Understanding Proposition 19

UNDERSTANDING

PROPOSITION 19

By Andrew VanSlyke, Esq.

The presidential race may have gotten the most attention this past November, but there were some big changes made to California property tax laws this election. The principal change was the passage of Proposition 19, which has created a number of new rules surrounding how residential property will be taxed going forward. This is a complicated provision, with multiple discreet sections, but all homeowners should be aware of the key provisions.

Transfer of Property Tax: California homeowners may already be familiar with propositions 60 and 90, which have provided tax benefits to individuals 55 and over who sell their homes. Effective April 1, 2021, Prop 19 will expand these benefits in a few significant ways. Prop 19 will allow homeowners who are 55 and older, or have a qualifying disability, to transfer the property tax assessment from their current primary home to the purchase of a new primary residence anywhere in the state. A homeowner’s current tax assessment can still be transferred to the purchase of a less expensive home, which is already permitted under the current tax framework, but now they will also be able to transfer their tax assessment to a more expensive home, although there will be an upward adjustment in taxes to reflect the increase in price. The number of times that a tax assessment can be transferred will also increase from one time to a total of three times.

The ability to keep a low tax assessment while purchasing a more expensive property, up to three times, is a huge boon for homeowners who may have previously put off a new home purchase because they did not want to lose their relatively low yearly property tax assessment.

Parent to Child-Transfer: Beginning February 16, 2021, Prop 19 will restrict the parent-to-child and grandparent-to-grandchild tax exemption for inherited properties. Under the current tax code, a parent or qualifying grandparent can transfer their primary residence to their children without the home’s yearly property tax assessment resetting to market value, and the parent or grandparent can exempt the first million from re-assessment when transferring a non-principal residence. Prop 19 eliminates this exemption in almost all cases except for one. If the parent or grandparent transfers their principal residence to their child, and the child will use the property as their principal residence, they can retain the current yearly tax assessment. However, if the current market value of the transferred home exceeds the property’s assessed taxable value by more than $1 million then there still would be an increase in the yearly tax assessment, although the increased tax assessment would still be lower than market value.

Parents who plan on leaving their property to their children should be aware of this new change, as it may have a significant effect on planned inheritances, as the cost of holding onto a property may go up sharply if the home has an especially low assessed value. Fire Response: The final component of this proposition is that most of the new funds raised from increases in property taxes will be spent on fire protection. Additionally, victims of fires will be able to transfer their property tax assessments to a new home, even if they are under 55. This increase in revenue will be a great help to California’s yearly struggle with wildfires, and the ability to transfer a low tax assessment will certainly help those who wish to move after a fire.

Overall, this new proposition can be complex, and this article is only scratching the surface of these new changes. If you want any additional information or clarification on Prop 19 please reach out to us. DeLeon Realty is always happy to assist in explaining these new changes in greater detail! Michael Repka, the head of the DeLeon Listing Team, is a Tax Attorney and he has conducted several well attended webinars on the impact of Prop 19.

CUSTOM HOMES

Details of 27500 La Vida Real

A GREAT DECISION BUT A QUESTIONABLE INVESTMENT

By Michael Repka

There is something truly special about building your own dream house from the ground up. You get a say in every decision, craft the perfect floor plan for your family, and create something that is uniquely your own.

However, custom homes can be very expensive in more ways than one. In fact, building a custom home can be a below average investment when compared to purchasing a brand-new Spec home or a preexisting home.

The first question some may ask is “what is the difference between a custom home, and a ‘Spec’ home.” In some ways, it’s similar to the difference between buying a bespoke suit from a custom tailor on Saville Row or an “off-the-rack” suit from a good designer, such as Brioni or Zegna. While both suits are nice and fit well, but a custom suit will be perfectly tailored to its owner and likely be made of higher quality fabric.

Custom home A custom home is just that: Custom. Everything, from the floorplan to the materials, to the technology is designed specifically to suit the owners’ needs and wants. Experience shows that people desiring something that is very difficult to find and unique to them often love building custom homes. However, the more unique the property’s design, the more difficult it will be to find an equally unique buyer when it is time to sell.

