When Sharon Weil decided in January to sell the Los Angeles home she inherited from her parents, she knew she’d be racing against the clock to get the deal done.
A new Los Angeles mansion tax, to be enacted April 1, will require sellers to pay 4% on sales of homes priced between $5 million and $10 million, and 5.5% on sales of properties at $10 million or above.
Ms. Weil, who listed her parents’ Brentwood home for $14.25 million, stood to save close to $800,000 if the deal closed before April 1. A screenwriter and author in her 60s, she quickly got to work, hiring a professional organization-and-cleaning crew to help declutter and spruce up the roughly 7,000-square-foot home. Within 10 days, professional photographers were brought in to shoot listing pictures. Soon, there was a stream of open houses and showings. Before she even had a buyer, Ms. Weil filled out all the paperwork needed to close the deal and opened escrow and title accounts.
“Don’t even talk to me about it,” she said, when asked if the last few weeks had been busy. “Whatever you can imagine, it was 10 times that.”
Over the past few weeks, L.A. homeowners have raced to close deals before the new tax, known locally as Measure ULA, goes into effect. Approved by voters in November 2022, the measure is intended to raise funds for the homeless and create affordable housing.
Measure ULA has been controversial. While proponents say the funds are badly needed to help provide solutions to L.A.’s homelessness crisis, opponents say the tax is punitively high and predict it will dampen activity at the high end of the real-estate market. The measure is also facing multiple lawsuits, with some challengers claiming it violates property owners’ equal protection rights under the 14th Amendment of the U.S. Constitution.
L.A. has seen a dramatic uptick in the number of luxury home sales in the run-up to Measure ULA. The number of contracts signed on homes at $5 million and above leapt 90% from 30 in January to 57 in February, according to real-estate appraiser Jonathan Miller of Miller Samuel. By comparison, the month-over-month jump at the same time last year was just 1.5%. While activity in February was still below the peak levels of early 2022 during the Covid-induced boom, the uptick is “far above what we would normally expect,” Mr. Miller said.
New York City introduced a transfer tax on luxury sales in 2019, but it wasn’t as significant, increasing incrementally with purchase prices of $2 million or more, and capping out at 3.9% for properties sold for $25 million and above. In the lead-up to the introduction of that tax, New York saw a 39.4% increase in transaction activity between the first and second quarter of 2019, some of which was attributed to the rush to close before the tax took effect, Mr. Miller said.
In many cases, L.A. deals are coming right down to the wire as they seek to close before Measure ULA hits, said Gail Hershowitz, a senior escrow officer and branch manager at Escrow of the West. Ms. Hershowitz said she has five deals in escrow, priced between $15 million and $49 million, that she has been told have to close by Friday. In some cases, she said, the sellers say they will cancel the deals if they don’t close in time.
As a result, deals that would usually take weeks or months to close must be completed in a matter of days, she said, noting that she has been working around the clock to get the paperwork in order.
“We’re scrambling,” she said, noting that frantic agents have been texting her as late as 10 p.m. “[Agents] have been phoning me, texting me, making me crazy all night.”
Real-estate agent and developer Tyrone McKillen said he and his cousin, Kane Olszowski, rushed to close on the sale of a house they renovated in the Hancock Park area before the new tax took effect. “It was the fastest deal of our career,” said Mr. McKillen, 35.
The 106-year-old home came on the market for $19.995 million in February, he said. The buyers toured the property on March 26, wrote an offer on March 27 and closed on March 29, paying $16 million cash.
Mr. McKillen declined to name the buyers, but said he and Mr. Olszowski, 25, knew that if they closed on or after April 1, they would need a higher offer to net the same amount on the project. Waiting to see if they would get a higher offer wasn’t worth the additional carry costs that come with holding on to the property, he said.
Moving forward, Mr. McKillen said the new tax will require them to be more careful when selecting development projects. “It will make deals harder to make sense on paper,” he said.
Douglas Elliman agent Jacob Greene said he has done roughly $60 million in deals this month, all of which were predicated on the ULA deadline. It was his busiest month in years, he said. Some of the deals have included a clause that requires the purchaser to close before April 1, or the seller can cancel the contract without penalty. Otherwise, if the deal moves forward, the buyer will be responsible for paying the tax, he said.
Mr. Greene said one of his clients closed Wednesday on the $9.5 million sale of a newly constructed, modern home in the Beverly Hills Post Office area. The house had been on and off the market since last year, last priced at $10.75 million. The sellers accepted the second-best offer, he said, because they felt it was more likely to close before the deadline than the highest bid. That meant leaving $100,000 on the table, but the seller felt it was worth it to avoid the new tax.
Some sellers parted with their properties for dramatically reduced sums as the deadline approached. Roughly a month ago, development company Viewpoint Collection cut the price of a newly constructed, roughly 17,000-square-foot mansion it was listing in the Bel-Air area to $36.95 million, down significantly from its original $47.5 million asking price. One of the listing agents, Tomer Fridman of Compass, said that every possible measure was taken to expedite the closing process to meet the April 1 deadline. A deal closed on the property March 30, according to a spokesperson for Sotheby’s International Realty, whose agent, Marc Noah, represented the buyer. The final sales price: a heavily discounted $26 million.
Agents and sellers are getting creative to make deals close before April 1, Mr. Greene said. In one instance, when a buyer’s loan didn’t come through on time, a seller stepped in to provide some financing in order to meet the deadline, he said.
Mr. Greene said his clients in the $5 million to $10 million price range—which buys far less in L.A. than much of the country—are the most impacted by the tax, although the dollar amounts they will pay are lower than those in the highest echelons of the market. For these homeowners, the differential in the sale proceeds is more meaningful than for clients at the very high end, who are much wealthier and often own a larger portfolio of homes.
For Ms. Weil, the seller of the Brentwood listing, the past few weeks have been a roller coaster. She’s had two deals fall out of escrow. The first buyer pulled out after getting spooked by the recent bank collapses, and the second deal was canceled after the buyer tried to renegotiate the price at the last moment, said one of Ms. Weil’s agents, David Kramer of Hilton & Hyland. When it looked like a third prospective buyer wouldn’t have time to line up financing with nine days to the deadline, Mr. Kramer said, he spent a late night on the phone with a hard-money lender and successfully negotiated a temporary loan on the buyer’s behalf.
That deal finally closed March 30 for $13.25 million, saving Ms. Weil nearly $730,000.
“I am feeling relieved,” she said.