Critical Steps to Financial Planning

Financial planning is an integral part of any successful portfolio.

We don’t pretend to offer financial advice, but we do offer real estate advice and the two often overlap.

For example, every two years a married homeowner filing joint tax returns can sell their primary residence and enjoy the first $500,000 of capital gains tax free. We’d be remise if we didn’t remind those to whom we’ve sold homes about this option to keep more of their equity in their own pocket.

Of course, we realize that most people don’t move every two years just to save on capital gains. 

First, homes don’t appreciate that much in two years to realize the savings, and people get entrenched in their neighborhood, while others just love their house and have no plans to move, but failing to plan ahead, could cost one hundreds of thousands of dollars.

When Might One Consider this Option?

If you have lived in your home in the Bay Area for more than five years you’ve probably already surpassed the $500,000 capital gains abatement threshold. 

Are you outgrowing your home? With interest rates are still at historically low levels, now might be an ideal time to consider a move up into the space you need.

If you’re retired or near retirement and would like to downsize, selling your home while the market is at record highs might be the time to employ that exit strategy you’ve been considering.  Afterall, when the last market correction occurred it took 7 years for the median home price to return to the previous high. Seven years is a long time to postpone retirement just to wait for home prices to rebound to current levels.

Worried about higher property taxes on a larger home? The recently passed Proposition 19 in California just might help mitigate the hit of higher property taxes with the ability to carry your existing low tax base to your replacement property and pay only a small increase if buying a more expensive home. 

If you’re downsizing, you can carry your existing tax base without adjustment.

We’re here to help answer any of your questions on how to make a move possible if you choose to do so.

If you have questions about tax implications or estate planning please seek advice from your attorney, CPA or other professional.

Drew & Christine Morgan are REALTORS/NOTARY PUBLIC in Belmont, CA. with more than 25 years of experience in helping sellers and buyers in their community. As Diamond recipients, Drew and Christine are ranked in the top 50 RE/MAX agents nationwide and the top 3 in Northern California.  They may be reached at (650) 508.1441 or emailed at info@morganhomes.com.

For all you need to know about Belmont, subscribe to this blog right here. You can also follow us on Facebook at https://www.facebook.com/Morganhomes and on Twitter @ https://twitter.com/morganhomes

The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax, insurance or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.

Why Must we Barbecue on the 4th of July?

Finally, we can get back to the American tradition of having friends and family over for a BBQ—and what better day to do it than on the 4th of July.
Traditionally we celebrate our nations’ independence from Great Brittan on this day, and this year we add to that our independence from isolation during the pandemic.
You may already have decided what you will be cooking for your celebration, but do you know why we carry on the tradition of cookouts on the 4th?

The theme originated when politicians would hold rallies on the 4th of July (which was not yet a national holiday) to commemorate our nation’s independence and have a captive audience. To feed the throngs of people they resorted to barbeque—whole hogs in particular.
The move from barbecue rallies on the fourth to backyard cookouts probably had less to do with people not wishing to endure the preaching of politicians, than it was simply more people were choosing to live in the suburbs after WWII.


GRILLING VS. BBQ—What’s the difference?

Barbeque cooking is typically cooking meat low and slow over indirect heat whether over an open pit or in a covered box where wood is used to create smoke for flavoring and preservation.
Grilling is typically done using direct heat in a gas grill or open style kettle grill using charcoal wherein the food is cooked more rapidly.

Trivia for your get-together:

DID YOU KNOW…
It wasn’t until 1941 that Congress declared Independence Day to be a paid federal holiday.
5% of all US beer consumption takes place on the 44th of July.
The name barbeque came from the Arawak tribe of the Caribbean and South America who used sticks to create a flame over a fire and place the meat on it. They called this method of cooking “Barbacoa”. The Spaniards eventually brought this form of cooking to the southern states where it took on the name Barbeque.
Kingsford charcoal was invented by Edward G. Kingsford who helped Henry Ford—yes, the car manufacturer—procure a stretch of timberland to supply wood for his auto plants. The burnt wood was repurposed as it is today into briquets for grilling.

