By Robert Freedman, senior editor, REALTOR® Magazine
In real estate, the fewer things that stand in the way of transfer of clear title the better. Of course, as a practical matter, we accept that some properties come with some encumbrances. For example, we might buy a property that includes a utility easement. Because we accept the value of that easement, we buy the property and accept the restriction it places on our use of the property.
But what if the property comes with an encumbrance that provides no public good? That’s what buyers increasingly are facing because of the growth of private transfer fees. These are encumbrances imposed on the title of a new property by the developer to generate a future income stream, whenever the property is bought and sold.
Specifics will differ with each encumbrance, but in general, for the term of the restriction (up to 99 years, typically), the developer imposes a fee—say 1 percent of the purchase price—payable before there can be clear transfer of title.
Six states have already taken action against these fees, incuduing four that have banned them outright.
If these fees are something you think your state association of REALTORS® should look at, you should know that NAR is making free help available to them for drafting proposed state legislation seeking their ban. NAR has model legislation already available, but it also is working with a law firm to draft at no charge to the association proposed legislation to meet their state’s needs. State associations then have a solution to offer their lawmakers when they let them know of their concerns.
In the six-minute video above, Gerry Allen of NAR Community and Political Affairs talks about the growth of the fees, what states are doing to stop them, and how NAR’s assistance can help.
The key is disclosure. I thin the NAR should work on disclosure legislation rather than banning the fees. I can envision many situations where the developer can use the fees to build a better community. Especially today when developers are stuck with so many developments that were purchased before the real estate depression and are still holding on to their properties. There are not many ways to fund developments. Realtors it would appear would have more product to sell if the developers only other alternative is bankruptcy. I live in a St. Joe development in Florida and the 1/2 percent transfer fees as used to make a better neighborhood.
I’m a Realtor, but I think the NAR is on the wrong side of this issue. I agree that a government transfer fee is nothing but an extra fee that raises the cost of home ownership for everyone, but if builders can lower the price by assessing a transfer fee to pay for improvements, then I say “great”! I have had a number of deals fall through where an extra $5,000 or $10,000 off the price now would make a huge difference, and a lot of these transfer fee covenants send money back into community non-profits.
Great story. Rather than letting project owners impose transfer fees as a mechanism of generating some liquidity in their projects, we are much better off letting their projects go into foreclosure because, if nothing else, we see how foreclosures are really helping the real estate market and the realtors’ business. It looks like you guys are really on the ball and thinking through the issues. Plus, foreclosures will cause banks to suffer losses, resulting in more taxpayer bailouts. And god forbid that a developer should somehow sell off a transfer fee income stream so that he can invest some money into developing his property AND put people back to work AND lower the initial purchase price for the buyers. The last thing we need is some new instrument that is going to end up creating jobs. Let’s stick with the current program. It will make those hedge funds that are buying distressed assets lots of money!
I have been a real estate agent for more than 30 years, and all I have to say is, are you guys serious? THIS is what the NAR is focused on? We need to be figuring out how we can use private transfer fees to bridge the gap between buyer and seller and to save deals (or, better yet, how to bring Freehold into the fold!). If I can get the clients to the table and save a deal, or sell a property that my buyer can actually qualify for, then I am all for it. If there are no sales, there are no commissions. Its short-sighted thinking on the NAR’s part. Just have the transfer fee put onto the earnest money contract like everything else. No buyer in his right mind will give a darn about a 1% fee paid years down the road – they want to know how much the house will cost and can they qualify for the loan, and if the fee makes the answer to both of those questions easier, then, once again, I am all for it.
I am a licensed broker. The NAR needs to RETHINK this. Transfer fees have been used well in many states for years..look at Lennar programs for example. If transfer fees are DISCLOSED and can provide funding so developers can offer houses for less and build more viable communities it will give realtors MORE product to sell at more competitive rates. Realtors need good product to sell. There are NO other programs to help existing developments that are struggling against neighborhoods being sold by banks at 25 cents on the dollar. Banks are killing developers by not offering traditional CRE loans and by selling defaulted inventory for so cheap. The JOBS that would be created nationwide by a funding of this sort must be enormous. I am sure thousands of construction jobs would come back in each county quickly from a funding event. For the few developments left standing that are not bankrupt, the NAR needs to get behind this program and help make it work intelligently for all. The KEY is not the application of the TRANSFER FEES for money trickling in over the years, but the ability to sell the instruments now – and monetize them now for immediate funding to use to pay community banks and immediately reinvigorate the local building trades.
