February 11th, 2015 10:33 AM by Jackie A. Graves, President
As a home buyer,
you’re aware that you’ll have to pay closing costs and
taxes, but you should also be aware of a cost that might come back to bite
you when you’re ready to sell your property: a private transfer fee.
transactions typically come with a variety of fees, including property taxes, transfer taxes, or recordation taxes imposed
by state and local governments when a home is sold.
sellers may not be aware of private transfer fees—also known as “property
transfer fees” or “capital recovery fees”—that could also be required when a
home is sold.
What are private
will put a covenant in place when a new community is built, requiring that a
transfer fee be paid each time a property is sold. Depending on the home and
where it’s built, the fee may be in place for decades.
The fee, either a flat
fee or a percentage of the sales price, is typically paid by the seller.
In recent years,
regulatory changes have made these fees less common. In fact, as of September
2014, 43 states prohibit private transfer fees in most situations, according to
the National Association of REALTORS®.
vs. HOA fees
Homeowners and buyers
need to be aware of the differences between fees charged by developers and
those imposed by homeowners associations.
Private transfer fees: These fees were popular during
the housing downturn when funds for development were sparse and were used
by builders to pay for the cost of roads, sidewalks, sewer systems, and other
infrastructure. Developers said the fees allowed them to spread infrastructure
costs over a longer period of time rather than as a short-term cost to initial
buyers in a community. However, the Federal Housing Finance Agency issued a
ruling in 2012 that prohibits private transfer fees on loans guaranteed by
Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. The FHFA’s view is
that the fees were merely a revenue stream for builders rather than a necessity
for the development of infrastructure.
HOA fees: Homeowners associations often charge a
small fee when homes are sold within the community in order to pay for services
and capital improvements. According to the Community Associations Institute,
72% of HOAs impose transfer fees when homes are sold.
The FHFA says lenders
can make loans with transfer fees that are charged by HOAs, because those fees
benefit the community rather than developers.
How buyers can find
out about a transfer fee
Most properties don’t
include a private transfer fee, but buyers should be aware of the existence of
this extra fee. There are two ways to find out about a transfer fee on your
Sales disclosures should include the existence of the fee and an
explanation of why it is imposed. Even if the seller is the one who pays it
when you buy, you will eventually need to pay the fee when you sell the
property at some future date.
If a private transfer fee is not disclosed at
the time of contract, the title report issued during the sale will typically
include this information, because this fee should be listed as a covenant
against the property.
Keep in mind that even
if a private transfer fee isn’t imposed, you may have to pay an HOA fee when
you buy or sell a home within an HOA or condo association. Review association
documents to determine whether a transfer fee is imposed when properties change
hands and the amount of the fee.
However, if a transfer
fee is imposed, buyers typically have only two options: negotiate to ask the
sellers to pay the fee or walk away from the transaction and purchase
elsewhere. Before you do that, be sure to consider the benefits to the HOA of a
transfer fee, how much you want the home, and whether the cost is negligible
enough to ignore.
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