Sales of luxury homes spiked in the final months of 2012 as high-end homeowners rushed to take advantage of lower tax rates before January 1.
Many sellers wanted to cash in on their homes before a widely expected capital gains hike -- to 20% from 15% -- that was part of the fiscal cliff budget deal. High-income earners (singles with income of $200,000 or more and couples making more than $250,000) also wanted to close sales ahead of a 3.8% Medicare surtax on investment income that was already slated to go into effect this year as part of the Affordable Care Act.
All told, a high-earner would pay $88,000 less in taxes if they made a $1 million profit on their home in 2012 rather than in 2013.
That considerable tax savings motivated many wealthy homeowners to move fast. According to the National Association of Realtors (NAR), sales of homes valued at $1 million or more spiked 51% in November compared with a year earlier.
In Manhattan, one of the most expensive markets in the nation, the number of sales of home valued at more than $10 million jumped 44% year-over-year during the last three months of 2012, according to broker Brown Harris Stevens.
"Ever since last summer when people realized that the fiscal cliff was approaching, there was an incentive to get deals done," said Meredyth Smith, an agent for Sotheby's International Real Estate.
Several of her clients hurried to close by the end of December. When one prospective buyer couldn't move that quickly, the seller called off the deal entirely, she said. He may reprice it entirely before putting it back on the market this year, she said.
Some sellers lowered prices for buyers who promised to close before January 1. John Parsegian, an agent with Halstead Property, helped broker a $14 million condo sale in midtown Manhattan that closed in late December. The seller had structured the deal so that the home would cost $175,000 less if it finalized before January. He also threw in some furniture.
Other sellers prevailed on co-op boards to speed up their approval processes, according to Sotheby's CEO, Philip White. Managing agents representing co-ops and condos, had trouble handling all of the paperwork for all the sellers who were anxious to close.
For the first time in 26 years, Jonathan Miller, president of New York appraisal firm Miller Samuel, had to turn away business. "I call it 'bedlam in appraiserville,'" he said. "It was clearly skewed toward high-end properties."
Looking ahead, all those rushed deals could mean a slight slump in high-end sales early in 2013, said White. Not only will buyers be in shorter supply but the inventory of luxury homes has dropped precipitously.
But White thinks the drop-off will be short-lived. Historically low interest rates should continue making the long-term cost of buying these homes attractive to buyers. In addition, foreign buyers continue to invest in U.S. properties and many domestic buyers are starting to come off the sidelines now that home prices are starting to recover.