Q: I’m looking for information on the real estate related propositions included in this November’s voter ballot. What do they really mean for me personally?

A: Last week, we learned about Proposition 10. This week, I want to give a refresher on the issues behind Proposition 5. If you have been reading my column for a while, this is not a new topic, but with this measure officially on the ballot and your vote only a few days away, let’s look at it again!

“Prop 13” is the beloved California tax break for homeowners, allowing you to keep your property taxes low, based on the value at time of purchase, only rising up to 2% per year, regardless of dramatic increases in value. There are some exceptions to this, including reassessments for remodel, partial transfers, and ballot measures that add to your property tax bill. However, with a generally stable property tax bill, you don’t have to worry about your home’s appreciation causing tax increases that prevent affording your own home. For senior citizens who purchased their homes for a fraction of todays’ values, this benefit cannot be overstated. The reassessment of the property tax based on current market values occurs only upon sale of the property. Great for the homeowner staying in place, but what about when the homeowner is trapped in place?

Many seniors can’t afford the “moving penalty” they incur in the form of increased property taxes incurred when even downsizing results in purchasing a home at todays’ high prices and the higher property taxes those prices bring. CalChamber Advocacy reports that this anticipated “moving penalty” is the cause of almost 75% of homeowners over the age of 55 having not moved since the year 2000!! These homes, often bought long ago at much lower prices, are not re-entering the housing market, and are not available for the many new buyers who hope to acquire their first home. Homes are simply not turning over, and the shortage in inventory creates a spike in prices and rents, making the American dream of homeownership even harder to attain.

Proposition 5 expands on existing laws meant to protect seniors from property tax shock and unaffordable increases in living costs. Propositions 60 and 90 were the prior steps in this process.  Prop 60 allows a senior citizen, once in their lifetime only, to replace their existing property with one of equal or lesser value within the same county, and retain their Prop 13 property tax basis. Proposition 90 extended that protection to properties bought and sold in participating counties. However, only Alameda, San Diego, El Dorado, Riverside, San Mateo, Ventura, Los Angeles, San Bernardino, Santa Clara, Tuolomne and Orange Counties participate.

Proposition 5, if passed, would permit seniors and disabled homeowners to transfer their existing Prop 13 assessed values to new homes anywhere within California, and as often as they choose. It also provides a new form of blended assessments, allowing for the possibility of buying either a more expensive or less expensive home than the one being sold. Jeff Collins, a writer for the Orange County Register, provides an excellent summary of how these blended assessments would be calculated:

“More expensive: Say a couple owned a home for 30 years and its current assessed value is $75,000, meaning they pay $750 in annual property taxes. They sell the home for $600,000 and buy a new one for $700,000. Their new tax assessment would be $75,000 plus $100,000 (the difference between the old home’s sales price and the new home’s sales price). Their new property tax would be $1,750.

Less expensive: Say the same couple sold their old home for $600,000, then paid $500,000 for a condo. Since the condo’s price is 83 percent of the old home’s sales price, the new assessment would be 83 percent of the old, or $62,500. Their new property tax would be $625.”

This Proposition is important, not just to seniors who would be finally given the freedom to choose whether to stay in place or move, but to potential new homebuyers desperate for relief from the low housing inventory and high prices in the current market. Its passing is anticipated to have the effect of not only increasing the quality of life for senior homeowners, but positively impacting California’s economy and real estate markets. Those against Proposition 5 argue that there will be a major loss in tax collections without those increases caused by moves. However, when you take into account the increase in property taxes collectible by allowing all of those seniors’ homes to be sold at todays’ prices, it seems like a win for everyone. Take a look for yourself at the proposal, it’s pros and cons, and whichever side you favor, show up to vote!

Disclaimer: This article is intended to be primarily for entertainment purposes, and is not to be considered legal advice.

 ABOUT LISA PHILLIPS, ESQ./ CA Dept. of Real Estate, License #01189413

Lisa Phillips is an active Realtor® in the Los Angeles area, a licensed Broker and Attorney for more than 20 years. Lisa is also a member of the National Association of Realtors “Green Resource Council”, having achieved its “GREEN” Designation, and a Broker-Associate with Real Estate Collective. Her unparalleled knowledge of real estate, from local markets and pricing to legal issues and deal-making, has made her a trusted and valuable asset to her clients. In addition to her real estate and business savvy, Lisa is passionate about helping others, and works tirelessly for her clients, as well as several charitable causes. For more information or to have a question answered in a future Q&A column, please email [email protected] or visit www.LisaPhillipsRealEstate.com.