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Similar Results, Different Routes

Updated: Dec 20, 2023

different routes

Our local market for residential real estate sales is seeing a virtual standoff between market forces of supply and demand. Statistically, this has kept our Inventory at a similar level to where it was at this time last year, with 300 homes on the market compared to 286 last September, and the usual end-of-summer upswing staying within a percent of where it was a year ago, but the way the transactions are playing out has changed.

For one, despite lower numbers of first-time buyers able to qualify for homes they could have afforded last year at the current interest rates, move-up buyers are still able to afford the next home getting smaller loans with the help of their increased equity thanks to the appreciation of the home they are selling, which keeps their monthly payments at a familiar level.

With move-up transactions constituting a larger share of the market, and savvy sellers aware of the affordability challenge facing new buyers with the higher interest rates, increasing numbers of sellers are willing to accept a contract contingent on the sale of the buyer’s current home.

We have seen this first-hand at the new 15-townhome subdivision we are marketing in Soquel, where we have multiple homes available to sell which takes away the FOMO factor for the developer seller. In fact, 2 of our 5 transactions to date have been reliant on a concurrent close of escrow, and if our latest prospective purchase linked to a sale goes together it will put the number at fully 50% of our sales having been linked to the sale of the buyers’ homes.

There are additional perks under the current property tax transfer rules driving the motivation for buyers 55 and older transferring their personal residence since they keep the tax base on the place they are selling if they are buying down. And even if they are buying up, they are still able to save on property taxes by having their basis increase only by the difference between the purchase price of the new home and the selling price of their current place.

Since we are close to the end of the year, there are also strategies available to minimize the tax consequence of liquidating investment portfolio assets as well such as having a Seller who is willing carry a short-term second note to help the buyer break up the sale of their portfolio between tax years to stay under the $250,000 limit to avoid an additional 4% tax on the proceeds.

The continued low inventory in the absence of a clear upward trend in prices has also seen a resurgence of issues with appraisers being able to bring property values in at the contract price, due to a lack of available comps, despite there being multiple homes in contract for their asking prices or higher. But as with most challenges, a solution can often be reached with the help of agents who know how to navigate a different route if the parties are open to ideas they may not have otherwise considered.

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