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When someone expresses interest, Swann instructs them to contact their firm's stock plan administrator or general counsel to see if their shares are transferable. They generally would need board approval for a transfer, she said.
Swan added that two former employees of San Francisco tech giants told her such transfers "happened all the time" before those companies went public because "they wanted to keep their employees happy."
Investment banker Storm Duncan was seeking Anthropic stock in exchange for his four-bedroom, five-bathroom home with an adjoining 13 acres in Mill Valley. Duncan created a LinkedIn profile for the property at 114 Inez Place, but has since taken down the account.
Duncan said he was contacted by Anthropic shareholders but would not comment on whether a deal was made. "It was never on the market. I was trying to do a transaction for private Anthropic stock," he said. "The transaction is no longer an option for people."
According to the San Francisco Standard, Duncan said the deal would offer unspecified tax advantages. Duncan also said he wanted to attract a young Anthropic employee living on an engineer's salary.
Restrictions on private-stock sales
But even if an Anthropic employee were interested in using their equity to buy a home, there's a hurdle: Most private companies restrict how investors and employees can sell or transfer their shares before an IPO or sale of the company. These restrictions can vary depending on factors such as when they joined or invested in the company.
Some might allow sales or transfers with board permission, or demand a right of first refusal if the holder wants to unload shares. Some might allow sales on secondary markets, where people trade privately held stock. But in general, it's very difficult for rank-and-file workers to sell, pledge or transfer their equity outside of a company-sanctioned event.
As companies have stayed private longer, some late-stage firms have given employees a chance to cash in a portion of their equity before an IPO, by selling it back to the company or to institutional investors as part of a tender offer, Brumberg said. Anthropic, OpenAI, Databricks and SpaceX have done the latter. Anthropic employees were given a chance to sell some of their shares at a $350 billion valuation earlier this year (far short of the current $965 billion valuation). As a group they did not sell the maximum amount allowed, according to news reports, suggesting that some opted to hold out for an IPO.
Borrowing against private equity
Another way employees of a large private company might be able to tap their pre-IPO equity — without selling it and realizing a taxable gain — is by borrowing against it. This would give them cash, but not stock, to buy a home.
Most large banks and brokerage firms let clients borrow against their publicly traded securities without selling them and incurring a capital gain. But only a handful will lend against privately traded stock. (First Republic Bank used to do this, until it failed and was taken over by JPMorgan Chase.)
Rhode Island-based Citizens Private Bank, which made a push into California after First Republic's demise, will make this type of loan, for the right clients. "We have done many of these," said Garret Spiecker, senior managing director at the bank. "We select really strong, stable companies, like OpenAI, Anthropic, Stripe, Databricks. We will look at the value of their equity and use the value of their shares to help with the mortgage or down payment." Most of these clients plan to pay off the loan after their company goes public.
Spiecker says this is not the first time he has seen home sellers soliciting stock in hot IPOs. "It's great headlines. It's eye-catching. But these companies don't want individuals who are not employees on their cap tables," (meaning their record of stock ownership). "Anything is possible, but I have not seen it done."
The rare cases
Ken DeLeon, head of DeLeon Realty in Palo Alto has seen it done. In 2007, he represented the seller of a home in Palo Alto who took about $1 million worth of shares in a venture-backed startup for part of his purchase price. The seller "was an entrepreneur, so he was open to it," DeLeon said.
DeLeon also accepted shares in the company as his commission. "It was viewed as a taxable event by all parties," he said.
A few years later, Google acquired the company, which made a visual search engine. "We made a nice profit so it worked out well for all of us," he said.
"Recently, I know sellers who were offered 50% of the purchase price in a start-up. It was too risky for them, but they considered it."
Feeding frenzy
Art Sharif, an agent with Sotheby's International Realty who works in Silicon Valley, said he frequently encounters buyers offering stock in startups for homes. "The only reason it doesn't happen more often is that sellers are not sophisticated enough to understand how that will work," he said.
"Right now I have people looking to buy a house, they have SpaceX (stock). They want to buy a home now," before Elon Musk's rocket company goes public, he said. Last month, SpaceX filed to go public, but did not set an IPO date or price.
Why not wait until the IPO? Some buyers believe that once SpaceX, OpenAI and Anthropic go public, the price of luxury homes will shoot even higher.
"That's why we have this feeding frenzy, especially in the high-end. They think, if another company goes (public) first, that's going to have a negative impact" on ones that follow, Sharif said.
Employees hoping to cash in right after an IPO might have to wait months. Most companies have "lockup" periods that prevent employees and pre-IPO investors from selling their shares for three or, more commonly, six months after an IPO. SpaceX, however, will let them start selling earlier, at staggered intervals based on time and company performance.
Tax and valuation complications
These IPOs will likely create a windfall for state and local governments. Employees and early investors who sell their stock will pay capital gains tax on their profit. California taxes capital gains at the same rate as ordinary income from a job, at rates up to 13.3%.
If these people then buy homes, the sellers will likely pay capital gains tax on their home-sale profit. Home sales will also be subject to one-time transfer taxes, and the home will be reassessed at market value, likely triggering an increase in property taxes.
Typically, these taxes are based on the cash price paid for a home. If a buyer paid in private-company stock, the valuation gets complicated.
In a real estate deal that calls for payment with stock, the price is set in the contract, but the number of shares needed to satisfy that price is based on the value of the shares on the closing date, not the date of the contract, Ditelberg said.The value of privately held stock could change between the time a contract is struck and the day of the sale, meaning the buyer might have to give up more or fewer shares than expected.
Privately held shares are also notoriously hard to value. Buyers and sellers might use a "409A valuation" to determine the value of a transaction. This is an independent appraisal of the market value of a private company's common stock used to set the legal "strike price" for employee stock options. But there is no guarantee the Internal Revenue Service — or county assessors — will use these values for capital gains and property taxes, respectively.
"The IRS could come back and say you used $50 a share, we think you should use $90 a share," Ditelberg said. Then suddenly, the taxable value paid by the seller, and realized by the seller, is much higher.
Normally when a property changes hands, it is reassessed, for property tax purposes, at the sales price. But in a transaction where the buyer used pre-IPO stock, the assessor's office would determine its fair market value by performing an appraisal "that includes the sales comparison method based on timely cash transactions of comparable properties," Santa Clara County Assessor Neysa Fligor said via email.
Sonoma County Assessor Deva Proto agreed. "We are required to enroll the full market/cash value of the property, regardless of what type of payment was used," she said via email. "We'd be valuing it based primarily on comps to determine the market value."
Email Kathleen Pender at kathpender84@gmail.com
