The Real Deal Los Angeles

More LA homes are going under the knife

Because of California tax laws, homeowners are opting to renovate over moving

May 09, 2016 03:13PM

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Modern homes in L.A. (credit: LA Mesa Home Source, Spring Woodpaper)

Modern homes in L.A. (credit: LA Mesa Home Source, Spring Woodpaper)

It’s like plastic surgery, but for houses.

More than ever, Los Angeles homeowners are opting for pricey home renovations over relocation. Some buyers are even seeking homely, out-of-style houses with the intent of making extensive upgrades.

This trend is particularly salient in the Golden State, the Wall Street Journal reported, because of Proposition 13. Under that 1978 amendment to the state constitution, if a home is sold to a different owner, property taxes will be reassessed based on the most recent transaction, which could mean a drastic increase in taxes for the buyer. Because of this, Californian homeowners defer buying new homes at a greater rate than their counterparts elsewhere.

“Prop. 13 has a strong tendency to keep people in homes longer than they otherwise would be,” Paul Habibi, a professor of real estate at UCLA’s Ziman Center, told the Journal. “If the market is rising faster than the assessed values, you have all the economic incentive to stay in place.”

In L.A., homeowners stay put over two years longer compared to the national average, a 2005 National Bureau of Economic Research study found.

Marc and Jen Roskin, for instance, chose to renovate their Manhattan Beach home instead of moving because of Proposition 13. They purchased it for $1.3 million in 2004. Then they hired Robert Sweet of Ras-a, a Los Angeles design and build firm, to modernize their Spanish-style bungalow and spent an estimated $1.3 to $1.6 million for a new, modern facade and outdoor additions, including a terrace with seating.

Kofi Nartey, director of the sports and entertainment division at the Agency, estimated that the renovated property would likely sell for around $3.5 million to $3.8 million.

But the property facelift route isn’t always a cakewalk. Another couple converted their modern Bel Air home into a Mediterranean bungalow nine years ago, following the style trend of the time. But by the time it finished more than two years later, the contemporary look was back. [WSJ]Cathaleen Chen