Heads up: Your real estate sale prices will no longer be secret

Nathan Donato-Weinstein

Real Estate Reporter-Silicon Valley Business Journal

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When Google Inc. buys a building in Mountain View, or KB Home picks up a new development site in Fremont, you won’t find the price they paid printed on the recorded documents. The same is true for just about any sizable real estate deal these days.

But that will change in 2015, thanks to a little-noticed new law that restricts the ability of buyers and sellers to keep sale prices secret in California.

Assembly Bill 1888 requires transfer tax amounts be recorded on the face of deeds in sale transactions. Up until now, buyers and sellers were able to file that information (sometimes called the “tax stamp”) separately, shielding it from view, if they wanted to.

The tax disclosure is key because it is directly tied to the price of the property. Do a little simple math, and presto — you’ve got the sales price. The law will apply to commercial and residential property sales.

Sponsored by the Appraisal Institute and authored by Assemblyman Phil Ting (D-San Francisco), the new law should help provide a more accurate picture of property values, experts told me, though it might not have everyone cheering in secrecy-obsessed Silicon Valley.

“The public benefits when appraisals are done as accurately as possible,” said Kurt Reitmanof Menlo Park-based the Reitman Group. Reitman is government relations chair for the Northern California chapter of the Appraisal Institute, and was active in developing the legislation. “The more information we have, the more likely we are to come to an accurate conclusion.”

Of course, there’s a lot more to appraisal than confirming the price through the transfer taxes. Documentary transfer tax doesn’t tell you things like the buyer’s and seller’s motivations or other pieces of the puzzle that explain why a given property sold for a certain price. Environmental issues keeping the sale price down? Don’t expect to see that recorded on the deed. And the figure sometimes doesn’t reflect the actual valuation of a deal — for instance, if a buyer assumed a mortgage on a property.

“There’s so much else involved,” said Stan Tish, a principal with Berliner, Kidder & Tish in Santa Clara. “Verifying the sale price is just one component. You need to get the whole background.”

Yet the transfer tax is an important first step that can help provide a baseline level of knowledge. It’s especially important these days, as more and more buyers and sellers take vows of silence on their deals.

“When they were able to hide the tax stamps, we lost a method of confirmation,” Tish said. “In the market, things have been getting more close to the vest.”

Added Reitman: “I’ve found through my experience that if you have some experience with the sale price, the parties involved are more forthwith in telling you the truth.”

Not everyone is thrilled. Developers and corporations often like don’t like to publicly disclose sale prices, partly because it could set lofty expectations for future deals.

JoAnne L. Dunec, a shareholder in the Walnut Creek office of Miller Starr Regalia, said the new rules could restrict the negotiating power of buyers completing land assemblages involving several sellers.

“The pricing would be readily available, and then you wind up with a holdout,” said Dunec, who specializes in land-use transactions.

Then there’s the matter of simple privacy. “Once I was representing someone in an entertainment business and they simply didn’t want anything disclosed, simply out of policy,” she said.

To be sure, most deeds are already filed with the transfer tax listed. Those that aren’t are usually high-end residential sales and commercial properties.

And it’s worth noting that tax stamps have never been completely secret even under the old rules. Anyone could obtain the information from the county under a public records request (or, in San Mateo County’s case, by asking the clerk for the big binder behind the counter — as I do fairly regularly). Doing so, however, requires painstaking research (the records often only list assessor parcel numbers). Hardly anyone undertakes the effort.

The new law, appraisers pointed out, simply speeds and standardizes access to the information.

“It’s going to be a benefit to real estate appraisers no doubt, because the way it’s designed currently it’s difficult to get that information — though it’s not going to answer all the questions,” noted Jeff Enright, president of Burlingame based appraiser Enright & Co.

In fact, part of the reason for the law was to eliminate confusion surrounding access to records on transfer taxes, despite a 2007 opinion from the Attorney General mandating that the public be able to inspect tax records.

A Senate Governance & Finance Committee analysis found “disparities from county to county in how information about (transfer tax) can be obtained.” According to the report, “In some counties, the recorder’s office will disclose the amount of (documentary transfer tax) to anyone who requests that information for a specifically-identified recorded document. In other counties, a Public Records Act request must be filed to learn the amount of DTT paid on a recorded document. In at least one county, the amount of tax paid may not be provided even in response to a Public Records Act request.”

It will be interesting to see whether privacy-focused parties try to get around the new rule. In my conversations with local experts, two theoretical possibilities have surfaced: Buying the entity that owns the real estate, rather than the real estate itself; and inflating the transfer taxes paid simply to mess with the numbers.

Both have problems. Buying the limited liability company would mean buying all of its assets, some of which you might not want. And paying higher transfer tax than necessary (which is legal, if not very fun) would “open up a Pandora’s box” when the county re-assesses the land for property taxes, Reitman said.

Title companies and real estate attorneys have been telling their clients for weeks about the new law (a blog post Dunec wrote has received “a lot of hits,” she said). But it’s possible that a pushback could result. (There was no official opposition to the bill.)

“I think once people start understanding that their deal is going to be in the public record, there could be a reaction,” Dunec said.

There’s also the chance that after some initial grumbling, buyers and sellers learn to live with it. It might not be all bad, according to Tish.

“It’s a good thing for appraisers, but also a good thing for the market, because it makes it more efficient,” Tish said. “It can operate with better knowledge. The real estate market is illiquid and inefficient compared to the stock market. You can know the value of a company instantly. In real estate transactions, it takes a long time, and being able to know all the sale prices gives everyone in the market more knowledge.”