A transfer tax is punishing and there are better ways

Several towns and cities, including Brookline, are considering petitioning the state for legislation to authorize the Town to levy a real estate transfer tax for the purpose of funding affordable housing. Although certainly well-intentioned, as currently written Warrant Article 9 from Brookline’s December 2019 Town Meeting runs the risk of galvanizing opposition to overall affordable housing efforts.

Essentially, the transfer tax would charge an additional fee of 2% on the sale of residential property in Brookline on the amount above $500,000. For example, on a $1,200,000 sale an additional $14,000 would be owed to the town.1

There are several cases to consider where the application of this would be unfair and/or could increase the cost of housing. Please consider the following scenarios, which I believe should be seriously considered when contemplating how to implement this new tax:

1) Even in a hot market some properties sell for less than they were purchased. (And this will increase in frequency if the market cools). Take for example 147 Brook St, Brookline. It was purchased in July 2015 for $1,500,000, and sold four years later in October 2019 for $1,380,000 after 114 days on market.

After accounting for transaction costs, such as mortgage closing costs when they bought and the commission when they sold, I’d estimate that seller’s loss to be $200,000. The transfer tax would have stung them for an additional $17,600. (After 114 days on the market, it’s a safe bet that the buyer would not be the one to absorb the “transfer fee.” Even if the law says that the buyer is responsible for half, they would just bake that into the sale price and pass it to the seller). Other examples include 213 Reservoir Road #1, which was purchased in 2016 for $670,000 and sold in 2019 for $630,000. Or 219 Crafts Road, purchased in 2018 for $641,000 and sold in 2019 for $625,000. This can happen in any market.

Depending on their mortgage and other payoffs, those sellers likely already had to bring money to the closing table. It’s not common under current market conditions to sell for a loss, but it does happen, and it will become more common when the housing cycle changes, or if housing affordability initiatives are successful.

2) The transfer tax proposal would also hurt people who have to move after a short tenure, forcing many of them to take a real loss even with modest price increases. Sometimes people need to move for work, or when their family situation changes. Imagine buying a home and then learning months later that your job is moving out of state. Or your parents need your help. This happens, and sellers are likely going to experience a financial loss.

In fact, of the homes sold over the past two years in Brookline, approximately 30% were held less than five years. 10% were held less than two years.2

The extra 1-2% cost will push some people who would otherwise break even into the red. Some will reconsider and hold on to their property, maybe even keeping it vacant, while they wait for the market to make them whole. That would be a tragic lose-lose resulting in reduced supply of available housing and higher prices.

3) While 2% of the sale price might seem small relative to the sale price, from the buyer’s perspective it could actually represent 5 to 10% of the cash they need to bring to the closing. The typical buyer with a mortgage makes a 20% down payment, meaning on the purchase of a $1.2M condo, they need $240,000 cash. On top of that they need to pay an additional $7,000 to $14,0003 for the tax, representing 2.9% to 5.8% additional. (Buyers stretching to afford a home might make a lower down payment, in which case the transfer fee represents an even larger percentage increase in the cash they need to save to buy.) That’s not peanuts!

In a very real way, that increases the price of housing and makes it less affordable – counter to the goal.

4) The added complexity of the transfer tax may tempt more people to sell to family or friends for a discount or with non-disclosed side terms instead of making their properties available to the general public. Hopefully most people would be honest, but some people would certainly search for loopholes. The problem with that goes beyond the lost revenue. As collateral damage, when people sell privately the property gets exposed almost exclusively to their own personal networks, which denies access to people from other backgrounds. That reduces diversity and fair housing.

5) I understand why people are supporting this idea – we want to do something. But the transfer tax could make housing more expensive, will push some sellers to lose money on their sale, and will hurt people who are already taking a loss.

If we need a new tax, why not tax the seller’s gain instead? (Similar to a capital gains tax). For example, if the buyer purchased a home for $30,000 in 1970 and sells it for $1,000,000 today, tax the $970,000 difference. If the home sells for less than it was purchased, then don’t tax it. I think that would eliminate most of those negative edge cases mentioned above.


  1. It specifies that the cost of the tax would be evenly split by the buyer and seller, but that’s just not how price increases work in the real world. “While one side of the market or the other might superficially appear to pay a tax, that is, the ones writing the check, more often than not both sides of the market share the tax burden. They share the burden by way of changes in their demand and supply prices. If a $10 tax, for example, results in an $8 increase in the demand price and a $2 decrease in the supply price, then buyers pay 80% of the tax and sellers pay the remaining 20%.” Read more: https://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=tax+incidence
  2. Based on the Assessors database, there were 1,929 sales of condos, single family, two family, and three family houses in Brookline from December 1, 2017 through October 31, 2019 where I could also identify the prior sale date and price. 580 (30%) of those were held for less than five years. 188 (10%) were held less than 2 years.
  3. If it’s a competitive bid situation (i.e. demand is less elastic than supply), common in a hot seller’s market, the buyer will bear most of the 2% transfer tax.
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AVI KAUFMAN is a top broker who lives in Brookline, Massachusetts and works there and surrounding communities, assisting buyers and sellers of residential property. He is building a unique practice dedicated to serving the best interest of his clients - see how he's different.