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If you’ve been following the real estate scene in the Golden State, you’re likely aware of some noteworthy changes on the horizon. So, what’s the buzz all about, and how might these changes impact you?
California Housing Legislation with far-reaching Implications 2023
Governor Gavin Newsom signed 56 pieces of legislations as of October 11, 2023 that are of significant importance as they aim to address California’s well-known housing shortage.
For example, AB 1033 Accessory dwelling units: local ordinances: separate sale or conveyance allows accessory dwelling units (ADUs) to be sold separately as a condominium unit separate from the main home if a city ordinance allows. This law was passed on passed on October 11, 2023.
Delve into the full texts of these laws by visiting: http://leginfo.legislature.ca.gov.
Other watershed housing reforms passed in California in 2021 and 2022:
On September 16, 2021, Housing development: approvals, SB 9 in California was passed to allow multiple units in single-family zoned parcel.
On September 28 2022, Affordable Housing and High Road Act of 2022 or AB 2011 by Assembly member Buffy Wicks (D-Oakland) and The Middle-Class Housing Act or SB 6 by Senator Anna Caballero (D-Merced) were passed with the primary goal of creating much-needed new housing units for low and middle income Californians. These new laws allow housing to be built in underutilized commercial sites currently zoned for retail, office, and parking uses.
California legislation relating to Affordable Rental Housing for 55+ in 2022
SB-591 Senior citizens: intergenerational housing developments (September 28, 2021)
SB 591 which took effect on January 1, 2022, permits intergenerational housing development if (1) at least 80 percent of the occupied dwelling units are occupied by at least one senior citizen, as specified, and up to 20 percent of the occupied dwelling units are occupied by at least one caregiver or transition age youth, as defined, and (2) the development is an affordable rental housing development.
Learn more about SB-591 here.
As a background, the Federal Fair Housing Act prohibits discrimination in the sale, rental and financing of residential of dwellings based upon familial status. Its provisions generally bar restrictions in an association’s governing documents (i.e., its CC&Rs) that serve to exclude children from the association’s development. In 1988 Congress created an exemption to the provisions barring discrimination on the basis of familial status for those housing developments that qualified as housing for persons age 55 and older (senior communities). This exemption was then refined through the Housing for Older Persons Act of 1995 (HOPA). HOPA is administered through by Department of Housing and Urban Development (HUD).
Read more about Housing for Older Persons Act of 1995
California Property Taxes Exemption Prop 19
Note that this is not a complete list of housing-related laws passed recently in CA.
Please read more about the recent laws here: http://leginfo.legislature.ca.gov.
We anticipate that these new California housing laws will have intended and unintended consequences that will reverberate through the housing market.
Other Impactful Changes Facing California Real Estate
The California ADU Revolution
Let’s take a moment to discuss Accessory Dwelling Units (ADUs). These homes have been a stellar illustration of how state laws can stimulate construction. Since 2018, almost 45,000 ADUs have been erected, thanks to streamlined regulations.
Recently passed law curtail the authority of local jurisdictions to demand that property owners reside on the same premises as their ADUs. This alteration could potentially result in more homes entering the market.
AB 1033 by Assemblymember Philip Ting (D-San Francisco) – Accessory dwelling units: local ordinances: separate sale or conveyance.
Read more about favorable ADU housing laws in California
The Rising Costs of Home Insurance due to Climate Change
Now, let’s confront the issue that’s looming large: the escalating costs of home insurance. Some major insurance companies, including State Farm and Allstate, have opted to exit the California home insurance market in May of 2023. The reason? Climate change. Wildfires are becoming more frequent and intense, and the risks have become too substantial.
This directly affects California buyers and sellers. With fewer insurance options, premiums are on the rise. This means additional financial burden to homeowners, and it could also influence property prices. If insurance costs continue to surge, it might impact the affordability and availability of property insurance especially in high-risk areas.
AB-38 Fire safety: low-cost retrofits: regional capacity review: wildfire mitigation
The rising costs of home insurance in California
The Shifting Real Estate Transaction Landscape
There’s one more twist in the tale. The Sitzer/Burnett lawsuit against the National Association of Realtors (NAR) has brought another dimension to the real estate market.
On October 31, 2023, the jury determined that NAR, Keller Williams, and HomeServices of America were guilty of colluding over commissions and ordered the defendants to pay $1.78 billion in damages.
According to NAR, the case is not over as they plan to make an appeal.
What issue comes to light with the N.A.R. Commisions Lawsuit?
It touches on the practice of bundling a buyer’s agent compensation with the listing agent’s commission as total real estate commissions. For decades, it is typically the seller who pays the total real estate commissions for both the listing agent and the buyer’s agent.
In California, the commissions are typically documented in writing and negotiated by both parties. If the seller and listing broker decide to publish their listing on the MLS, the listing broker typically publishes the compensation for the co-operating buyer’s agent either as an amount or percentage.
In many cases, when a buyer decides to hire a buyer’s agent to make an offer and negotiate a successful purchase of a home, the buyer’s agent gets paid the amount or percentage negotiated at the time of listing between the homeowner and the listing broker and published as the cooperating agent’s compensation on the MLS.
The real estate commission are paid out of the seller’s equity/ net proceeds from the sale of the home. Of course, the source of the liquid funds (whether all-cash or buyer’s lender financed amount and down payment) ultimately come from the buyer.
What you need to know:
- Real estate commissions are negotiable and are always set between the broker and the client (buyer or seller).
- Most sellers have a written listing agreement with their real estate brokers/agents that detail their listing terms, working relationship and compensation. Buyers and buyer’s agents/buyer’s brokers would do well to also have their buyer’s broker/agent representation agreement be in writing including clarity of how the buyer’s agent (and/or buyer’s real estate broker) is going to be compensated.
- Various real estate brokers in the state have varying real estate commissions and business models and type of services that they offer. Home buyers and sellers in California have a choice and they should carefully research what works for them and who they want to hire to work for them (if they so choose to hire a licensed real estate agent).
So, how will this lawsuit affect buyers and sellers?
It could impact the transparency of agent compensation and the potential for conflicts of interest in real estate transactions.
Buyers and sellers may see changes in how agent fees are negotiated and disclosed, potentially influencing the overall cost of a real estate transaction.
What Does This Mean for You?
So, where does this leave you? If you’re a buyer, these new housing related laws could potentially broaden your housing options as we see more building that increase housing supply; making it more feasible to find your ideal California home. However, it’s prudent to remain vigilant about insurance costs, particularly in areas prone to wildfires. Additionally, the lawsuit against the NAR may bring changes in how you engage with real estate agents, potentially affecting your transaction process.
For sellers, these changes could influence property values and the demand for homes. An increased supply of housing options, including more affordable units, might provide buyers with greater choices, potentially affecting sale prices. The insurance factor may also play a role in negotiations. Moreover, the lawsuit against the NAR could change the dynamics of real estate transactions and agent compensation.
In conclusion, the California housing market is undergoing a transformative phase. These new laws offer promise for those looking to buy or sell a home. They represent a step forward in addressing California’s housing crisis. Nevertheless, it’s advisable to stay well-informed about the evolving real estate landscape, insurance costs, and potential changes in real estate transactions. Whether you’re a buyer or seller, being knowledgeable is your most valuable asset as you navigate California’s continually evolving real estate arena
