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The mansion tax was a ‘nightmare’ for luxury Los Angeles real estate this year, ‘Selling Sunset’ star says. But 2024 could be a ‘sweet spot’ for buyers

The mansion tax was a ‘nightmare’ for luxury Los Angeles real estate this year, ‘Selling Sunset’ star says. But 2024 could be a ‘sweet spot’ for buyers

You may know her as the Barbie character who closes multi-million dollar deals for a Luxury real estate company based in Los Angeles on the hit Netflix TV series Selling the Sunset. But Emma Hernán was a real estate investor long before she became an agent selling properties to superstars.

This self-made multimillionaire, former model, entrepreneur and real estate investor earned her fortune investing in the stock market and startups before purchasing her own home in 2017. The following year, she began working for the Oppenheim group, the company she purchased her home with, focusing on selling luxury real estate to and for many celebrities. In 2023, she overcame many of the challenges facing the local real estate market, namely the new mansion tax, by helping the pop star Harry Styles selling his Los Angeles estate for $6.7 million.

Meanwhile, she also runs a vegan food manufacturing company based in Boston. Emma Leigh & Co., best known for its plant-based empanadas. The company also supplies other food companies, which it says has also been a boon to its real estate business as it rubs shoulders with CEOs and other executives, i.e. people who are likely to buy luxury homes. This bicoastal money expert owns several residential and commercial properties in Los Angeles and Boston, and calls her rental income “mailbox money.”

“When I rent my house, someone pays my mortgage, and my mortgage is paid off,” she says. Fortune. “And now I just get a check every month. So for me, it was a natural transition from the stock market to real estate.

Even with some big wins in 2023, being a luxury real estate agent to the world’s rich and famous isn’t as simple and opulent as it seems. High mortgage rates, which peaked at 8% in October, have hurt business, but the real obstacle has been the introduction of the property tax, which increases the sale price of properties by 4% to 5.5%. multi-million dollar properties.

Estate Property Tax Creates Problems for Los Angeles Real Estate.

In Los Angeles, the so-called mansion tax applies to sales of properties worth at least $5 million. Properties over $5 million are subject to an additional 4% tax, while properties over $10 million are subject to an additional 5.5% tax. tax usually paid by seller. The cost of the tax is separate from the sale price of a home and can represent a “huge amount of money,” Hernan says.

“If I could describe the real estate tax in one word, it would be ‘a nightmare,’” she says. “It took a lot of work away from us as agents, but also (from) the developers. Developers are less likely to buy another home to try and make a jump, because the numbers won’t add up when you add in that real estate tax.

In addition to Los Angeles, residential taxes are in effect in New York, New Jersey, Connecticut and Vermont.

The issue of housing tax, however, is a double-edged sword. Presented as Measure ULA, the transfer tax took effect in Los Angeles on April 1 with the intention that the city would use the funds it collects to direct more money toward affordable housing and homelessness prevention efforts in a time where more and more people are experiencing homelessness. An estimated 75,000 people were homeless in Los Angeles between June 2022 and June 2023, according to the Los Angeles Homeless Services Authorityan increase of 9% compared to the same period a year ago.

But as Hernan and other agents and housing experts point out, properties in Los Angeles are already incredibly expensive compared to most other cities. Indeed, not all million-dollar homes in Los Angeles can really be considered “mansions” which, according to an informal definition of Smith & Associates Real Estate, includes at least 5,000 square feet made with high-end materials and numerous recreational spaces like a gym, spa or home theater room. A simple median-priced home in Los Angeles costs $1.3 million, according to November numbers from Realtor.comwhich is more than triple the national median.

Now, Hernan warns clients about taxing real estate properties before preparing to sell. For example, if they sell their house for $5 million, they have to pay $200,000 more that they “didn’t really take into account when they bought the house because the property tax wasn’t not in play,” she said. Now, they could break even or even suffer a loss if they price the house at the actual value, she adds.

“It’s really a difficult thing for buyers and sellers and agents to deal with, of course, because we’re losing business as well,” Hernan says.

The “sweet spot” for buyers

On a more positive note, Hernan says she’s seen buyers outside of “home tax territory” get better deals on properties this year, especially as mortgage rates have fallen. In mid-October, the average 30-year fixed mortgage rate was 8%, but it has since fallen to about 6.6%, according to Daily Mortgage News.

Hernan subscribes to the “date the price, date the house” mentality and suggests this method to his luxury real estate clients.

“Buyers need to remember that you can’t renegotiate the price of a home, but you can renegotiate interest rates,” Hernan says, referring to refinancing a mortgage rate. “Even though interest rates are a little high right now, they want in. There’s an opportunity to get a really good price on a house because there’s not a lot of inventory right now .”

For this reason, Hernan expects more buyers and sellers to “dip their toes back in the water” next year, even after a slow 2023. In fact, she’s seeing that buyers are getting better deals on homes than they were a year and a half ago. up to 10 to 20% discount per accommodation.

“I tell my clients all the time to renegotiate and you’ll get a better interest rate in the end, but your house is foreclosed, and that’s the most important thing,” Hernan says. “I can’t control interest rates, but that’s the advice I give to clients.”

Follow your own advice

Despite all the ups and downs of 2023, Hernan expects 2024 to be his best year yet. Hernan plans to follow his own advice next year, considering purchasing more investment properties.

“That’s something very unique about me is that I’m not just another agent trying to sell houses,” she says.

But real estate agents will also face major changes to their compensation structure heading into 2024. The real estate industry was rocked in late October when a Missouri jury concluded that the National Association of Realtors conspired to artificially inflate prices. home sales commissions paid to real estate agents. agents.

THE Verdict at $1.8 billion could change real estate commissions as we know them. Typically, the total real estate commission paid by the seller is approximately 5-6% of the sales price. The result could threaten the livelihoods of real estate agents nationwide and, some say, make it more difficult for buyers trying to purchase a home. But nothing is “set in stone” yet about how the committee structure might change, Hernan said, likening the current outcome to a high school rumor.

“Think about the housing tax. There were rumors about the real estate tax before it took effect and whether or not it was going to happen,” says Hernan. “It’s just rumors, but I think they’re all things that really need to be thought through and thought through. We took a lot of hits last year, so I hope whatever decision is made is the best one. »

This story was originally featured on Fortune.com

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