Happy Independence Day, and thanks for reading along.

Drew & Christine Morgan are REALTORS/NOTARY PUBLIC in Belmont, CA. with more than 25 years of experience in helping sellers and buyers in their community. As Diamond recipients, Drew and Christine are ranked in the top 50 RE/MAX agents nationwide and the top 3 in Northern California.  They may be reached at (650) 508.1441 or emailed at info@morganhomes.com.

For all you need to know about Belmont, subscribe to this blog right here. You can also follow us on Facebook at https://www.facebook.com/Morganhomes and on Twitter @ https://twitter.com/morganhomes

The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax, insurance or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.

Housing Market’s Unbearable Heat

The Bay Area housing market is as hot as it’s ever been for sellers, but the real heat is on buyers to get a home as throngs enter the market. It’s no longer race to get a home, it’s a marathon.

Frustrated buyers are using low interest rates which have empowered them to bid higher in multiple offer situations. The result, prices are rapidly rising.

Take San Mateo County for example. We compared May of 2020 to this year and across the board, the numbers show high demand and higher prices.

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Reports of low inventory creating the feverish market are simply misreported. Low inventory implies there are no homes for sale, but looking at the numbers, one can easily see that the number of New Listings are up 14.2% over last year, while inventory of available homes to purchase is down 36%. There are scant homes to choose between, because more homes are selling and faster than before, not because fewer homes are coming to market.

The Months of Inventory in the last column says it all. Months of inventory represents the time it would take to sell the current inventory of homes at the current sales pace. That’s down from 2.4 months of inventory last year to less than one month of inventory in 2021 (the national average is typically six months of inventory).

The YOY median home sale price increase of a staggering 26% YOY illustrates the effect of demand outstripping supply, as buyers outbid one another to secure a home before interest rates rise, and their buying power is reduced, or their mortgage payment goes up.

In our town of Belmont, we see a similar pattern, but since it’s a smaller sample size, some of the numbers are more pronounced. 

Take the number of new listings for sale—up 53% over 2020, yet the available homes to sell are down 35%. This is clearly due to the 122% increase in closed sales.

It’s understandable to question why then did the median home prices rise half of what they did in the overall San Mateo County stats? Simply put, Belmont started with a higher median home price, and has less elasticity in the price threshold to increase at the same rate as less expensive areas included in the San Mateo County Statistics.

What could cool this superheated housing climate? Any number of things, but higher interest rates could be the first to show on the horizon.

Drew & Christine Morgan are REALTORS/NOTARY PUBLIC in Belmont, CA. with more than 25 years of experience in helping sellers and buyers in their community. As Diamond recipients, Drew and Christine are ranked in the top 50 RE/MAX agents nationwide and the top 3 in Northern California.  They may be reached at (650) 508.1441 or emailed at info@morganhomes.com.

For all you need to know about Belmont, subscribe to this blog right here. You can also follow us on Facebook at https://www.facebook.com/Morganhomes and on Twitter @ https://twitter.com/morganhomes

The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax, insurance or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.

What You Don’t Know Will Hurt You

Today’s real estate market might seem untenable for buyers. Since the pandemic began, looking at homes is harder, and competition as fierce as it’s ever been.

Homes seem to all be selling with multiple offers for hundreds of thousands of dollars over the seller’s asking price, and the inventory appears paltry.

Home buyers are facing relentless competition in the housing market, driven by low mortgage rates and inventory. According to the latest REALTORS® Confidence Index, based on real estate transactions nationwide in March, agents report an average of five offers on their most recent listing.

In a separate report by Redfin published in April, 72% of the brokerage’s agents faced competition when submitting an offer for their clients—up from 66.7% in March. [Source California Association of REALTORS]

But is what you are hearing from your colleagues who missed out on several homes, and even the media reports accurate?

A lot of what you may be hearing is true, but sensational stories always pique our interest and that’s what we tend to remember. But there’s more to the story…

Are Homes Selling Fast?

