Billionaire Overpays by Double for $100M Mansion

Russian tech billionaire Yuri Milner paid $100 million for a Silicon Valley mansion last year, breaking sales records. But now the Santa Clara County assessor says that he overpaid—by about half the true cost of the mansion. 

A year later, the tax man disagrees with its worth. On Tuesday the Santa Clara County assessor told the Mercury News that the estate, known as Palo Alto Loire Chateau, is worth markedly less than Milner paid for it: $50.27 million, to be exact. It means Milner shelled out 100% more than the estate is arguably worth by market standards. About 11 other luxury mansions were used as comparables and the home’s value was assessed by the county assessor’s office as well as three appraisers. 

“For whatever reason, and we don’t know, Mr. Milner purchased the property at more than its fair market value,” explains Larry Stone, Santa Clara County assessor, as he told the Mercury News. “It doesn’t happen very often and we knew at the time that it was unusual … since the highest assessed residential property in Silicon Valley prior to that time was $28.5 million.”

However, the lower assessment of the 17-acre, 25,000-square-foot estate means that Milner, a venture capitalist, will get a “big property tax break,” according to the Mercury News. He will pay $600,000 a year in taxes. If the property was assessed at the value Milner paid for it, he would have had to pay about $1.2 million a year. 

Still, $600,000 represents quite a revenue boon for the county: at the time of Milner’s purchase, the assessed value had been $25.7 million, according to Santa Clara County assessor records, and the tax bill $304,000 per year. It means taxes are almost doubling. 

As is the case with less expensive homes, sales price typically serves as the fair market value number. But it’s important to note that in the world of trophy real estate, fair market value and sales price are not the same thing. Since price at the ultra high-end is glaringly subjective to both seller’s and buyer’s personal tastes rather than pocketbooks, it’s not uncommon to see expensive homes fetch more than their “market value.” It means affluent homeowners sometimes enjoy taxes affiliated with a lower value than they might command for the home if they decide to sell. For example, the 2011 tax assessment on the Spelling Manor is $66.3 million even though it sold for $85 million, according to the L.A. County Assessor’s office.

The article notes that fair market value and sales price are not the same thing, and it’s not rare in the luxury home market for homes to sell for far more than their market value. Still, housing experts note that a $50 million discrepancy is surprising in the Milner purchase. 

“Our job is to figure out, if it was listed on the open market—which this was not—what would other buyers have been willing to pay for it?” says David Ginsborg, a deputy for the Santa Clara County assessor. “Our conclusion was there was no way anyone would have paid $100 million.”

The French chateau-style estate boasts 14 bathrooms, a ballroom, library, a home theatre, gym, indoor pool, sauna, private car washes in the garage, a 4,600-square-foot guest house, among other features.

The Wall Street Journal reports that the 49-year-old Yuri Milner, an investor in Facebook, Groupon and Zynga, whose primary residence is located in Moscow, has no immediate plans to move into the home.

“It’s like artwork: When some people want something badly enough, they will pay what they believe they have to pay to get it,” adds Stone. Indeed, it’s not the first time a billionaire has shelled out a staggering sum and possibly overpaid for a trophy home. Even so, “He may want to have a conversation with his Realtors.”

Source: “Russian Tycoon's Silicon Valley Mansion Worth Half its $100 Million Purchase Price, Assessor Says,” Mercury News and “Billionaire Paid Double Mansion's Worth, Assessor Says,"Forbes