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Buyers Beware of Private Transfer Fees

February 11th, 2015 10:33 AM by Jackie A. Graves, President

Andy Dean/iStock/Thinkstock

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.

Real estate 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.

But most 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 transfer fees?

Developers sometimes 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®.

Private fees 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 home:

  1. 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.

  2. 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.

     By: Michele Lerner | To view the original article click here

Posted by Jackie A. Graves, President on February 11th, 2015 10:33 AM

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