Did you know that there are over 600 homes for sale in San Mateo County as of today, June 2, 2021, and that the average days these homes have been on the market is 51? We’re willing to bet that would surprise most home shoppers today. What’s wrong with these homes? They’re overpriced, and ripe for an under asking offer. 

Home sales that are pending may give us a more accurate measure of how long homes that are highly desirable sit on the market, and that answer may also surprise you—22 days.

Now not all of these homes would make the cover of Architectural Digest, but keep an open mind when looking at homes, some are a true diamond in the rough. Remember, if you’re looking for what everyone else wants, you’ll also be competing with everyone else. 

What About Low Inventory?

Looking at the sales of homes, we compared the number of new listings in the first quarter of 2020 to the first quarter of 2021 and there were 256 more listings this year than last—an increase of 20% in new listings YOY.

Since sales were also up 20% during the same periods, the excess inventory of new listings was quickly gobbled up, giving the impression that there’s no inventory of homes available for sale.

Notice in the last column, that the months of inventory, which is the time it would take to deplete the inventory of homes given the current rate of sales, reflects that 20% drop with the months of inventory dropping from 1.8 months to 1.5—hardly earth shattering.

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The median home price is the number everyone should be watching. In San Mateo County, it’s up 13.5% YOY for the first quarter of 2021. This means the median priced homes which sold last year for $1,600,000, just cost buyers a whopping $250,000 more this year.

If you’re a buyer and you’re frustrated with the competitive home market today, waiting it out could prove to be a fool’s errand. Between possible interest rate hikes, and home value increases, trying to save more money to buy more home may have you sidelined in today’s housing market and chasing the elusive.

Summer Hope

There may be some hope as we approach the summer for less competition in the pursuit of Bay Area housing. With Memorial Day past, the unofficial start to summer under way and kids are out of school, it’s time for parents to start taking their children on vacations. 

June marks the beginning of the slower months for sales activity. This lasts usually until a week after kids are back in school. Summer provides a good opportunity to get a home with less competition than in spring and before people return from summer trips.

For all you need to know about local real estate, subscribe to this blog right here. You can also follow us on Facebook at https://www.facebook.com/Morganhomes and on Twitter @ https://twitter.com/morganhomes

The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax, insurance or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.

Why Open Houses Were Never Necessary After All

The Corona Virus pandemic changed a lot of things in our lives over the past year. We lost too many loved ones, we feared not only strangers but our friends and neighbors.

And we learned a lot. A lot about whom to trust, that we could survive at home with one another 24/7. Some good did come out of this very bad pandemic, but only if we remember the lessons learned.

Winston Churchill wrote, “Those that fail to learn from history are doomed to repeat it.” The 1918 “Spanish Flu” pandemic that ironically started in Kansas, not in Spain, taught us a lot about how to handle future pandemics—what to do as well as what not to do. If only our leaders during the COVID pandemic had studied the past. These past lessons may not always ward off doom, but they can provide some insights into the present and even the future.

Our real estate industry was hit hard when the March 2020 lock down was instated. Weeks into the lockdown, our industry was finally deemed an essential business, so while we were technically allowed to go into work nobody dared do so—it was too soon, too many unknowns remained.

Sales of single-family homes in San Mateo County dropped 78% during the first month of the stay-at-home order. Only homes that were vacant were allowed to be visited, and even then, with only stifling restrictive rules.

Open houses were off limits to the public. The only in-person showings were on a one-on-one basis with the buyer’s agent and their clients—the listing agent representing the seller was not allowed to attend.

The real estate market had every reason to falter during the pandemic, but it didn’t, it rallied, as we discussed in our blog post about pandemic sales in 2020—up 180% over 2019.

So, do we need open houses at all then? Or the age-old question. “Do Open Houses Sell Homes?”

This debate has been going on for as long as open houses have been in vogue, but there has never been a way to empirically test whether open houses are necessary or not, until now. 

