Market Conditions By City
$10,000,000
$9,000,000
$8,000,000
$7,000,000
$6,000,000
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
Average sale price for single-family homes from 8/2022 to 7/2023, compared to the period from 8/2023 to 7/2024.
Average Sale Price
Price per square foot ratio for single-family homes from 8/2022 to 7/2023, compared to the period from 8/2023 to 7/2024.
8/2022 - 7/2023 8/2023 - 7/2024 $0
8/2022 - 7/2023 8/2023 - 7/2024
Price/Square Foot Ratio
Source: MLSListings, Inc., as of August 21, 2024 Criteria: Single Family Residential
Atherton Los Altos Los Altos Hills Menlo Park Mountain View Palo Alto Portola Valley Redwood City San Carlos Sunnyvale Woodside
Atherton Los Altos Los Altos Hills Menlo Park Mountain View Palo Alto Portola Valley Redwood City San Carlos Sunnyvale Woodside
California FAIR Plan, You’re Our Only Hope
By Alexander Lewicki, Buyer Specialist
Over the last several years we have seen an increasing number of insurers exit the California home insurance market. Even in relatively urban and low risk areas such as Palo Alto and Menlo Park, homeowners are beginning to receive notices that their insurer will no longer be able to renew their policy.
Homebuyers who would have previously chosen to bundle their home insurance with a name-brand carrier such as Geico, State Farm, or Allstate are now forced to settle for lesser-known names such as Bamboo or Chubb (sorry if those names don’t fill you with warm fuzzy feelings). Like an elderly neighbor who has recently retired to their condo in Scottsdale, even State Farm is no longer there.
Where I once would have recommended that you get approved with an excellent lender before beginning your home search with me, I am now also advising clients that they should speak with a qualified insurance broker as soon as we find a potential property and consider making an offer. Even in lowrisk areas, your insurer may require that you trim that oak tree or replace that old wood shingle roof as a contingency to issuing a policy.
For those in higher risk areas such as Los Altos Hills, Woodside, and Portola Valley, insurance –particularly fire insurance – has become almost a non-starter. I recently had clients in Los Altos Hills, in an area that is not considered to be a high fire hazard zone per state maps and regulations, get rejected by upwards of 10 different insurers. They were then given ludicrous 5-figure yearly quotes through nonadmitted and surplus carriers before settling on the California FAIR Plan as their only option.
For those of you who are fortunate enough to have avoided unwillingly becoming an expert in insurance over the last several years, the California FAIR Plan was created by California Legislature as a
last resort for property owners who otherwise would not be able to have access to basic fire insurance. While created by the state, the FAIR Plan is a private association whose operations are controlled by insurance companies, not our tax dollars. And while it may have its limitations, such as a $3 million policy limit, it can provide otherwise satisfactory coverage for a reasonable price.
My resulting advice to you is this: if you are exploring properties in an area of potential fire risk, get started on your FAIR Plan application immediately upon targeting a property. You may also want to consider including an insurance contingency in your offer if you have doubts or concerns. Quotes can take upwards of a week to receive due to the high number of applicants, and they will need to be supplemented with an additional DIC (difference in conditions) policy to fill in the gaps. It is illegal for insurance brokers to receive a fee for coordinating the FAIR Plan, though they can receive their regular fee for coordinating the accompanying DIC policy. So, make sure you request that the broker apply for the FAIR Plan on your behalf, as lesser brokers may try to arrange a more expensive policy through a non-admitted or surplus carrier before advising you on the FAIR Plan.
Although it was initially designed as a last resort, it has now become our only option, particularly in hillside communities. The state will eventually need to take additional steps to address insurers leaving, but for now, California FAIR Plan, you’re our only hope.
Unlike Nationwide, the DeLeon Buyers Team is still on your side. Give me a call at (650) 847-7407 to discuss your homebuying options and strategy in this evolving market.
TAX TALK - SEVERING CALIFORNIA'S TAX NEXUS
By Michael Repka, Esq. LL.M. (Taxation) NYU School of Law
California’s Franchise Tax Board has a well-deserved reputation for being both sophisticated and aggressive. Beyond just having some of the highest taxes in the country, California is very proactive in making sure that it collects every dime.
