As in most states, the real estate market in Los Angeles is governed by specific rules, regulations and tax laws. Here are some of the most important things to know if you’re considering buying a home in Los Angeles.
Home seller and buyer laws
California law requires that sellers fill out two separate disclosure statements, a real estate Transfer Disclosure Statement (TDS) and a Natural Hazard Disclosure (NHD) statement. The TDS covers known deficits with the home’s features and systems, while the NHD focuses on issues stemming from natural disasters.
California — and, by extension, Los Angeles — also allows for both judicial and non-judicial foreclosures, which means it’s up to the lender to decide whether or not to go through the court system in the event of foreclosure. Still, in California, non-judicial foreclosures are more common since they are often cheaper and take less time. However, deficiency judgments, which means the lender may be able to sue you after foreclosure to recoup any losses, are only allowed if the lender chooses to pursue a judicial foreclosure.
Ownership rules within a household are also important to know when buying a home. California is what is commonly described as a community property state. This means all property acquired during a marriage — including any real estate property — must be split equally in the event of a divorce or annulment, regardless of the circumstances or whose name is on the title. This is different from living in a so-called equitable distribution state, in which a judge typically decides how to split a couple’s assets based on factors such as individual income.
Finally, buyers should know they do not have to hire an attorney to manage the closing of their home purchase, as is required in some states. California is an escrow state, meaning buyers are allowed to use a representative from an escrow or title company to handle the close.
When property changes hands, most states — and many municipalities — collect a real estate transfer tax. In California, the state collects a tax based on the property’s sale price and calculated at the rate of $0.55 for each $500 of value. This means the sale of a $250,000 home would require payment of $275. Additionally, the City of Los Angeles imposes a documentary tax of $4.50 per $1,000. On that same $250,000 home, it would add an extra $1,125 to your tax bill.
On average, Los Angeles County charges 0.59% of the property’s value in taxes per year, according to Tax-Rates.org. This comes out to $3,538 in taxes on a home worth the median value of $599,680. At that rate, Los Angeles County has one of the highest median property tax rates in the country.
If paying those property taxes is an issue, there are property tax exemptions available, the most notable of which is the homeowner’s exemption. This allows the first $7,000 of the assessed value of your primary residence to be tax-free.Additional tax breaks are also available for disabled and non-disabled veterans.
Conforming loan limits
The conforming loan limit for a single-family home in Los Angeles County is $726,525, which is the limit for high-cost areas in 2019. These loan limits are set each year by the Federal Housing Finance Agency and represent the maximum amount you can borrow and still qualify for a loan guaranteed by government-sponsored enterprises Fannie Mae and Freddie Mac. The conforming loan limit for single-family homes in most of the country is $484,350, but it rises in pricier areas, such as Los Angeles.