Monday, November 17, 2008

Alameda's "Measure P": What does it mean?

With the citizens of Alameda passing “Measure P,” an increase to the City of Alameda’s real property transfer tax from $5.40 to $12.00 per $1,000.00 of value, I wanted to look at it in real terms in whar it means when buying a home. I am going to stay away from the politics of the measure, which have been discussed on other blogs in detail, and look at the economics.

The tax is for the next 20 years and subject to audits, but what does it mean to the Real Estate market? The tax is charged when a property is sold and in Alameda it is common practice that the tax is split 50/50, between the Buyer and the Seller. Most new buyers are unware that the tax is even charged  and can come as a big surprise when it is time to sign the final documents. The tax will have some real estate scrambling to explain the additional cost and some buyers looking for additional cash.

So for my purposes, what does the tax mean when you close a transaction as a buyer and open your wallet to shell out the cash that everyone in the transaction is looking to grab when you sign your closing papers?

If you are purchasing a $500,000 home, the transfer tax under Measure P increases from $2,700 to $6,000. So if you are the buyer of an Alameda home you would need to pay $3,000, sticking to tradition, at the close. This would be an additional $1,650 under the new tax. Adding this to closing costs that run between 1% and 3% of the purchase price.

For our example, I will use 2% (loan origination, appraisal, processing fees) or $10,000, that a buyer will need come up with for those fees. Combined the tax and closing cost together and the tab comes to a whopping $13,000 total. This is just to close the transaction.

Lending standard have now tightening, I will use a 10% down payment to continue the example, a first time buyer would need roughly $63,000 for the down payment and closing costs to get the keys.

The big question for me is in a competitive housing landscape where is Alameda positioned?

In Alameda County, the City of Alameda will have the third highest transfer tax (see below). Only Berkeley, Oakland and Piedmont have higher transfer taxes while seven cities in the county and the unincorporated areas of Ashland, Castro Valley, Cherryland, San Lorenzo and Sunol do not charge the tax. I took a look at Contra Costa County and found that only the City of Richmond charges the tax. So of 33 cities in the two counties only 8 (24%) have a transfer tax.

City Real Property Conveyance Tax rates per thousand dollars of value are:

Berkeley         $15.00

Oakland          $15.00

Piedmont       $13.00

Alameda        $12.00 (as of election)

Albany            $11.50

San Leandro  $6.00

Hayward         $4.50

In real terms this will not stop people from buying in Alameda. The tax will just makes it tougher to do so for those new buyers or those trying to move up to a more expensive home. I do think is some (very few) savvy buyers will make it part of their decision, but many will just be shocked when they have to come up with more cash at the close. For some it may just put the purchase of home out of reach for a while longer.

The tax will be a bigger impact if quality of life declines in Alameda and people look at the cost compared to other cities that have similar lifestyle qualities. The added fees then would be something that we be additional reason to look elsewhere. If the City Council uses the tax to improve quality of life then it becomes an investment and keeps the market vaule of homes up. That will be a tough task, with what the council is facing with next year's budget.

Results of the election

A little lesson on Taxes -- Thanks to School House Rock for still teaching us all.

1 comment:

  1. General law cities (the ones not listed) which charge a nominal $1.00 per 1000. The unincorporated areas also get $1.10 per 1000

    per California Local Government Finance Almanac