Resale Fees or How I Learned to Stop Worrying and Love the Ban
Posted by Lee Cameron on Thursday, August 26th, 2010 at 1:58pm.
Can you imagine having to pay a fee to the original builder of your home when you resell it? Think your buyers imagine having to do the same when they're ready to sell? How about the buyers after that? If some developers get their way, that's exactly what would happen.
It's called a "resale fee" and it's certainly nothing new to anyone who's ever owned a condo or a townhouse. Typically, these homes require that a percentage of the sale price is due to the community whenever a home sells. The money from these resale fees - or "flip taxes", as they're sometimes called - goes into the community's funds to help with repairs, maintenance and many of the other benefits that such communities are expected to provide.
But some homebuilders are trying to include these fees with single-family homes as well. Here's how it would work. Each new home built by one of these developers would include a 1% fee written right into the deed that will be paid to the homebuilder every time the house is sold - in some cases, for up to 99 years! Keep in mind that these developers are usually not maintaining a common area or paying to keep up with the landscaping or providing any type of repair service - they're simply pocketing the money. In most cases, homebuilders aren't even required to call any attention to the fee, preferring to simply leave it to be overlooked as just one more complication in the already overly-complicated homebuying process.
This plan is being proposed by a New York-based financial company called Freehold Capital Partners. Freehold has signed thousands of developers up to this plan by offering them packages based on the estimated future income from including these fees in homes and allowing these homebuilders to take some of their money upfront to boost their development. Freehold claims that their plan will provide a boost to the economy by allowing developers to fund more building projects sooner, as well as providing a benefit to consumers (though they were somewhat less clear on how that would work).
Most real estate experts argue against this. Obviously, a flood of empty new inventory from newly cash-flushed builders is the last thing the housing market needs right now. The plan would also make it more complicated, and more expensive, for anyone looking to buy or sell any of these newly built homes. If there's one thing the economy doesn't need, it's something that will make buying and selling a home even harder.
So does all this seem fair to you?
If you don't think so, you're not alone. Florida has become one of 18 states (so far) to ban the use of these fees. But if you're looking to buy or sell outside the state, make sure you read the fine print and research the builder you might be working with. You might be getting robbed without even knowing it.
How about you? How do you feel about the proposed resale fees? Are they a good boost for the economy or a greedy Wall Street cash grab? Let me know.
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