Spec home Spec is short for speculation. This is where a builder or investor purchases a piece of land and builds a home “speculating” as to what a buyer would want. Experienced builders tend to create floorplans that

are of mass appeal, strike a balance between quality and price when it comes to materials, fixtures, and appliances. In other words, the quality of the home is typically lower than that of a custom home, but the general desirability applies to a broader crosssection of the buyer pool.

What causes custom homes to be so expensive? Custom homes are often commissioned by very wealthy people who are used to the finer things in life. Generally, they anticipate living in the home for a very long time, so they want every detail to be perfect as they are building their dream home. The problem is that it could become very expensive to make every decision with the focus on getting the very best rather than a pragmatic approach to value and resale considerations.

The solution One alternative for the very affluent and very sophisticated luxury home buyer is to look for homes that were built to an extraordinarily high standard, utilizing the finest materials, appliances, and set on the perfect location that also tend to fit their personal tastes and needs. While some of these homes may have characteristics designed for the seller, if those quirky characteristics work for you, you may be able to pick up one of these extraordinary properties for considerably less than it would cost to build brand new.

Some examples A few years ago, I had a listing that was located very close to the Village of Los Altos, but it was on an extraordinarily large piece of land and the property was of incredible quality. It was built by RJ Dailey, undoubtably one of the area’s top custom home builders. The details were exquisite, from curved walls of glass, to incredible stonework throughout. However, the perfect floor plan for the original owner called for a relatively small kitchen and bedrooms distributed across the large estate.

Multiple agents had this listing before I took it over and they were unable to sell it. We did sell it for a price that the seller was happy with, but that price fell far short of the cost to rebuild. 27500 La Vida Real, Los Altos Hills One of the fringe benefits of my job is that I regularly tour some of the finest estates in the country. I have never once been in a home I found as mesmerizing as our listing at 27500 La Vida Real.

Unfortunately, this amazing 21,000 square-foot home set on 8 acres (including a dedicated conservation easement that serves as a privacy buffer) falls in the category of homes that were built to such an extremely high standard that buyers could not possibly appreciate all of the details.

This home has incredible woodwork, stonework, materials and views. It even has an indoor pool with a retractable roof and entirely separate office structure. However, decisions such as spending millions of dollars on custom-made windows and millions more on unseen internal systems caused the construction cost to soar to levels that are not recoverable. In fact, we have this property listed for $39 million whereas the original cost of construction was probably closer to $50 million.

This is not to say that a buyer has to spend $39 million in order to get an incredible value on an extraordinary custom home. Rather, buyers should make sure that they consider the difference in construction quality so that they can purchase a really well-built home done to the custom standard rather than a lower quality home that may be cosmetically beautiful. Ken has personally purchased two custom homes and recommends that his clients purchase custom versus spec homes as well.

Grand Atherton Estate on Over 1.3 Acres

Nestled in absolute privacy on over 1.3 sweeping acres, this grand, two-level estate of nearly 5,800 square feet offers ultimate luxury and a sought-after Atherton lifestyle. High-end appointments including detailed ceilings, intricate moldings, and oak floors wrap the home in elegance from the moment you step inside. Enjoy the convenience of 5 comfortable bedroom suites, including the master suite with a fireplace and private balcony, as well as a main-level bedroom suite ideal for office use to work from home in style. The grounds of the home offer incredible space for outdoor enjoyment, with a fireplace, kitchen, and pool, plus a lush, sizable lawn perfect for pick-up sports.

Offered at: $9,988,000

For video tour & more photos, please visit: www.242OakGrove.com

Listed by Michael Repka of the DeLeon Team, the #1 Team in Atherton

Data from BrokerMetrics ® based on MLS sales from January 1, 2020, to December 31, 2020, in Atherton, residential properties, with no off-MLS sales included in the rankings.

Silicon Valley’s Ultimate Estate

Searching for an executive retreat? Look no further than this expansive Santa Barbara-style compound. Boasting a separate office structure with the very best in home automation, this property also includes a five-bedroom main home with a theater, 3,000 bottle wine cellar, and sky-lit indoor pool. Topping it all off are 8+ resort-like acres with a vineyard and bell tower.

