Special Interest Groups Seek To Thwart Private Transfer Fee Funding

NEW YORK, Aug. 31 /PRNewswire/ --

The following is commentary by Victor Fava, MBA:

The National Association of Realtors (NAR) and the American Land Title Association ( ALTA) have joined forces in an effort to shut down private transfer fee funding for non-profits, homeowner associations and developers.

Private transfer fees (also called capital recovery fees and home resale fees) have been around for decades and have largely been used to fund homeowner associations, condominium associations and non-profits.  More recently, developers of both residential and commercial projects have turned to transfer fees as a way to spread development costs, reduce negative equity and re-start failed projects.  According to Freehold Capital Partners, ( www.freeholdcapitalpartners.com), a firm that works with developers to help spread infrastructure costs through the use of a type of transfer fee called a capital recovery fee, by imposing the fee developers create a type of development bond, which is an attractive alternative to putting 100% of the costs onto the initial buyer.  By selling off the income stream, developers can generate project liquidity, which eliminates negative equity and makes the project more affordable.

A private transfer fee occurs when a private transfer fee covenant is filed in the real property records, either as a separate document or as part of the subdivision restrictions.  Future sellers then pay a fee (typically 1% or less of the sales price), each time the property sells.  After a specified duration, usually 99 years or less (during which time the typical home will sell 8-10 times) the fee expires.

Supporters of private transfer fee covenants point out that transfer fees provide important funding, and that the only party that will ever pay the fee is someone who voluntarily agrees to do so, and negotiates their price accordingly.  Julie Snyder, policy director for non-profit Housing California, observed that transfer fees can "help keep home prices low by spreading costs over all beneficiaries of a project."