The Facts

Now every market may be slightly different, but in Belmont, sales during the pandemic without open houses rallied. Here are the numbers:

New Listings                            Up 89%

Closed Sales                            Up 180%

Average Days on Market        Down 71%

Median Home Price                Up 4.5%

Price Per Sq Ft                         Up 25.5%

We are not saying that the lack of open houses was what helped sales, it’s just that apparently, not having open houses didn’t hurt them either. Skeptics might say that had the public been able to attend open houses sales might have been even higher. Of course, we will never know what “might have happened”. We do know that sales were up, and a lot fewer people caught the virus.

The Pros And Cons Of Open Houses In Real Estate

In the past, we liked open houses because we generated more new business from them. Sellers of occupied homes liked them because during one open house 50-100 people can see their home without having to set individual initial showings during the seller’s dinner time. 

We’ve held many open houses at the request of our clients, but we gladly refrained from them when they had reservations about the process.

Moving Forward

There are many new agents that are suffering greatly in the absence of hosting open homes. Without a mature book of repeat business, and a scant marketing budget, they rely heavily on meeting new prospects face to face at open houses.

Very soon open houses will once again be allowed. And we suspect newer agents without repeat clients will quickly ask their contemporaries if they can hold one of their listings open to regain some market share.

Just Say No

Throw Away Your Alarm System

That’s what you just did, when you opened your house to the public. It’s a well known fact that open house are not without their downside. Allowing unvetted and often unqualified people who wander off the street into one’s home and who are not represented by an agent, have free access to walk around and take videos as they scope out your home’s valuables as a target for burglary.

Vacant homes make for especially easy targets for criminals. Open houses allow them the opportunity to take inventory of your home’s items, find easy access during an open house, and even leave a window partially open, only to come back and take appliances—light fixtures—even the copper plumbing!

How Many is too Many?

Your home might be of adequate size, but add 50 strangers milling around all at once during an open house and all of a sudden your home just might feel too small for buyers who need more space. We once heard a buyer remark to their significant other during an open house and say, “Let’s get out of here. This house would be way to crowded with our friends”.

If you’re a seller adverse to having hundreds of strangers—many of whom are unqualified to purchase your home, peeking into your home all weekend long, you may find comfort in knowing that you can avoid placating your agent’s desire for more personal business, and instead feel free to push back and take charge of what is best for you and your family’s level of comfort and security.

For all you need to know about Belmont, subscribe to this blog right here. You can also follow us on Facebook at https://www.facebook.com/Morganhomes and on Twitter @ https://twitter.com/morganhomes

The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax, insurance or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.

Why Buyers Should Not Fear the Unknown

Fear of the Unknown

We as humans have a natural tendency to fear the unknown. The psychological term for this is “xenophobia.” In modern usage, the word has evolved to mean the fear of strangers or foreigners — but its original meaning is much broader. It includes anything or anyone that’s unfamiliar or unknown.

When we help buyers purchase their first home, we frequently run into this phenomenon.

And perhaps rightfully so. Buyers are often transitioning from the relative comfort of renting a home, and the nomadic lifestyle that goes with it—being able to uproot and move to a distant job opportunity at a moment’s notice. 

Moving to a more permanent situation with the financial commitment that accompanies the shift in lifestyle can be intimidating.

One of the paradigm shifts we made many years ago was to focus on relationships, and not sales.

Early in our careers, as many new agents do, we would chase every lead at every open house hoping that someone out of the throngs of open house visitors would buy a home from us.

We quickly learned how flawed this model is for our business.

Today, we only work with clients that appreciate what our 30 years in the business brings to our clients—the deep understanding and expertise about our industry—the homes, neighborhood nuances, microclimates, and the powerful relationships that we have with our colleagues that help us help our clients to get the home they desire.

Comfortable Client

We commit to our clients the fidelity of our attention, and ask nothing more than reciprocity in kind. The agreement we work with spells out our duties, and what is expected of us and our clients.

This agreement benefits our clients in many ways they do not understand.