Offered at: $39,998,000

For video tour & more photos, please visit: www.27500LaVida.com

Listed by Michael Repka of the DeLeon Team, the #1 Team in Los Altos HIlls

Data from BrokerMetrics ® based on MLS sales from January 1, 2020, to December 31, 2020, in Los Altos Hills, residential properties, with no off-MLS sales included in the rankings.

STYLISH DUPLEX WITH CENTRAL LOCATION

STYLISH LIVING IN COMMUNITY CENTER BEAUTIFULLY REMODELED ON A 0.42-ACRE LOT

• 6 Bedroom (3 each) • 4 Bath (2 each) • 2,478 Sq. Ft. Duplex • 4,083 Sq. Ft. Lot • Central Palo Alto Location • Two Spcaious Units • Private Outdoor Patio Area • Top Schools • 6 Bedroom • 5 Bath • 3,566 Sq. Ft. Home • 18,500 Sq. Ft. Lot • Spacious Lot • Sought-After Neighborhood • Multi-Level Backyard • Top Schools

3796 PARK BOULEVARD, PALO ALTO Offered at $2,388,000

For video tour and more photos, please visit: www.3796Park.com

For video tour and more photos, please visit: www.1118Guinda.com For video tour and more photos, please visit: www.984MonteRosa.com

STYLISH EICHLER WITH MODERN FLOORPLAN

984 MONTE ROSA DRIVE, MENLO PARK Offered at $3,850,000

• 5 Bedroom • 5 Bath • 2,779 Sq. Ft. Home • 5,625 Sq. Ft. Lot • Elegant Living Space • Convenient Guest Suite • Bakyard w/Built-in Grill • Top Schools

1118 GUINDA STREET, PALO ALTO Offered at $3,888,000

PENDING

WITH MULTIPLE OFFERS

• 3 Bedroom • 2 Bath • 1,798 Sq. Ft. Home • 8,338 Sq. Ft. Lot • Timeless Eichler Design • Modern Floorplan • Great Backyard • Top Schools

468 EAST CHARLESTON ROAD, PALO ALTO Offered at $1,998,000

For video tour and more photos, please visit: www.468EastCharleston.com

STYLISH AND BRIGHT IN CRESCENT PARK OUTSTANDING BUILD QUALITY AND MODERN DESIGN

• 4 Bedroom • 3 Bath • 2,251 Sq. Ft. Home • 5,730 Sq. Ft. Lot • Built in 2012 • High-end Appointments • Close to University Avenue • Top Schools • 4 Bedroom • 3.5 Bath • 3,368 Sq. Ft. Home • 6,452 Sq. Ft. Lot • High-quality Construction • Open, Circular living Area • Near Briones Park • Top Schools

525 GUINDA STREET, PALO ALTO Offered at $3,788,000

For video tour and more photos, please visit: www.525Guinda.com

628 MAYBELL AVENUE, PALO ALTO

Offered at $4,500,000

For video tour and more photos, please visit: www.628Maybell.com

PENDING

WITH MULTIPLE OFFERS PENDING

WITH MULTIPLE OFFERS

ULTIMATE PRIVACY ON OVER 2.2 ACRES

• 3 Bedroom • 2 Bath • 1,375 Sq. Ft. Home • 96,267 Sq. Ft. Lot • Refinished Hardwood Floor • Spacious Gathering Areas • Sprawling Grounds • Top Schools

27690 ARASTRADERO ROAD, LOS ALTOS HILLS Offered at $1,988,000

For video tour and more photos, please visit: www.27690Arastradero.com BRIGHT, SPACIOUS, WITH TOP PALO ALTO SCHOOLS

• 4 Bedroom • 2 Bath • 1,878 Sq. Ft. Home • 8,000 Sq. Ft. Lot • Peaceful, Tree-lined Street • Bright, Spacious Homes • Close to Parks • Top Schools

178 ELY PLACE, PALO ALTO Offered at $2,488,000

For video tour and more photos, please visit: DELEONREALTY.COM www.178Ely.com | 13