L.A. Homeowners Rush to Offload Properties at a Discount as New Tax Looms

What happened

Luxury homeowners in Los Angeles are scrambling to get their properties sold by the end of March, before a new mansion tax takes effect. Starting April 1, sellers will face a 4% transfer fee on property sales over $5 million and a 5.5% transfer fee on properties over $10 million. 

So what

In November, Los Angeles voters approved Proposition ULA, which allows for the aforementioned mansion tax on high-value properties. The additional tax revenue, which is estimated at $600 million to $1.1 billion, will be earmarked for affordable housing and programs to prevent homelessness.

Luxury homeowners in LA are now trying to offload their properties before that new tax kicks in. And many real estate agents are offering deep discounts and incentives to try to lure in buyers. 

"We were trying to think outside of the box and we offered a $1 million bonus to any agent who brought the buyer to one of our listings if we closed before April 1," said Josh Altman, CEO of Altman Brothers Real Estate and star of Million Dollar Listing Los Angeles. "If you think about the money that you'll be giving away, it might be less for you to give something to the agent or to the buyer than you'll have to give away after you close the deal."

Now what

Real estate transfer taxes are a common expense sellers incur. And many states calculate these taxes based on home sale prices, with higher-priced properties incurring a higher rate of tax than those that are lower-priced. But whether you're selling a multi-million-dollar mansion in Los Angeles or a modest home in Oklahoma City, it's important to understand what real estate transfer taxes you'll be on the hook for.

Many states make this information available on their respective treasury websites. And if you're working with a real estate agent to sell your home, they should be able to help you estimate your transfer tax bill. It's a good idea to get this information early on in the process, as it might help determine how much you can afford to spend on a new home once yours has sold.

Many home buyers use the equity they've built in an existing home to pay for a new one and keep their mortgage payments down. But if you'll be losing $10,000 to real estate transfer taxes, that's something you'll clearly want to know about.

Meanwhile, if you've been looking for a luxury home in Los Angeles, this could be a great week to make an offer. You might be able to take advantage of some seriously steep discounts.