First, it enables us to focus 100% on our clients, and not waste time chasing down new leads for business. This allows us to work with a small number of clients at a time, to concentrate on our responsibilities of finding the ideal home.

For example, we can target mail to specific neighborhoods that our clients are interested in, to uncover a seller considering a move.

The agreement also ensures that the buyers will not be forced unwittingly to work with the seller’s agent through a process called procuring cause.

Most inexperienced agents are afraid to ask for a commitment from their customer, for fear they could lose their lead. 

What buyers may not consider, is that any agent working without an agreement will undoubtably try and coerce a buyer into purchasing a home sooner than they might like to, as the agent fears the buyers will wander off to purchase through another agent.

Lets’ face it, it’s tough representing buyers in our current seller’s market. The last thing a buyer should want to do is work without a mutual agreement as what is expected from the relationship. Absent this understanding, an agent will mostly likely be less than excited at the prospect of working unpaid for months on end, only to have their customer inform them. that they just bough a house from another agent.

Rather than fearing the commitment involved in working with an agent dedicated to their best interests, if they are to fear anything, it should be working with an agent so inexperienced or desperate for business that they do not ask for a commitment.

For all you need to know about home selling or buying, subscribe to this blog right here. You can also follow us on Facebook at https://www.facebook.com/Morganhomes and on Twitter @ https://twitter.com/morganhomes

The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax, insurance or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.

Jeopardizing Multiple Offers

Multiply Offer Mistakes to Avoid

We can all make mistakes at times, some mistakes just carry with them more severe repercussion than others. 

Certain professions come with a higher level of responsibility and accountability than others. Two of obvious professions that come to mind are that of Doctors and Pilots. Mistakes in their field could have catastrophic consequences.

But what about a real estate agent’s fiduciary duties? A fiduciary is a person who acts on behalf of another person putting their clients’ interest ahead of their own. Being a fiduciary thus requires being bound both legally and ethically to act in the another’s best interests.

When representing the seller, it’s a duty of the agent to get the seller the most amount of money for their home. Why thendo so many agents fail this simple test?

We’ve represented buyers on many occasions where multiple offers were involved. The agent representing the seller—also referred to as the Listing Agent—collects all of the offers and presents them to the seller who gleefully accepts one, typically for far more than what they had expected.

The listing agent then contacts each buyer’s agent (also referred to as the selling agent), who did not succeed in the offer process, informing them of the seller’s decision to accept another offer. Everyone walks away happy, except of course the buyers and their agents who lost out.

Did the Listing Agent fulfill their fiduciary duty? Not really. 

Should the listing agent suggest to the sellers that perhaps they should proffer a counter offer to all buyers to see if any might go higher in price, or better their terms? Probably not. We avoid this approach, since delivering a counteroffer nullifies the original offer. In other words, if the buyer balks at the counteroffer, and the seller then chooses to accept the original offer, it’s too late. The original buyer’s offer terminated when the counter was delivered by the seller to the buyer.

So how should an agent help get their seller the most amount of money, without jeopardizing their current position?

By collecting any offers prior to meeting with the sellers, we’re able reach out to each agent with feedback as to where their offer stands, in relation to the other offers received.

We also take this time to contact every lender to ascertain the strength of each buyer’s financial position to avoid lending issues down the road.

This gives the buyers a chance to better their offer, if they so desire, while eliminating the pitfalls inherent with counter offers for the seller. It ensures that the sellers are getting the highest and best offer, with the best terms.

For all you need to know about home selling or buying, subscribe to this blog right here. You can also follow us on Facebook at https://www.facebook.com/Morganhomes and on Twitter @ https://twitter.com/morganhomes

The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax, insurance or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.

An Unpredictable Year of Uncertainty

After the most tumultuous year we’ve experienced, and perhaps arguably one of the direst years in our nation’s modern history, we take a moment to reflect on home sales from 2020, the results of which were certainly not anticipated.

We’ve said it and seen it before—when there’s uncertainty in the world, homes sales tend to suffer, as buyers take a wait and see approach. 

