News of the National Treasury Department’s mandate last Wednesday has spread throughout the luxury real estate sphere, but will the call for title companies to identify high-end real estate transactions have a large enough impact on agents in Manhattan to cause an uproar?
Starting March 1, title insurance companies must disclose names of cash buyers purchasing properties over $3 million in Manhattan and $1 million in Miami. Agents of high-profile, luxury and off-shore clientele– although not the ones reporting names directly– are responsible for being better informed of their buyers. Some old practices, like receiving money wires from buyers overseas, probably aren’t a good idea under the new law.
The primary purpose for the law is to identify real estate investors who are avoiding city income taxes by claiming residency outside of the city or the United States. According to The New York Times, 89,000 of the city’s condos and co-ops (worth an estimated fair market value of $80 billion total) are owned by New York City nonresidents, properties purchased under LLC ownership or shell companies to mask the identities of buyers for high-end sales.
CEO of Miller Samuel and real estate expert Jonathan Miller estimates foreign buyers comprise about 40 percent of NYC’s real estate market. So what will happen to the local market after the law takes effect March 1?
So far, luxury home buyers from overseas drive down high-end rental prices. Condos for rent owned by foreign investors increase the total inventory of rentals in the city, allowing median rent among high-end apartments to dip in Manhattan. Further, foreign buyers aren’t just investing in high-priced units anymore. They are looking toward targeting lower-priced homes in other boroughs like Brooklyn, where prices are projected to increase after strong strides over the past decade.
Agent compliance come March 1
While most agree new condo developments and title companies will have the biggest hurdles to overcome because of the high number of LLC transactions, agents can protect themselves and their clients by being proactive.
If you deal in luxury listings or celebrity real estate, non-disclosure agreements might be a large part of your business. But when all-cash buyers come knocking at your door, keeping records of names is key. Knowing who you’re dealing with, no matter how “high profile” he or she claims to be, is important.
As mentioned before, don’t accept money wires or transfers to facilitate deals single-handedly.
Currently, real estate agents in Manhattan and Miami have little to overcome with the new law until it takes effect, but they might notice an influx of large, all-cash transactions in the next month to prepare for the impending parameters.
What does the future hold for luxury listing disclosure?
The law is only set for six months, which leaves many in the real estate industry wondering what the future holds for luxury transactions and buyer privacy.
On the topic of how the federal mandate may affect high-end Manhattan buyers as a whole, Jonathan Miller stated, “There is a much wider net being cast than, I believe, who is doing something actually illegal.”
“It’s overcompensation, and the fact that it’s six months suggests to me that it is a test. What they are going to find is very little activity,” he said.
For now, agents, lawyers, buyers, investors and firms won’t know exactly how these new regulations will look long-term, but many could wait it out to see if the law fizzles in September. In the meantime, some argue that those with enough money can circumvent the situation, not necessarily for tax purposes, but because they require anonymity.
Agents’ priority is to protect their clients’ best interest, which leaves the real estate professionals in a sticky situation for the short term.