Naturally, these exceptionally high taxes, combined with a very high cost of living, have caused many Californians to reconsider where to hang their hats. This is particularly true now that post-COVID work arrangements are making it far more realistic to work from anywhere. Additionally, the number of Californians that have decided to sell their Silicon Valley homes and move to other areas with a lower cost of living and lower state income taxes have contributed to the weakening real estate market here, and rapidly appreciating markets elsewhere.
California’s View on Residency
Like most states that impose an income tax, California taxes everyone on income that is directly connected to California. This is true for both residents and non-
residents. For example, if you lease your California home, then the state will tax the rental income irrespective of where you live. Similarly, if you work in a store in California, you will be subject to tax on that income even if you live in Nevada, Arizona, or Oregon.
On the other hand, California will tax its residents on all income, even if it is earned out of state. Importantly, this includes income from intangibles, rentals, and other investments. Thus, there is significant benefit derived from moving out of state - especially if the state imposes no income tax, such as Nevada, Texas, Washington, or Florida (among others).
Severing Ties
Determining California residency is very much based on a facts-and-circumstances test. Put simply, the state will consider you a resident if your ties to California are stronger than your ties to any other state, or if you leave on a temporary basis with the intent to return. On the other hand, if you leave the state and don’t intend on coming back, you will probably take the steps necessary
to avoid residency status. Some of the factors that California considers are:
• Amount of time in California vs. in another state;
• Location of your spouse and children;
• Location of your principal residence;
• Driver’s license, vehicle registration, and voter registration;
• Professional licenses;
• Banks, doctors, and other professional services; and
• Maintaining country club and other social memberships.
Sellers who think all they have to do to avoid California tax is to buy a home on the Nevada side of Lake Tahoe and get a Nevada driver's license are likely to learn a hard lesson. However, people who do decide to relocate out of state and take the normal steps may find themselves in a rapidly appreciating area with low to no state income tax. Given that the maximum tax
rate in California is 13.3% (plus an additional payroll tax of 1.1%) and there is no preferential rate for capital gains, the savings could be very significant.
If you are interested in learning more about selling your home and moving out of state, including legal insights on severing your California ties, please contact Michael Repka at 650.488.7325
DeLeon Plane - Piper M600 Turboprop
Commissions Down, Opportunities Up
By Michael Repka
The August 17 deadline for implementing sweeping changes in the real estate industry has passed, promising significant savings for both buyers and sellers. However, the rollout has been far from smooth, with widespread confusion and misinformation clouding the process.
Brief Background
Over the past few years, several lawsuits have asserted that the real estate industry conspired to artificially inflate and maintain high commission rates. Specifically, nonnegotiable commission offers to the buyer’s agents were embedded in listing agreements, stifling competition and keeping commission rates to buyer’s agents unjustifiably high. While many in the industry argued that these steep commissions for buyer’s agents were often justified, both the verdict and consumer sentiment disagreed. On October 31, 2023, the jury in the Sitzer case (Sitzer v. National Association of Realtors et al) dealt a financial blow to the real estate industry that could have exceeded $5 billion when anti-trust penalties were included.
Following the massive jury award, many brokerages and trade groups argued that this case was wrongly decided and vowed to appeal. Despite their objections,
each brokerage, along with the National Association of Realtors, chose to settle for nearly $1 billion collectively practically, the maximum that they could afford without facing the possibility of bankruptcy.
Significantly, the Department of Justice urged the court not to approve these settlements unless changes to industry practices were implemented. Shortly thereafter, the National Association of Realtors agreed to implement new rules prohibiting listing agents and sellers from offering any compensation to buyer’s agents through the Multiple Listing Service (MLS) or other online platforms such as Zillow, Redfin, Realtor. com, and similar sites.
Buyers Must Now Secure Their Own Agent in Advance
As part of the sweeping changes, buyer’s agents must now negotiate and sign a written agreement with their clients specifying the amount of compensation the buyer will pay them.
