Written by Bob Hunt on Monday, 27 April 2015 1:56 pm
This year, one of the bills that received particular attention from the REALTORS®was Senate Bill 8 (Hertzberg), a proposal to impose taxes on services — something that is not currently done in California.
Real estate transactions are service intensive. Among the services that would be taxed under the Senate Bill 8 proposal are appraisal, home inspection, natural hazard disclosure reporting, pest control inspection and repair, title insurance, loan origination, and brokerage. They add up to a substantial number.
CAR legislative analysts estimated that service fees comprise about 13% of a sales price. That number seems a bit high to me, although they were including “services to prep for sale (painting, cleaning, landscaping, staging, etc.etc.”. But even a more modest estimate — say 8% – 10% — yields some significant numbers.
The REALTORS®‘ point to the legislators was that California doesn’t need anything that will increase the already too-high cost of housing. With the state-wide cost of a median-priced home at $447,000 (4th quarter, 2014), California has an affordability crisis. Fewer than 40% of its population can afford the median-priced home. Nationally, 59% can afford the U.S. median. California’s home ownership rate has dropped below 55%.
A 5% tax on the typical services for a median-priced California home would increase the transaction costs by more than $2,000; a 7.5% service tax would add about $3,000 to the total cost. Those numbers have real consequences. At today’s financing costs, the 5% tax would eliminate close to 25,000 potential buyers from that purchase. The 7.5% tax would similarly affect more than 36,000.
It’s easy to look at a tax proposal at a fairly high level of abstraction. Last week, on Legislative Day, 2,000 REALTORS®took it upon themselves to show legislators some of SB 8’s possible effects in the real world of high-cost, hard-to-afford housing.