Dan Scordino, a Fresno realtor, stands next to a home for sale in east Fresno. He is on the board of directors of the California Association of Realtors, which is trying to to get a proposition on the November ballot to give breaks in property taxes to people who are disabled or 55 years old or older who sell their homes and buy other homes. Photo by David Castellon.
California home prices have risen, prompting more owners to put their properties on the market.
But the market still remains tight, with many homes for sale in the Valley getting five offers, which extends the search period of would-be buyers, said Don Scordino, a Fresno Realtor and member of the board of directors of the California Association of Realtors.
Over the past couple of months, he and other association members across the state have been working to collect voter signatures from clients, friends and others in order to get a proposition developed by CAR onto California’s November ballot. It would provide the incentive that many older homeowners may need to get them to buy homes that better suit them and in turn put their current, long-time homes on the market, which CAR officials believe would boost the state’s inventory.
“This bill, what it will do is allow people 55 or older to keep their tax base,” the amount they pay in property taxes every year, as determined by Prop. 13, which California voters passed in 1978, said Brett Taylor, CEO of the Tulare County Association of Realtors, which is supporting CAR’s efforts.
Prop. 13 came about in reaction to the values of properties growing at fast rates across much of California, particularly in coastal and regional areas, and property taxes going up at the same, high rates after homes were reassessed every few years.
Prop. 13 set the residential property tax rate at 1 percent of the purchase price of the home — not on the assessed values in the years that followed — and limited annual increases to no more than 2 percent or the rate of inflation, whichever is cheaper.
In order to get the measure on the state ballot, CAR needs 585,407 valid voter signatures by March 23, and so far the organization has nearly 350,000, said Lotus Lou, a spokeswoman for the organization.
Officials with CAR say the problem they look to address stems from the fact that when people buy new homes, in most cases they have to pay property taxes based on the purchase prices of those new homes.
This can be particularly hard for older people who may have spent decades in their current homes, paying low property taxes. But even if they buy comparable homes in the same areas, the prices could be double, triple or more of what they paid for their old homes, putting their new property tax bills much higher than what they currently pay.
While some can afford the straight costs of buying a different home with the money they earn from selling their old ones, they may choose not do so because they can’t afford the higher property tax rates, particularly seniors who are on fixed incomes, some local Realtors said.
More often than not, older homeowners move in order to downsize, seeking homes that are smaller, easier to maintain or more accommodating to their physical needs — such as getting out of a two-story home if they no longer can handle stairs, said Fresno County Assessor, Paul Dictos.
“I recently had a client who I told about this proposition, and they said that would open up their chances of moving to Sacramento, where their grandchildren are,” Scordino added.
“These clients, who are over 55, would love to move to Sacramento to be closer to their school-age grandchildren, but they would have to buy a cheaper home than the one they have in Fresno” to keep their property taxes somewhat close to what they pay now, he said.
“But in Sacramento, they would have to buy a much smaller home or one in a not so desirable area.”
There are exceptions. For example, 11 California counties — none in the Valley — share an agreement to allow homeowners 55 and older to transfer their property tax rates from the homes they sold to the homes they buy in the participating counties. But they can do this only once, and the newly-purchased homes must have equal or lesser sale prices compared to the homes they sold, so people looking to step up to bigger or newer homes or buying in more expensive areas may not be able to use this.
CAR is looking to do something similar across the state for homeowners 55 or older or severely disabled, allowing them to pay taxes at the Prop. 13 rates combined with paying an additional 1 percent of the difference between what they sold their homes for and what they pay for new ones.
Scordino gave the example of somebody who bought a house for $90,000 several years ago who now pays $1,200 a year in property taxes because of various increases over the years.
Now, if that person sells his or her house for $200,000 and buys a $300,000 home in most counties, he or she would have a $3,000 annual tax bill.
If the proposed legislation were in effect, that same homebuyer would carry over the $1,200 tax rate from his or her old home plus pay 1 percent of the $100,000 difference in the home sale, resulting in a $2,200 tax bill, That’s more than what the homeowner now pays but considerably less than what he or she would pay under California’s existing tax rules.
If the house or condominium purchased is cheaper than the sale price of the old home, the property tax rate would go down if CAR’s proposition becomes law.
“The measure would have a variety of effects on real estate markets throughout California. Most notably, the measure likely would change the number of homes bought and sold each year and the prices of those homes,” states a September report by the state’s Legislative Analyst’s Office.
“Because the measure further reduces the property tax increases faced by older homeowners who purchase a new home, it likely would encourage more older homeowners to sell their existing homes and buy other homes. In recent years, between 350,000 and 450,000 homes have sold each year in California. Under the measure, home sales could increase by as much as tens of thousands per year.”
While that’s good for the real estate industry, the LAO reported that the change could have negative repercussions for the state as well as counties and cities, as “the measure would reduce property tax revenues for local governments. “Additional property taxes created by an increase in home sales would partially offset these losses, but on net property taxes would decrease. In the first few years, property tax losses would be a few hundred million dollars per year, with schools and other local governments (cities, counties and special districts) each losing around $150 million annually. Over time these losses would grow, likely reaching between $1 billion to a few billion dollars per year (in today’s dollars) in the long term, with schools and other local governments each losing $1 billion or more annually.”
The state would be on the hook to increase it funding to schools to offset their losses, the report continues, noting that in the short term, the state’s costs for schools could total $150 million and grow to $1 billion or more in today’s dollars, the report continues.
The LAO also noted that county assessor offices likely would incur costs to get new software and change procedures to adapt to changes in the property tax rules.
While changing the law could increase real estate activity here, Ruben Olguin, president of the Tulare County Association of Realtors, said “I don’t think it’s going to have a tremendous impact in the Valley,” because the savings older and disabled homeowner buying homes would gain wouldn’t be dramatic.
More likely, the law could have a much more significant effect in Southern California, as well as the Bay Area and coastal communities where homes purchased for $100,000 or $200,000 two or three decades ago now could be worth a $1 million or more, so the inventories of homes for sale in those metro areas is much sparser than here, he explained.
“Our inventory’s light, but not crazy light, like in San Francisco.”
As for the prediction of ill financial effects for governments and schools, “We don’t think that’s going to happen,” Scordino said.
“Some people worry this will cost the counties lots of money, but the more the houses turn over and sell, the more the counties are going to take in,” he said, adding that “If somebody buys a house, it will be sold at fair market value, and the person will pay taxes on that amount, so we think that will be a wash.”
Dictos, the Fresno County assessor seemed to share that view, at least to a degree.
“It will take money [from state and local governments] but it’s not such a big amount,” he said, though he hadn’t calculated the exact fiscal impact the law might have on Fresno County.
Still, “I think it’s a great deal to do,” Dictos said of the legislation, because it would help older and disabled homeowners move to where they want to go.
He added the California Assessors’ Association already has voted to support CAR’s efforts.
“The nice thing is you could go to any county you want.”