We can’t predict what unknown events may arise in an upcoming year to forewarn our clients as to when will be the optimal time to make a move, except in an election year when there’s almost certain to be uncertainty in a mid-term or Presidential election year. It’s for that reason, that we encouraged our sellers not to wait until October to list their home for sale in 2020.

But then the pandemic hit, and apparently, all the norms—everything we’ve seen in market shifts in our 25+ years in business—went out the window.

In March, there was the stay-at-home order. Initially, our trade had yet to be determined an essential business, and thus we were essentially shut down. No open houses, offices closed, and even showings of occupied homes were disallowed.

That was relaxed in short order. Once declared an essential business, real estate offices could re-open, and with the new strict showing guidelines, occupied homes could once again be shown.

Many non-essential tech companies closed their offices, and ordered their employees to work from home. Schools also closed, and in-home learning became the norm.

A shift in home buying almost immediately transpired. People quickly learned they needed more space. Apartment dwellers found their cramped quarters no longer viable, and condos with common elevators and long hallway corridors were found to be ill suited for precautionary safe distancing measures.

In June, when the stay-at home-order was relaxed, it triggered a pent-up need for single family housing, and with sellers reticent to have throngs of strangers in their homes, the scant inventory of homes for sale had tilted the already unequal supply and demand equation and drove up prices.

Many homeowners found they could work from home in alternative areas, and chose to make a Bay Area exodus. That served to loosen the tight grip on low inventory, but it still fell shy of meeting the needs of eager home buyers wishing to gain more space, and prices continued to rise.

The following graphs illustrate the shift in the 2nd quarter of 2020, where increased sales and skyrocketing home prices ensued, eclipsing all records for new listings, sales and median prices over 2019.

Predicting the future of real estate is a fool’s game. If you’re interested in learning how Proposition 19 could help you make a move, and carry a low property tax base, start with our article outlining the opportunities and restrictions, then give us a call if you’re considering a move.

On a local level, these are the year-over-year comparisons for Belmont.

BELMONT NEW LISTINGS 2019 vs. 2020

BELMONT UNITS SOLD 2019 vs. 2020
SAN MATEO COUNTY MEDIAN HOME PRICE 2019 vs. 2020

On a slightly more macro-level, these are the same graphs for the entire san Mateo County.

SAN MATEO COUNTY NEW LISTINGS 2019 vs. 2020
SAN MATEO COUNTY UNITS SOLD 2019 vs. 2020
SAN MATEO COUNTY MEDIAN HOME PRICE 2019 vs. 2020

Drew & Christine Morgan are REALTORS/NOTARY PUBLIC in Belmont, CA. with more than 25 years of experience in helping sellers and buyers in their community. As Diamond recipients, Drew and Christine are ranked in the top 50 RE/MAX agents nationwide and the top 3 in Northern California.  They may be reached at (650) 508.1441 or emailed at info@morganhomes.com.

For all you need to know about Belmont, subscribe to this blog right here. You can also follow us on Facebook at https://www.facebook.com/Morganhomes and on Twitter @ https://twitter.com/morganhomes

The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax, insurance or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.

Remember all of those propositions on the November ballot? Number 19 won, and might prove to be your winning number as well…

Some background

Proposition 13 established initial tax assessments based on property values, which took effect in 1978.   

Ad valorem property taxes are currently limited to one percent of a property’s assessed value, plus any voter-approved local taxes such as school or library bonds. Annual increases are limited thereafter to a two percent increase on the property’s compounded value each year.  

When a home is sold, the property is reassessed at its current market value. The market value of most properties grows faster than two percent per year, leaving many properties taxed at a value below market price.  

How does Proposition 19 change the rules on tax basis portability? 

Prop 19 allows a homeowner who is 55 years of age or older, severely disabled or whose home has been substantially damaged by wildfire or natural disaster to transfer the taxable value of their primary residence to: a) a replacement primary residence anywhere in the state, b) regardless of the value of the replacement primary residence (but with adjustments if replacement has a greater value), c) within two years of the sale and d) up to three times (or as often as needed for those whose houses were destroyed by fire).

