfer tax bill could reach $550,000 for a $10 million home sale.
Eric Sussman, professor for the Ziman Center for Real Estate at UCLA Anderson School of Business, thinks people will look for loopholes in the law. One possible scenario is sellers and buyers splitting deals. For example, land will be bought under one transaction, a building will be purchased in another. The amounts paid for the separate deals won’t pass the thresholds of the ULA tax. Sellers will claim that they are not liable for the tax. City tax authorities will seek to close loopholes.
“It will become a (game) of regulatory whack-a-mole,” Sussman said. He also forecast that levying a transfer tax could be delayed by court challenges. No court challenges have been filed yet, however.
It is unclear if Los Angeles’ mansion tax will drive buyers to adjacent areas such as Orange County. Cyrus Mohseni, founder of The Keystone Team brokerage in Huntington Beach, said that since November, he has noticed the topic of the mansion tax come up more frequently in talks with his prospective Los Angeles buyers.
“I’ve gotten more questions about the mansion tax. But I have more people moving from L.A. because of the homelessness,” Mohseni said.
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