I have been a Real Estate Agent for 20 years and have done a significant amount of commercial and residential transactions. Not quite sure why NAR is spending their time on this issue as I believe it boils down to property rights. I certainly do not think that a 1% fee would hamper a sale of a property. As long as it is disclosed, the market place will be the determining factor as to the marketability of the property with all its flaws, imperfections and encumbrances. I have sold many properties with encumbrances, deed restrictions, mineral rights etc. If Transfer Fees, as I understand it, will assist in providing liquidity so that local municipalities, bond holders, banks, and other lien holders get paid, we would see some stabilization instead of the continued deterioration of values, therefore I dont understand the opposition. Since their rationale for oppostion is unclear, one could conclude that the NAR position is derived from the notion that the agents fees may be reduced as a result of transfer fees. Agents certainly dont have to reduce their fees at all. However, most agents I know would gladly take 5% in a healthy vibrant market than 6% in a stagnant market. The current market conditions may last for 10 years unless liquidity returns quickly, 6% of nothing is nothing. If this is the case, extremely short sighted, the NAR will be utimately doing more harm to its agents/members.
While there appears to be some opposition to private transfer fees, it looks like the overwhelming majority of the respondents I have seen like the idea. It provides needed funding to Real Estate Developers which creates jobs and pays off or down debt. It even provides opportunity for Realtors to sell more lots and/or homes. Sounds like a win-win to me. Why is the NAR apposing this? Where is their support coming from? Most Realtors I’ve spoken to like the idea. Could there be an alternative agenda here and if so, what & why?
I’m a Realtor and I support private transfer fees!
I have reviewed the NAR Report opposing Transfer Fees and take exception to the position of our association. My research suggests the benefits of transfer fees far outweigh the risks. In fact, I fail to see any risks. Please find below in quotes, excerpts from the NAR Report with my comments & suggestions:
“NAR believes such fees decrease affordability” – My research suggests a competitive advantage is created for Developers who are able to LOWER property prices (especially on the front end) thereby INCREASING affordability.
“serve no public purpose” – Perhaps, but we are talking about private real estate transactions, not a public service. As long as we provide full disclosure, we are doing our job and fulfilling our responsibility to our clients.
“provide no benefit to property purchasers” – When private transfer fees are put in place to fund amenities, infrastructure, etc., in an economy where this might make or break the development, one could conclude they benefit the purchasers by making the development possible and therefore the purchase possible.
“Because private transfer fee deed restrictions are often difficult to discover, and, therefore, disclose prior to a transaction, REALTORS® risk liability issues” – I don’t get this point. As a Realtor, I ALWAYS recommend the buyers I work with secure title insurance in their name (which requires a title search). With title insurance, transfer fees would be discovered & disclosed as would any encumbrance or deed restriction on the property. I’m in favor of FULL DISCLOSURE and allowing the Buyer to make their own decision to buy or not to buy (or even use the existence of a transfer fee as a point of negotiation to perhaps lower the price). If we all do our job, I don’t see any additional risk here.
“deed restrictions imposing private real estate transfer fees will position affected properties at a disadvantage in the marketplace” – I don’t see a mere 1% fee breaking the marketplace. In fact I see the opposite. It stimulates the marketplace by allowing Developers to survive and Realtors something to sell.
“undermine economic stability” – I think this is quite a leap. On the tail end of financial failure caused by irresponsible lending practices, private transfer fees may be just a way to stabilize the economy. It gives Developers needed funding to complete developments, create jobs, pay off or down debt, etc. etc. Sounds more like a stimulus package that is just in time.
Are we sure apposing private transfer fees accurately reflects the wishes of the membership? I ran into this by accident and have not seen much from NAR on this until I researched it.
I frankly think NAR is off base on this one. I have spoken with several Realtors that agree with me (and few that don’t). Private Transfer Fees could be a Win-Win in a challenging market. I’m just one guy, but for the record, I oppose the NAR decision on this and think we should rethink our position and look at the big picture. A campaign to encourage awareness, full disclosure and an explanation of all the benefits (or risks) would be a better approach to this issue.
Having said all that, what about the opportunity this creates? What if we look at this as an opportunity for Realtors to work with Developers (Exclusive Representation) to facilitate the creation of private transfer fees. What if we see this as an opportunity to help Developers who would reward our efforts by giving us more (or exclusive) listings in their development? I see opportunity written all over this.
Just my two cents. Thanks for reading.
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I’m a Realtor, but I the step taken by NAR is on the wrong side of this issue. I agree that a government transfer fee is nothing but an extra fee that raises the cost of home ownership for everyone. This leads an bad effect on World Economy.
Without a ban, what would/could stop a homeowner from putting a transfer fee covenant on their own home?