The prior rule limited this exemption to a one-time transfer within the same county (Prop 60) or between certain counties (Prop 90) and only if the replacement property was of “equal or lesser value.” 

When does the tax basis portability portion of Prop 19 take effect? 

April 1, 2021 

If the replacement property is of equal or lesser value, does the tax basis of the replacement property change?


No. The taxable value of the original property may be transferred and become the taxable value of the new one. 

If the replacement property is of greater value, how is the new taxable value calculated? 

The new taxable value is calculated by adding the difference between the full cash value of the replacement property and the original property to the original taxable value. For example, if a seller of an original property has a $300,000 taxable value and a full cash value of $1M and then buys a replacement property for $1.5M, the taxable value of the replacement property would be $800,000. 

Can a replacement property be purchased before the original primary residence is sold? 

Yes. This is how the current rule under Prop 60 works, and Prop 19 uses nearly identical language. 

How does Prop 19 affect the rules on intergenerational transfers to children or grandchildren? 

It limits the exemption to those properties where the primary residence continues to be used as a family home by the child or grandchild transferee. If so, the taxable value will remain the same, subject to some upward adjustments if the property value, at the time of transfer, is more than $1M over the original tax basis. 

Not a fan of math? Lawyer’s Title now has a handy online calculator to estimate the benefit of carrying your property tax.

If the property is more than $1M over the original tax basis, what is the new taxable basis? 

The new taxable basis will be the assessed value of the property at the time of transfer minus $1M. 

When do these new rules on intergenerational transfers apply?

February 16, 2021. 

Where may a claim to transfer a tax basis be made? 

Claims may be made with forms provided by the local county assessor’s office. 

What if I don’t yet own a home—how will this help me?

The thinking goes like this. Most people who live in homes they’ve owned for many years could not afford to buy the house where they currently reside, let alone afford the new property taxes. 

For example, if one owns a home purchased in 1987 for $150,000, their property tax payment would have started at around $1,875 a year. Thirty years later, assuming the worst-case scenario that the property was reassessed at the maximum 2% each year, their property tax would increase to a minuscule $3,850 per year.

To purchase the same home 30 years later, using the S.F. Metropolitan Statistical Area (MSA) data provided by Case-Shiller, which shows a 1,836% increase in value during that time, our $150,000 house would now cost approximately $2,754,000, with an annual property tax bill of approximately $34,425.00.

It’s rather easy to see why a long-term homeowner would be reticent to make a move.

That could all change. 

Homeowners, who previously were likely to stay in place to preserve their low tax base, may now take that base with them, along with their substantial realized equity, to any county in California, opening up a myriad of retirement opportunities that were previously unavailable.

This is where future home buyers could benefit. As more homeowners become aware of the opportunities offered by Prop 19, they can now seek more affordable areas to live. This, of course, could be a boon for new homebuyers, as housing inventory is expected to increase, lessening the frustration of bidding wars and bringing some equilibrium to the market.

If you are a long-term homeowner looking to take advantage of this opportunity, be sure to consult with your tax or legal professional for advice on protecting your options. Additionally, please do not hesitate to contact us if you decide to make a move.

Drew and Christine Morgan are experienced REALTORS and NOTARY PUBLIC located in Belmont, CA, where they own and operate MORGANHOMES, Inc. They have assisted buyers and sellers in their community for over 30 years. Drew and Christine have received the coveted Diamond award, ranking among the top 50 agents nationwide and the top 3 in Northern California by RE/MAX. To contact them, please call (650) 508.1441 or emailinfo@morganhomes.com.

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This article provides educational information and is intended for informational purposes only. It should not be considered real estate, tax, insurance, or legal advice; it cannot replace advice tailored to your situation. It’s always best to seek guidance from a professional familiar with your scenario.

BROKER | MANAGER | NOTARY