This change is expected to enhance service quality and create downward pressure on commissions due to increased competition. Ultimately, this change should
result in buyers interviewing multiple agents and selecting more thoughtfully, benefiting experienced agents who offer exceptional service. Conversely, less experienced or knowledgeable agents may struggle under this more rigorous selection process.
The Troubling Industry Reaction
While this settlement represents a significant step forward for buyers and sellers, potentially leading to lower transaction costs and fewer barriers to selling, many agents are resisting these changes.
In fact, many listing agents and some brokerages are still attempting to persuade, or even pressure, sellers into contractually committing to offer 2% or more to the buyer’s agent, in addition to what they are already paying to their own agent.
Several potential sellers have recounted stories in which they were told that buyers would not know about the seller’s home if they did not offer to pay 2.5% to the buyer’s agents. Other agents have asserted that there would be a group boycott of any home not offering 2.5% commission. These self-serving threats completely overlook the fact that all homes listed on the MLS are widely available to the public and syndicated through popular consumer websites, such as Zillow, Redfin, Trulia, Realtor.com, as well as virtually all
brokerage websites. Agents cannot prevent this simply because the seller is not offering to pay the buyer’s agent commission.
The Path Forward
Simply put, sellers should avoid obligating themselves to pay any commission to the buyer’s agent in the listing agreement. In recent months, many DeLeon Realty sellers who offered little or no compensation to the buyer’s agent have still achieved excellent results. Many properties received multiple offers and sold well above the seller’s expectations, despite the significantly reduced transaction costs.
While some might argue that DeLeon Realty sellers benefit from the company’s practice of representing buyers without charging a buyer’s-side commission on DeLeon listings, other agents could implement similar approaches. Given public sentiment, recent court rulings, substantial settlements, and statements from the Department of Justice, it seems likely that all agents may need to adopt some of or all DeLeon Realty’s practices in the future. In the meantime, anyone considering listing a home should schedule a no-obligation meeting with me, or attend one of my seminars/webinars, to gain a clearer understanding of the evolving legal and real estate landscape.
DELEON REALTY'S SUCCESSFUL SALES WITH LESS TOTAL COMMISSIONS
Know the Facts About the New Realtor Rules
1. Sellers do not have to offer any commission to the buyer’s agent, which should reduce the commission to list a home dramatically
2. Even if a seller does agree to pay commission to the buyer’s agent, that offer cannot be advertised in the MLS or on third party websites, such as Zillow, Trulia or Redfin
3. Homes cannot be excluded from the MLS or third-party websites merely because the seller is not offering commission to the buyer’s agent
4. Buyers do not have to sign a contract to visit an open house
5. Buyers can give their information in a signin sheet at open houses, but this does not create a Buyer Representation contract
6. Buyers must negotiate and sign an agreement with their agent before touring properties with the agent
7. There is no “standard commission” in real estate. Both the seller’s and buyer’s commissions are negotiable and vary from agent to agent
8. Buyers may request that sellers pay some or all their commission obligation to their agent as part of their offer.
9. All DeLeon Realty listings can be purchased through a DeLeon buyer’s agent without the buyer or the seller paying any buyer’sside commission.
$18,000,000
$16,000,000
$14,000,000
$12,000,000
$10,000,000
$8,000,000
$6,000,000
$4,000,000
$2,000,000
LOS ALTOS
$4,600,000 $4,800,000
$4,400,000
$4,200,000
$4,000,000
$3,800,000
Jul-24
LOS ALTOS HILLS
$1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000
$0
Jul-24
$4,000,000
$3,500,000
MENLO PARK
$2,000,000
$1,500,000
$1,000,000
MOUNTAIN VIEW
Mountain View Inventory # of New Listings
PALO ALTO
$8,000,000
$7,000,000
$6,000,000
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
$10,000,000
$8,000,000
$6,000,000
$4,000,000
$2,000,000
BEFORE
A home listed by DeLeon Realty before our design team made any changes.
AFTER
The same home, refreshed and revitalized by the DeLeon Realty design team, sold for more than $1.5 million over asking.
